Court of Appeal Supreme Court New South Wales

• Medium Neutral Citation: Re Dion Investments Pty Ltd [2014] NSWCA 367
• Hearing dates: 9 September 2014
• Decision date: 30 October 2014
• Before: Beazley P at [1]; Barrett JA at [2]; Gleeson JA at [117]

Decision

1. Direct that a notice of appeal in the form of the draft in the white folder be filed within seven days.

2. Allow the appeal to the extent only of permitting the appellants to bring in short minutes of an order or orders under s 81(1) of the Trustee Act 1925 (NSW) in conformity with the reasons of this Court.

3. Direct that final formulation of such order or orders be dealt with on the papers unless the Court sees fit to appoint a further hearing.

4. Order that the costs of the proceedings in this Court be paid out of the assets of the Dion Family Trust.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

• Catchwords: TRUSTS AND TRUSTEES - powers of trustees - statutory jurisdiction of the court to confer powers on trustees pursuant to Trustee Act 1925 (NSW), s 81 - power to undertake a "transaction" may be conferred - whether amendment of the trust instrument is a "transaction" - whether the concept of amendment of the trust instrument as distinct from the terms of the trust is a meaningful concept - the court's jurisdiction is exercisable only when it is of the opinion that conferral of a particular power on the trustee is expedient in the management or administration of the trust property - general power of the trustee to alter the terms of the trust at will cannot be regarded as so expedient - particular specific and limited powers facilitating efficient tax management held to involve relevant expediency
• Legislation Cited: Income Tax Assessment Act 1997 (Cth); Jurisdiction of Courts (Cross-Vesting) Act 1987 (Qld); Supreme Court Act 1970 (NSW); Tax Laws Amendment (2010 Measures No 5) Act 2011 (Cth); Trustee Act 1925 (NSW); Trustee Act 1958 (Vic); Trusts Act 1973 (Qld); Uniform Civil Procedure Rules 2005 (NSW); Variation of Trusts Act 1958 (Eng)
• Cases Cited: Anker-Petersen v Anker-Petersen [2000] WTLR 581; Arakella Pty Ltd v Paton [2004] NSWSC 13; 60 NSWLR 334; Ballard v Attorney-General [2010] VSC 525; 30 VR 413; Barry v Borlas Pty Ltd [2012] NSWSC 831; Beck v Henley [2014] NSWCA 201; Cameron v Jeffress [2014] NSWSC 702; Colonial Foundation Ltd v Attorney-General (Vic) [2007] VSC 344; CPT Custodian Pty Ltd v Commissioner of State Revenue [2005] HCA 53; 224 CLR 98; Goulding v James [1997] 2 All ER 239; Hutchinson v Attorney-General [2009] VSC 551; James N Kirby Foundation Ltd v Attorney General NSW [2004] NSWSC 1153; 62 NSWLR 276; NM Superannuation Pty Ltd v Hughes (Supreme Court of New South Wales, McLelland CJ in Eq, 5 March 1996, unreported); Chapman v Chapman [1954] AC 429; Perpetual Trustees Victoria Ltd v Barns [2011] VSC 314; 7 ASTLR 349; Re Arthur Brady Family Trust; Re Tuckmores Trading Trust [2014] QSC 244; Re Bowmil Nominees Pty Ltd [2004] NSWSC 161; Re Cosaf Pty Ltd (Supreme Court of NSW, Young J, 18 December 1992, unreported); Re Crawshay (1888) 60 LT 357; Re Dion Investments Pty Ltd [2013] NSWSC 1941; Re Downshire Settled Estates [1953] Ch 218; Re Grant [2013] NSWSC 1603; Re Harvey [1941] 3 All ER 284; Re Jackson (1882) 21 Ch D 786; Re McNaughton (Supreme Court of New South Wales, Young J, 8 December 1994, unreported); Re Mair [1935] Ch 562; Re New [1901] 2 Ch 534; Re NSFT Pty Ltd [2010] NSWSC 380; Re Philips New Zealand Ltd [1997] 1 NZLR 93; Re Thomas [1930] 1 Ch 194; Re Tollemache [1903] 1 Ch 457; Re Walker [1901] 1 Ch 879; Re Z Trust [2009] CILR 593; Riddle v Riddle [1952] HCA 12; 85 CLR 202; Royal Melbourne Hospital v Equity Trustees Ltd [2007] VSCA 162: 18 VR 469; Saunders v Vautier (1841) 4 Beav 115; 49 ER 282 (affd (1841) Cr & Ph 240; 41 ER 482); Southgate v Sutton [2011] EWCA Civ 637; [2012] 1 WLR 326; Stein v Sybmore Holdings Pty Ltd [2006] NSWSC 1004; 64 ATR 325; West v Blakeway (1841) 2 Man & G 751; 133 ER 940; Westfield Qld No 1 Pty Ltd v Lend Lease Real Estate Investments Ltd [2008] NSWSC 516; 1 ASTLR 525
• Texts Cited: R W White, "Trusts - an Australian perspective", [2010] NSWJSchol 10
• Category: Principal judgment
• Parties: Dion Investments Pty Ltd (First Appellant); Leslie Frank Dion (Second Appellant)
• Representation: Counsel: D Barlin/R Kako (Appellants); Solicitors: Kells (Appellants)
• File Number(s): CA 2014/13468

Decision under appeal

• Citation: [2013] NSWSC 1941
• Date of Decision: 2013-12-20 00:00:00
• Before: Young AJ
• File Number(s): 2013/201038

HEADNOTE

[This headnote is not to be read as part of the judgment]

The trustee of a family trust created by deed applied under s 81(1) of the Trustee Act 1925 (NSW) for an order conferring on the trustee power to amend the trust instrument in certain ways, including by adding a provision enabling the trustee to amend the trust instrument as it thought fit.

The primary judge refused to make the order sought but did make an order conferring certain specific and narrow powers on the trustee.

Held, allowing the appeal in part only:

1. The primary judge correctly held that an order empowering a trustee to amend the trust instrument is not authorised by s 81(1). Alteration of the terms of a trust is not a "transaction" that it is "expedient" be undertaken "in the management or administration of" trust property.

2. It was, however, open to the court to confer particular and limited power concerning the method by which the trustee could account for income and gains since the ability to use that method of accounting had been shown to be expedient, by reason of tax efficiencies, to the aspect of the management or administration of the trust property that involved allocation of income to beneficiaries.

3. The trustee should be allowed to bring in for the court's consideration short minutes of orders conferring such particular and limited powers.

Re Philips New Zealand Ltd [1997] 1 NZLR 93 and subsequent Australian cases holding that a "transaction" by way of amendment of a trust instrument may be authorised under s 81(1) disapproved.

Judgment

1 BEAZLEY P: I have had the advantage of reading in draft the reasons of Barrett JA. I agree with his Honour's reasons and the orders he proposes.

2 BARRETT JA: Dion Investments Pty Ltd is the trustee of an inter vivos settlement made in 1973. By a summons filed on 2 July 2013, it sought the opinion, advice or direction of the Supreme Court under s 63 of the Trustee Act 1925 (NSW) to the effect that it had power to make certain amendments to the instrument by which the settlement trusts were declared. There was an alternative claim for an order under s 81(1) of the Trustee Act conferring on Dion Investments Pty Ltd as trustee power to make the amendments. Mr L F Dion, whose role will be mentioned presently, was a co-plaintiff.

3 A judge of the Equity Division (Young AJ) declined to give the judicial advice sought: Re Dion Investments Pty Ltd [2013] NSWSC 1941. In fact, his Honour advised that Dion Investments Pty Ltd would not be justified in proceeding on the basis that it had power to amend the trust instrument. In response to the alternative claim, his Honour made an order intended to confer certain specific but limited powers and declined to confer the other powers sought, including a comprehensive power to amend the trust instrument as the trustee might think fit.

4 Dion Investments Pty Ltd and Mr L F Dion later filed a summons in this Court seeking leave to appeal from the refusal of the primary judge to grant the relief sought, together with a draft notice of appeal.

5 Each claim in the Equity Division was a claim for an "order". In the case of the opinion, advice or direction of the court under s 63, rule 55.2 of the Uniform Civil Procedure Rules 2005 (NSW) states that this "must be given by order". In the case of s 81(1) of the Trustee Act, the statute itself contemplates an "order". In relation to the first matter, the court made a negative order; and in relation to the second, it dismissed the claim for an order. An appeal accordingly lies to the Court of Appeal under s 101(1)(a) of the Supreme Court Act 1970 (NSW). Contrary to the position taken by Dion Investments Pty Ltd, there is no requirement for leave to appeal. This follows from the fact that, according to the material before the primary judge, the value of the trust property far exceeds the threshold of $100,000 referred to in s 101(2)(r(ii)): Beck v Henley [2014] NSWCA 201 at [58].

6 The appropriate course, therefore, is to address the draft notice of appeal as if it instituted an appeal as of right.

7 In this Court, Dion Investments Pty Ltd and Mr Dion seek to agitate only one aspect of the original application. The claim for judicial advice is not pressed. The claim based on s 81(1) of the Trustee Act is pressed. Section 81 is as follows:

"(1) Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release, or disposition, or any purchase, investment, acquisition, expenditure, or transaction, is in the opinion of the Court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the instrument, if any, creating the trust, or by law, the Court:

(a) may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions, including adjustment of the respective rights of the beneficiaries, as the Court may think fit, and

(b) may direct in what manner any money authorised to be expended, and the costs of any transaction, are to be paid or borne as between capital and income.

(2) The provisions of subsection (1) shall be deemed to empower the Court, where it is satisfied that an alteration whether by extension or otherwise of the trusts or powers conferred on the trustees by the trust instrument, if any, creating the trust, or by law is expedient, to authorise the trustees to do or abstain from doing any act or thing which if done or omitted by them without the authorisation of the Court or the consent of the beneficiaries would be a breach of trust, and in particular the Court may authorise the trustees:

(a) to sell trust property, notwithstanding that the terms or consideration for the sale may not be within any statutory powers of the trustees, or within the terms of the instrument, if any, creating the trust, or may be forbidden by that instrument,

(b) to postpone the sale of trust property,

(c) to carry on any business forming part of the trust property during any period for which a sale may be postponed,

(d) to employ capital money subject to the trust in any business which the trustees are authorised by the instrument, if any, creating the trust or by law to carry on.

(3) The Court may from time to time rescind or vary any order made under this section, or may make any new or further order.

(4) The powers of the Court under this section shall be in addition to the powers of the Court under its general administrative jurisdiction and under this or any other Act.

(5) This section applies to trusts created either before or after the commencement of this Act."

8 The central issue before this Court concerns the scope of the power that s 81(1) puts at the disposal of the Supreme Court and, more particularly, whether it is open to the court to confer on a trustee power to alter the terms of the trust. The significance of that issue will be better appreciated against the background of a description of the settlement and of the circumstances in which Dion Investments Pty Ltd, as trustee, wishes to have power to alter the terms of the trust.

The trust deed

9 The settlement of which Dion Investments Pty Ltd is the trustee is known as the Dion Family Trust. It was constituted by a deed made on 10 August 1973 between Mr M W Allen, a Wollongong accountant, and Green View Pty Ltd as trustee. Dion Investments Pty Ltd became the trustee in succession to Green View Pty Ltd later in 1973.

10 The settlor settled on the original trustee a sum of $60 (which, with income, accretions and additions, constitutes the "settled property") and directed that the settled property be held by the trustee upon trust "to invest the same" in permitted modes of investment to be held "upon the trusts and for the ends intents and purposes and with and subject to the powers and provisions hereinafter declared conferred and expressed of or concerning the same".

11 The deed identifies as "the Beneficiaries" five named male members of the Dion family, a named female member of the family, the named wives of three of the male members and the issue of each of those three and his named wife. The evidence before the primary judge shows that four of the five named male family members and the named female family member have died. The financial statements for the year to 30 June 2012 show that there were distributions to eight beneficiaries in that year, being Mr L F Dion (the survivor of the named family members) and, one assumes, issue of the named male members and their named wives.

12 Trusts with respect to the settled property are declared in two separate clauses, one applying "during the period of restriction" and the other at the conclusion of that period. The "period of restriction" is the period ending 21 years after the death of the last survivor of the lineal descendants of King George VI living on 10 August 1973.

13 The trusts applicable during the period of restriction are discretionary. Under clause 4(a), the trustee holds upon trust:

"to pay or apply the whole or such part of the settled property as the Trustee may in its absolute discretion think fit for or towards the maintenance support education advancement in life or benefit of any one or more of the beneficiaries exclusive of the other or others of them in such proportions and provisions [sic] as the trustee shall in its absolute discretion think fit" and "to accumulate the surplus of any income not so paid or applied by investing it and the resultant income to be derived therefrom in any of the investments hereinafter authorised" and "to hold the same as an accretion to the settled property with power to apply the accumulated income of any preceding year or years or any part thereof as if the same were income for the current year."

14 The trust applicable at the end of the restricted period is also, to an extent, discretionary. Under clause 5, the trustee must

"pay or apply the whole of the settled property to any one or more of the Beneficiaries exclusive of the other or others of them in such proportions as the Trustee shall in its absolute discretion think fit" and "[i]n default of appointment the said settled property and income shall vest in the Beneficiaries in equal shares as tenants in common."

15 The deed does not, in any explicit way, deal separately with corpus and income. By this I mean that there are not trusts as to the income of particular periods and distinct trusts as to the corpus from which the income is derived. There is nevertheless in clause 4(a) implicit recognition that income alone (or income in company with corpus) may, as part of the settled property, be paid or applied for the maintenance, support, education, advancement in life or benefit of a selected beneficiary. I say this because of the provision that directs accumulation of "the surplus of any income not so paid or applied" (emphasis added).

16 Clause 7(g) empowers the trustee:

"to determine as the Trustee shall consider just whether any moneys shall for the purpose of these presents be considered as capital or income and out of what part of the settled property and whether out of income or capital the expenses outgoings or losses shall or ought to be paid or borne."

17 The purpose that clause 7(g) is intended to serve is not immediately clear. The case is not one of successive interests for life and in remainder making it vital to distinguish income to which the life tenant is entitled from an accretion to corpus that accrues to the remainderman. Nor, as has been seen, are there, in any explicit sense, trusts as to income and trusts as to corpus, although there is, because of the part of clause 4(a) italicised at [15] above, a need to determine whether a sum paid or applied under the first part of that clause is income or corpus so that it is possible to identify surplus income not so paid or applied and thereby to identify what must be invested in accordance with the direction to invest.

18 Named members of the Dion family "acting jointly or severally" have power to remove the trustee and appoint a new trustee. Under clause 15, the same persons or any of them have power (subject to a proviso precluding benefit to the settlor, the trustee or the person or persons exercising the power):

"to revoke all or any of the trusts hereby declared and declare other trusts of the settled property and income derived therefrom in favour of such person or persons as the said Thomas Dion, Edward Dion, Charles Dion, Ernest Sidney Dion, Leslie Frank Dion or Rose Dion or any of them shall in their absolute discretion determine with or without a like power of revocation and variation."

The reasons for the desire to alter the trust deed

19 Mr L F Dion, as well as being the last survivor of the family members expressly named in the trust deed as beneficiaries, is a director of Dion Investments Pty Ltd. He explains in his affidavit a desire to:

"modernise the trust deed to empower the trustee of the trust to better manage the trust property for the benefit of the beneficiaries, such as by allowing the trustee to separately identify and distribute different types of income and capital with consequential taxation benefits".

20 Mr Dion refers to a letter of advice from the advisory firm KPMG which reads in part as follows:

"In terms of taxation, it is usual for a modern trust deed to include clauses which allow the trustee to separately identify and distribute different types of income and capital. For example, the income of the trust could be segregated into domestic and foreign source, identify dividend franking or foreign tax credits, and appropriately deal with capital gains tax. This allows the tax concessions available within the Australian tax system to be accessed as intended.

Without the inclusion of such provisions the beneficiaries of the Dion Family Trust will be adversely affected, particularly when it comes to the management of income tax. This issue is of increasing importance given changes to the taxation of trusts enacted in recent years and any future contemplation of divestment and sale of the assets owned by the group."

21 KPMG's advice was formulated by reference to Australia's legislative scheme for the taxation of income and gains derived by trustees. The taxation legislation proceeds on the broad premise that a beneficiary or the trustee is to be taxed to the exclusion of the other and that it will usually be a beneficiary rather than the trustee that is subjected to the impost. In relation to income, there will generally be ascribed to a beneficiary in respect of a particular period that proportion of the net income of the trust estate (calculated as if it were the taxable income of an individual taxpayer) that corresponds with the proportion of the trust income of the period (determined according to ordinary accounting principles) to which the beneficiary is presently entitled. Again speaking generally, income to which no beneficiary is presently entitled is taxed in the hands of the trustee at a rate that may be higher than that applicable to the beneficiaries.

22 For a variety of reasons, the amount of the net income of the trust estate calculated under the taxation legislation may differ from the amount of the trust income according to ordinary accounting principles. For example, items that are not income according to ordinary concepts may be included in the statutory quantum. Realised capital gains caught by provisions that have applied since the introduction of capital gains tax in 1985 are such items. A stark example of the difference that may arise between the taxable quantum and income according to ordinary concepts will be found in Cameron v Jeffress [2014] NSWSC 702, where income according to ordinary concepts for a particular period was some $800,000 but the taxable quantum was more than $43 million.

23 Provisions introduced into Commonwealth taxation legislation by the Tax Laws Amendment (2010 Measures No 5) Act 2011 (Cth) allow particular elements to be, as it were, expressly allocated to beneficiaries for taxation purposes. Those provisions facilitate what is known as "streaming" of capital gains and franked distributions derived by trustees. Among the "streaming" provisions are s 115-228 and s 207-58 of the Income Tax Assessment Act 1997 (Cth). They define the circumstances in which a beneficiary of a trust estate is "specifically entitled" to an amount of a capital gain and an amount of a franked distribution respectively. In determining under each section an amount to which a beneficiary is "specifically entitled", regard is had to what the beneficiary has received or can be reasonably expected to receive "in accordance with the terms of the trust".

24 Each section goes on to provide:

"To avoid doubt, for the purposes of subsection (1), something is done in accordance with the terms of the trust if it is done in accordance with:

(a) the exercise of a power conferred by the terms of the trust; or

(b) the terms of the trust deed (if any), and the terms applicable to the trust because of the operation of legislation, the common law or the rules of equity."

25 The question whether a beneficiary is "specifically entitled" to a particular item thus turns on the beneficiary's actual or expected receipts "in accordance with the terms of the trust". And of central importance in answering the question are "the terms of the trust deed (if any)", "the terms applicable to the trust because of the operation of legislation, the common law or the rules of equity" and powers "conferred by the terms of the trust." Only if some relevant entitlement can be found in or seen to be derived from such "terms" or the exercise of a power "conferred" by such "terms" can advantage be taken of the streaming provisions. And importantly, the "terms" of a trust are not confined by the content of the trust instrument (if there is one).

The particular proposal

26 The provisions that Dion Investments Pty Ltd wishes to see added to the trust instrument by means of a deed inter parties made between Dion Investments Pty Ltd and Mr LF Dion are, in summary, as follows:

1. A provision defining "year" as a period from 1 July to the next 30 June.

2. A provision to the effect that the trustee may pay or allocate to any beneficiary any amount of capital gains even if there is no other amount of income in a particular year.

3. A provision laying down rules for ascertaining the income of the trust for a year, with broad powers of the trustee to decide what is income and what is capital.

4. A provision headed "Streaming of distributions" under which the trustee can, for the purpose of identifying the portions of income that the trustee has paid, applied or accumulated under clause 4(a), maintain multiple income accounts, credit each income receipt to one or more of the income accounts, credit any capital gain (that is, a part of capital receipts treated as assessable income for tax purposes) to one or more of the income accounts and credit and debit certain other items to the income accounts.

5. Provisions allowing broader scope for investment and dealing with the drawing of bills of exchange and like matters.

6. A provision empowering the trustee, with the consent of any appointor (there apparently being none), to revoke add to or vary all or any of the trusts, terms and conditions of the deed and to declare, revoke and vary new trusts concerning the trust fund or any part of it, subject to provisos against infringement of the rule against perpetuities and interference with amounts already set aside for beneficiaries.

27 In substance, the desire is twofold: first, to cause the specific provisions concerning matters of accounting, allocation and "streaming" to be included in the trust instrument; and, second, to cause that instrument also to contain a provision allowing comprehensive alteration of the terms of the settlement trusts by unilateral action of the trustee. Implicit in the approach taken by Dion Investments Pty Ltd is the proposition that an order made by the court under s 81(1) of the Trustee Act can supply power for a trustee to alter the content of the trust instrument.

The decision of the primary judge

28 It was that proposition that the primary judge did not accept.

29 In addressing s 81, his Honour noted that the "great weight of authority" indicates that, apart from adjustment of the terms of the trust or rights of the beneficiaries that is incidental to or consequential on the advantageous dealing, the section gives the court no power to vary the trusts. His Honour referred to NM Superannuation Pty Ltd v Hughes (Supreme Court of New South Wales, McLelland CJ in Eq, 5 March 1996, unreported), Westfield Qld No 1 Pty Ltd v Lend Lease Real Estate Investments Ltd [2008] NSWSC 516; 1 ASTLR 525 at 531, Perpetual Trustees Victoria Ltd v Barns [2011] VSC 314; 7 ASTLR 349 and Re McNaughton (Supreme Court of New South Wales, Young J, 8 December 1994, unreported).

30 He said that the "basal understanding" is that "once a person has given his or her property on trust then that trust is unalterable save and except insofar as the trust deed itself makes it unalterable [sic; scil: alterable]". Reference was made to Re Crawshay (1888) 60 LT 357, Re Walker [1901] 1 Ch 879 and Re Downshire Settled Estates [1953] Ch 218 (which was affirmed by the House of Lords: Chapman v Chapman [1954] AC 429).

31 His Honour noted that, in Re Downshire Settled Estates, Evershed MR and Romer LJ said in their joint judgment (at 247) that the management and administration referred to in the English equivalent to s 81(1) is management and administration of the trust property, not of the equitable interests in the property; and that "transaction" had to be construed ejustem generis with "sale, lease, mortgage, surrender, release or disposition" and did not cover transactions generally (their Lordships in fact said at 248 that "the examples, which are given in the section of the kind of 'transaction' which the legislature had in mind, are all instances of management of property in the ordinary sense, for example, sales, leases, exchanges, etc").

32 The primary judge then turned to recent New South Wales cases, particularly Re Cosaf Pty Ltd (Supreme Court of NSW, Young J, 18 December 1992, unreported), Arakella Pty Ltd v Paton [2004] NSWSC 13; 60 NSWLR 334 (Austin J), Stein v Sybmore Holdings Pty Ltd [2006] NSWSC 1004; 64 ATR 325 (Campbell J), and James N Kirby Foundation Ltd v Attorney General NSW [2004] NSWSC 1153; 62 NSWLR 276 (White J).

33 In addressing the scope and effect of s 81(1), Young AJ began with Stein v Sybmore Holdings Pty Ltd which involved a discretionary trust under which the vesting day was to be 23 December 2007. The person who had arranged for the trust to be established wished to defer the vesting day as the trust could not fulfill its purpose if it came to an end on 23 December 2007. Campbell J made an order under s 81 extending the vesting day. He held that the fact that that would be likely to alter who ultimately had beneficial interests in the trust fund was not necessarily fatal to the application. Campbell J noted the general proposition that "s 81 gives no power to alter the beneficial interests of the beneficiaries" but said that no such general proposition can be drawn from the authorities. He referred to Re Cosaf Pty Ltd (above) where the beneficial interests had been affected and the statement of Williams J in Riddle v Riddle [1952] HCA 12; 85 CLR 202 at 227 that the section is couched in the widest possible terms. Campbell J held that the power was sufficiently wide to justify the order sought.

34 The primary judge said that while he did not wish to criticise the actual decision in Stein v Sybmore Holdings Pty Ltd, he disagreed that "transaction" in s 81(1) extends to amendment of the trust deed, a proposition that he regarded as "quite inconsistent with the bulk of authorities particularly Downshire" and which was traceable to a "mere throwaway line" in Re Philips New Zealand Ltd [1997] 1 NZLR 93, a decision of Baragwanath J concerning a pension scheme.

35 The primary judge then turned to James N Kirby Foundation Ltd v Attorney General NSW and the conclusion of White J that amendment of a trust deed falls within the concept of "transaction" in s 81(1). His Honour expressed respectful disagreement, noting that, while Chapman v Chapman had been cited to White J, he did not refer to it in his judgment. White J's decision was seen as going "further than other cases, and to my mind unjustifiably, further".

36 The primary judge accepted that s 81(1) may be used to sanction advantageous dealings even though the particular order has such an effect that there is incidental affectation of beneficiaries' interests. He saw Arakella Pty Ltd v Paton and Re Cosaf Pty Ltd as cases of that kind.

37 His Honour's conclusion concerning the case before him was then stated:

"Accordingly, in my view I cannot make an order under s 81 giving the trustees [sic] or other persons entitled power to vary the trust deed by 'modernising' it in the way in which the taxation advisors have suggested. However I can approve advantageous dealings which incidentally affect beneficiary rights."

38 He then proceeded to make the order conferring specific but limited powers referred to at [3] above. These concerned powers to raise and borrow money, to draw, endorse and otherwise deal with bills of exchange and to give guarantees and indemnities, that is, the matters within item 5 at [26] above.

The concept of amendment of the trust deed

39 A point extensively explored in argument before this Court is whether amendment of the trust deed is a "transaction" for the purposes of s 81. It is useful to dwell briefly on the concept of such amendment.

40 We are here dealing with an express trust created by a settlor who saw fit to define with some particularity the trusts to which the trust property was made subject and the powers of the trustee with respect to that property. Because the property settled by the settlor on the trustee was money, there was no need for the trusts and powers to be created by or recorded in writing. The settlor nevertheless chose to execute a deed defining the trusts and powers, which deed was also executed by the original trustee to signify that it accepted the office of trustee and, by implication, the powers, duties and responsibilities that that office entailed.

41 Where an express trust is established in that way by a deed made between a settlor and the initial trustee to which the settled property is transferred, rights of the beneficiaries arise immediately the deed takes effect. The beneficiaries are not parties to the deed and, to the extent that it embodies covenants given by its parties to one another, the beneficiaries are strangers to those covenants and cannot sue at law for breach of them. The beneficiaries' rights are equitable rights arising from the circumstance that the trustee has accepted the office of trustee and, therefore, the duties and obligations with respect to the trust property (and otherwise) that that office carries with it.

42 Any subsequent action of the settlor and the original trustee to vary the provisions of the deed made by them will not be effective to affect either the rights and interests of the beneficiaries or the duties, obligations and powers of the trustee. Those two parties have no ability to deprive the beneficiaries of those rights and interests or to vary either the terms of the trust that the trustee is bound to execute and uphold or the powers that are available to the trustee in order to do so. The terms of the trust have, in the eyes of equity, an existence that is independent of the provisions of the deed that define them.

43 Let it be assumed that on Monday the settlor and the trustee execute and deliver the trust deed (at which point the settled sum changes hands) and that on Tuesday they execute a deed revoking the original deed and stating that their rights and obligations are as if it had never existed. Unless some power of revocation of the trusts has been reserved, the subsequent action does not change the fact that the trustee holds the settled sum for the benefit of beneficiaries named in the original deed and upon the trusts stated in that deed. The covenants of a deed may be discharged or varied by another deed between the same parties (West v Blakeway (1841) 2 Man & G 751; 133 ER 940) but the equitable rights and interests of a beneficiary cannot be taken away or varied by anyone unless the terms of the trust itself (or statute) so allow.

44 It is, of course, commonplace to speak of the variation of a trust instrument as such when referring to what is, in truth, variation of the terms upon which trust property is held under the trusts created or evidenced by the instrument. A provision of a trust instrument that lays down procedures by which it may be varied is, of its nature, concerned with variation of the terms of the trust, not variation of the content of the instrument, although the fact that it is the instrument that sets out the terms of the trust does, in an imprecise way, make it sensible to speak of amendment of the instrument when the reference is in truth to amendment of the terms of the trust.

45 Where the trust instrument contains a provision allowing variation by a particular process, the situation is one in which the settlor, in declaring the trust and defining its terms, has specified that those terms are not immutable and that the original terms will be superseded by varied terms if the specified process of variation (entailing, in concept, a power of appointment or a power of revocation or both) is undertaken. The varied terms are in that way traceable to the settlor's intention as communicated to the original trustee.

46 Where the trust instrument contains no such variation provision, principles of equity may countenance variation of the terms of the trust with the unanimous consent of the beneficiaries if all are in being, sui juris and absolutely entitled. Under the principle in Saunders v Vautier (1841) 4 Beav 115; 49 ER 282 (affd (1841) Cr & Ph 240; 41 ER 482), beneficiaries in that position are entitled to put an end to the trust and to require that the trust property be transferred to them. Their capacity to produce that result also enables them to require, as an alternative, that the property be held by the trustee upon varied trusts; but, if they do so require, the situation may in truth be one of resettlement upon new trusts rather than variation of the pre-existing trusts (and the trustee may not be compellable to accept and perform those new trusts: see CPT Custodian Pty Ltd v Commissioner of State Revenue [2005] HCA 53; 224 CLR 98 at [44]). Legislation such as the Variation of Trusts Act 1958 (Eng) builds on that foundation by enabling the court to supply the consent of persons not in being, unascertained or incapable of consenting to an "arrangement . . . varying or revoking all or any of the trusts, or enlarging powers of the trustees of managing or administering any of the property subject to the trusts". Mummery LJ said in Goulding v James [1997] 2 All ER 239 at 247 that the variation of trusts legislation is "a statutory extension of the consent principle embodied in the rule in Saunders v Vautier".

47 Beyond that, there may be a very limited power of the court (of uncertain provenance) to sanction departure from the terms of the trust where some circumstance of emergency in the course of administration needs to be resolved in the interests of preserving the trust property: Re Jackson (1882) 21 Ch D 786; Re New [1901] 2 Ch 534; Re Tollemache [1903] 1 Ch 457.

48 Whether one is dealing with exercise of a power of variation or amendment conferred by the settlor and stated in the trust instrument, the species of consensual variation based on the Saunders v Vautier principle or the court's response to some emergency, the situation is never one in which the provisions of the trust instrument made between settlor and trustee are altered. Rather, there is a variation or supplementation of the terms of the trust derived from that instrument or the powers of the trustee conferred by that instrument. Shorthand references to amendment of a trust deed must be understood accordingly.

The "mere throwaway line"

49 The primary judge traced what he regarded as an anomalous development in New South Wales case law to a "mere throwaway line" in the judgment of Baragwanath J in Re Philips New Zealand Ltd (above). In that case, trustees of a pension scheme sought relief under s 64(1) of the Trustee Act 1956 (NZ) which is similar to s 81(1) of the New South Wales Act.

50 The employer company and the trustees proposed that a sum held to the credit of the scheme's reserve account (and therefore not allocated for the benefit of members) should be split equally between the company and the members, with the result that members' benefits would be enhanced and the company would receive a payment. All scheme members and beneficiaries consented to the proposal. It was after making that finding that Baragwanath J uttered the so-called "mere throwaway line":

"In terms of s 64 the 'transaction' by way of amendment of the deed is in my view 'expedient in the management . . . of the trust' controlling the pension fund for the reasons that have led to its unanimous acceptance."

51 The judgment makes it clear that a major consideration was the fact that the power of variation conferred by the trust deed precluded (or arguably precluded) any amendment resulting in any part of the fund becoming the property of the employer company. The amendment power was exercisable by the company with the consent of the trustees. The trustees' power to consent was obviously constrained by the scope of the amendment power, in that it was not open to them to consent to action by the company purportedly effecting an amendment not within the scope of the power. If the proposal concerning the sum standing to the credit of the reserve account were to be carried through, it was necessary that that restriction on the trustees' power to consent be relaxed or, looking at the matter in another way, that they be given power to consent to a variation that, according to the deed itself, they lacked power to approve.

52 There was in contemplation a "transaction" involving money vested in the trustees (and arguably a "disposition" of that money) by way of equal division between the company and the beneficiaries. The trustees lacked power to effect or participate in that transaction because their power to consent to variations of the terms of the trust did not extend to the particular variation by which the transaction was to be accomplished. Although the immediate act of the trustees was, in the judge's words, a "transaction, by way of amendment of the deed", that amendment was in reality no more than the means of carrying into effect the "transaction" in relation to property vested in the trustees that entailed dealing with money standing to the credit of the reserve account. The judge's reference to the "transaction, by way of amendment of the deed" was, in my view, not a reference to the process of amending the deed viewed in isolation and divorced from the purpose and effect of the amendment but, rather, a reference to what it was that the amending process was to achieve in a substantive sense.

53 In the final analysis, however, Baragwanath J did not make any order under s 64(1) of the New Zealand Act. He held that the trustees already possessed all necessary power "by reason of what I have held to be an effective consent by the beneficiaries to the amendment". But on the basis that "the power to order must contain within it the lesser power to declare", he made the following declaration:

"(pursuant to s 64(1)) I declare that the proposed amendment to the deed pleaded in para 44 of the first amended statement of claim dated 20 November 1995 is expedient in the management of the trust."

54 The words "expedient in the management of the trust" used in the declaration may be contrasted with the words in the New Zealand legislation: "expedient in the management or administration of any property vested in a trustee, or would be in the best interests of the persons beneficially interested under the trust". The terms of the declaration do not seem to match either of the statutory formulations.

The New South Wales cases

55 I turn now to the New South Wales cases in which reference has been made to Re Philips New Zealand Ltd.

56 The first such case is the decision of Hamilton J in Re Bowmil Nominees Pty Ltd [2004] NSWSC 161 which concerned a superannuation fund of which a Mr Williamson was the sole member. Four persons became entitled to benefits in consequence of Mr Williamson's death. One of them was content to take a lump sum. The others preferred to take pensions but there were two obstacles: first, the trust deed allowed only lump sum payments; and, second, it was not possible, because of legislative requirements, for pensions to be paid unless the exiting trustee ceased to hold office and the three beneficiaries became the trustees. The provision allowing variation of the trust permitted variation by the trustees but only with the consent of the "principal employer", a company which, it appears, was no longer playing any active role.

57 The trustee proposed alterations to the trust deed to omit the requirement for the consent of the principal employer in relation to amendments and to allow the payment of pensions rather than lump sum benefits alone - indeed, it seems that the proposal went further by way of "updating the rules generally".

58 Hamilton J referred to Re Philips New Zealand Ltd and to the fact that Baragwanath J had "held that the amendment of the trust deed was a 'transaction' within the meaning of the section and could therefore be authorised by the court". Hamilton J continued:

"His Honour's characterisation of the amendment of the trust deed as a 'transaction' was not the subject of any analysis by him, but is in my view correct. 'Transaction' is a word of wide import. In the Macquarie Dictionary (rev 3rd ed, 2001) the verb 'transact' is defined as 'to carry through (affairs, business, negotiations, etc) to a conclusion or settlement'. 'Transaction' is defined as 'that which is transacted; an affair; a piece of business'. In my view the amendment of a trust deed readily falls within that definition and the Court has power under the section to empower the amendment of a trust deed."

59 In the end, however, Hamilton J did not make any order under s 81. He took the view that, because it was appropriate for the trustee to act on the informed consent of beneficiaries who were sui juris and unnecessary applications to the Court for empowerment were to be discouraged, the appropriate course was, as in the New Zealand case, to make a declaratory order to the effect that it was expedient that the proposed deed of amendment be entered into and that it would be appropriate for the trustee to act in accordance with it.

60 Re Philips New Zealand Ltd was next referred to in this State by White J in James N Kirby Foundation Ltd v Attorney General (NSW) [2004] NSWSC 1153; 62 NSWLR 276. That case concerned a charitable trust created by a philanthropist. The trust deed contained no provision permitting modification. It was desired to alter the terms of the trust in two ways: first, by incorporating features required by taxation legislation in order to permit persons making donations to the trustee to claim taxation deductions; and, second, by altering a provision of the deed requiring that the articles of association of the company that was the sole permitted trustee provide for a board of directors made up exclusively of persons within defined categories.

61 In relation to the first matter, White J held that it was expedient in the administration of the existing trust property that there be greater assurance of continued donations since that made for more effective and efficient future planning and administration in relation to the fund as a whole. As to the second matter, his Honour was similarly satisfied since the proposed broadening of the class of persons eligible to be directors of the trustee would enhance the provisions made by the settlor for the prudent management of the trust property.

62 But there was in contemplation no identifiable sale, lease, mortgage, surrender, release, disposition, purchase, investment, acquisition or expenditure in the management or administration of any property vested in the trustee. Neither of the proposed alterations to the trust deed was, in any direct sense, concerned with an activity within any of those specific descriptions. The objective was, rather, efficiency or advantageous operation in the administration of the trust estate as a whole.

63 It was for that reason that White J found it necessary to concentrate on the proposition that the proposal to alter the trust deed (or, more precisely, the terms of the trust) was, in its own right, as it were, a proposed "transaction" - and, more particularly, a "transaction" occurring "in the management or administration of" trust property. His Honour was of the opinion that the observations in Re Philips New Zealand Ltd and Re Bowmil Nominees Pty Ltd justified the conclusion that the amendment of the trust deed itself fell within the concept of "transaction" in s 81(1).

64 The next decision is that of Campbell J in Stein v Sybmore Holdings Pty Ltd (above) to which the primary judge devoted particular attention. Campbell J's judgment began:

"This is an application to vary a Trust Deed, under s 81 Trustee Act 1925."

65 The circumstances that prompted the application are referred to at [33] above. Clause 18(i) of the trust instrument conferred a power of variation on the trustee, subject to the consent of the person who had the power to appoint a new trustee, but the power of variation was expressly limited so that it did not allow alteration of the vesting day. Campbell J was of the opinion that it was, in the relevant sense, expedient that the vesting day be extended. As to the activities in relation to which s 81(1) allows the court to grant power to a trustee, his Honour said (at [45]-[46]):

"Of the types of dealing listed in s 81(1), in the phrase beginning 'any sale, lease. . .', the only noun capable of applying to the present situation is 'transaction'. 'Transaction', in s 81, extends to amendment of the Trust Deed: Re Philips New Zealand Ltd [1997] 1 NZLR 93; Re Bowmil Nominees Pty Ltd (as trustee of the Williamson Superannuation Fund) [2004] NSWSC 161 at [16] per Hamilton J; James N Kirby Foundation v Attorney General (NSW) (2004) 213 ALR 366 at 370 [16] per White J.

Thus the type of power that Mr Stein seeks to have conferred on the Trustee is within the scope of s 81."

66 Campbell J made an order that the trustee "is empowered and authorised, notwithstanding the exception to the power of amendment contained in clause 18(i) of the Trust Deed, to amend the Vesting Day specified in the Schedule to the Trust Deed to a date not later than 31 March 2058", noting that the consent required by clause 18(i) had been given because the application before the court had been made by the person whose consent the clause made necessary.

67 No subsequent New South Wales case (until the decision of the primary judge) referred to Re Philips New Zealand Ltd in connection with the proposition that variation of the terms of the trust may itself be a "transaction" within the meaning of s 81(1). But the matter did receive some attention.

68 The circumstances in Re NSFT Pty Ltd [2010] NSWSC 380 were similar to those before the primary judge. The instrument governing a family discretionary trust contained no variation provision and no provision allowing the trustee to identify and distribute different types of income and capital. This hindered the achievement of optimal taxation treatment. An application under the Queensland analogue of s 81 (s 94 of the Trusts Act 1973 (Qld): see [83] below) was before the New South Wales court via s 4(1) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Qld). The applicant sought relief in substance the same as that sought in the present case. Biscoe AJ referred to the elements of the section identified by Campbell J in Stein v Sybmore Holdings Pty Ltd (including that the word "transaction" extends to amendment of the trust deed) and stated conclusions as follows (at [20]-[21]):

"In my opinion, modernisation of the trust deed to empower the trustee to vary it to better manage the trust property for the benefit of the beneficiaries, such as by allowing the trustee to separately identify and distribute different types of income and capital with consequential tax benefits, is expedient in the management or administration of the property vested in the trustee. Variation of the trust deed for that purpose cannot be effected by the trustee by reason of the absence of any power for that purpose vested in the trustee by the trust deed. In the circumstances, I consider it appropriate to make an order to confer upon the trustee the necessary power for that purpose.

However, the plaintiff's proposed blanket power of amendment of the trust deed goes too far because it is not confined to what 'is expedient in the management or administration of any property vested in a trustee'. It would be so wide as to empower the trustee to vary the trust deed in unrelated ways; for example, to re-define the classes of Eligible Beneficiaries. Therefore, in my view, it would go beyond what is permitted by s 94(1). Accordingly, the order has been remoulded so as to limit the power to the purpose the subject of this application."

69 Biscoe AJ made an order that the trust instrument "is amended by the addition of" two provisions each of which began, "The Trustee shall have power . . .". The first provision dealt with identification and classification of property and income. The second allowed "variation of any of the provisions of this Deed of Settlement so as to enable the Trustee to deal with any issue arising in the management or administration of the Trust Fund with respect to the identification of property comprising the Trust Fund and income of the Trust Fund . . .".

70 Barry v Borlas Pty Ltd [2012] NSWSC 831 raised issues indistinguishable from those in Stein v Sybmore Holdings Pty Ltd. There was a desire to extend the vesting day applicable to a family discretionary trust. White J acceded to the application for an order under s 81(1) empowering the trustee to alter the terms of the trust by extending the date, noting that it was "settled" that an amendment to a trust deed may be a transaction within the meaning of the section.

71 In Re Grant [2013] NSWSC 1603, Slattery J had before him a trustee's application under s 81(1) for an order "conferring various powers on him as trustee, in the form of amendments to the terms of the Grant Family Testamentary Trust". A form of deed poll "showing the precise amendments that the trustee proposed to the terms of the trust instrument" was before the court. The amendments were said to "confer on the trustee, in addition to the powers already granted under the will, power to" do things set out in paragraphs (a) to (g) that followed. The first five paragraphs referred to powers concerned with lending and borrowing of money, operation of bank accounts, improving and altering real property, delegation to attorneys and agents and the giving of guarantees and indemnities in certain circumstances. Paragraph (f) referred to a power of the trustee "to be indemnified" out of trust assets in respect of liabilities incurred in execution or purported execution of the trusts. Paragraph (g) referred to a power to "revoke, add to or vary all or any of the provisions contained in the will (including this clause) including but not limited to the powers of the trustee" with a proviso making the power inapplicable to certain established beneficial entitlements and requiring the consent of identified natural person beneficiaries (or the parent or guardian of any who is for the time being a minor).

72 Slattery J recognised the need to identify a proposed dealing within s 81(1). He considered two broad possibilities: first, that the application related to a specific borrowing and mortgage transaction that had been the catalyst for the approach to the court; and, second, that subject matter of the application was in truth "amending the trust instrument in the form of the proposed deed poll". He concluded that "the second proposed dealing is more relevant here". His Honour continued (at [39]):

"The Trustee's application is not one just for court orders which themselves confer borrowing, lending and similar powers on the Trustee. Rather the Trustee's application is for the power to make amendments to the Trust instrument without coming back to the court. It is well established that a 'transaction' in Trustee Act, s 81(1) may include an amendment of a trust deed: Re Bowmill Nominees Pty Ltd [2004] NSWSC 162 ("Bowmill") at [16], James N Kirby Foundation v A-G (NSW) [2004] NSWSC 1153 at [15] ; (2004) 62 NSWLR 276;; Stein at [45] and [46], and Re Application of NSFT Pty Ltd as Trustee of Neil Stathem Family Trust [2010] NSWSC 380 ("NSFT") at [17]. The present application is about a proposed dealing in this sense. The Trustee does not so much want s 81 orders authorising classes of transaction. He wants amendments to the trust deed, authorising those classes of transaction.

73 Then, after considering the merits of the proposal, Slattery J made an order under s 81(1) that:

"the plaintiff have power to amend the terms of the Grant Family Testamentary Trust established by the will of George Grant made on 30 January 2002 ('Will') by written instrument in the form of Ex A in these proceedings, so as to confer on the plaintiff power to [do the several things in paragraphs (a) to (g) referred to at [71] above]".

74 Central to Slattery J's reasoning was the view (expressed at [40]) that "the making of orders to give the trustee power to amend the trust instrument to facilitate a range of future commercial transactions is within the scope of s 81". His Honour referred, in that connection, to the observation of Dixon J in Riddle v Riddle that the section is not "confined to cases where a specific investment is found to be expedient so that the basis of the order must be the particular investment".

Cases in Victoria

75 It is necessary to refer next to three recent decisions of the Supreme Court of Victoria.

76 In Colonial Foundation Ltd v Attorney-General (Vic) [2007] VSC 344, an application under s 63(1) of the Trustee Act 1958 (Vic) (the Victorian equivalent of s 81(1)) was made by the trustee of a trust established as a result of a corporate demutualisation to hold shares in the demutualised company for missing and uncontactable members of the former mutual association. The trustee sought, in the words of Smith J, orders that it be "empowered to vary the trust deed in accordance with the marked up version of the trust deed attached to these reasons" (there is no attachment to the copy of the reasons on the AUSTLII website). The trust deed contained a provision (clause 12.2) under which the trustee could vary the terms of the trust deed. That provision does not appear to be set out in the judgment but the references to it make it clear that the power was a limited or restricted power.

77 The changes the court was asked to sanction were said to fall into three categories: first, deletion of provisions that had become otiose but deletion of which was beyond the scope of the clause 12.2 power; second, removal of the limitations and restrictions to which the clause 12.2 power was subject; and, third, the creation of a power to distribute both capital and income for charitable purposes.

78 Smith J decided that the trustee "should be empowered to vary the trust deed in the manner sought". As to the basis in the equivalent of s 81(1) to make such an order, Smith J merely said at [6] (referring, by way of footnote, to Re Bowmil Nominees Pty Ltd, James N Kirby Foundation v Attorney-General (NSW) and Stein v Sybmore Holdings Pty Ltd):

"I am satisfied that the proposed amendments would constitute transactions for the purposes of the provision."

79 I refer next to Hutchinson v Attorney-General [2009] VSC 551, a case in which the trustees of charitable trusts created by will sought, by reference to s 63(1) of the Victorian Act, an order that a "scheme" annexed to the originating summons be approved by the court and that they should carry it into effect. The scheme involved variation of the terms of the trusts including by increase in the number of trustees, the creation of machinery for the appointment and rotation of trustees, consolidation of three separate funds into one and creation of a greater degree of discretion of the trustees in relation to accumulation of income. The scheme also contained a provision under which the trustees could, by 75% majority, revoke, add to or vary the provisions of the scheme, subject to certain exceptions and conditions including a condition requiring the approval of the Attorney-General.

80 Habersberger J made the orders sought. He acknowledged the concession of counsel that "it was perhaps slightly unusual to make provision for further variations or additions without coming back to court" but accepted a submission that a sufficient safeguard was imposed by the requirement for the Attorney-General's consent. Habersberger J also accepted a submission that the court had the necessary power by virtue of s 63(1). He said (at [7] and [9]):

"In the New South Wales decision of James N Kirby Foundation Ltd v A-G, White J made an order under s 81 of the Trustee Act 1925 (NSW) approving the complete replacement of the governing trust deed of the James N. Kirby Foundation with a model deed prepared by the Australian Tax Office so that the foundation could qualify as a prescribed private fund and be able to have donations made to it tax deductible. Mr Brett pointed out that s 81 of the New South Wales Act is in slightly broader terms than s 63. Nevertheless, he submitted that White J's decision that the amendment of the trust deed was a "transaction" within the meaning of the New South Wales legislation, was a decision that should be followed in this more limited situation.

...

I am therefore satisfied that the court has power under s 63 to give the trustees the powers that they have sought in this application with respect to the proposed scheme."

81 The third Victorian case is Ballard v Attorney-General [2010] VSC 525; 30 VR 413. Trustees of two charitable trusts created by will sought, by reference to s 63(1) of the Victorian Act, what Kyrou J (as he then was) referred to as "approval of amendments to the terms of" the trusts. The amendments concerned appointment and qualification of trustees, the term of office of trustees, voting procedures of the trustees, the retention and accumulation of income, the remuneration of trustees and the incorporation of a custodian company. In addition:

"the trustees have sought the court's authority to administer the trusts in accordance with a new instrument which consolidates the terms of the trusts. That instrument incorporates the proposed amendments and omits redundant provisions of the will."

82 Kyrou J made the orders sought. In the course of discussing the nature of the relevant jurisdiction, his Honour said (at [33]):

"In James N Kirby Foundation Ltd v Attorney-General (NSW), White J considered s 81(1) of the Trustee Act 1925 (NSW), which is the equivalent provision in New South Wales to s 63(1) of the Trustee Act. His Honour held that the replacement of the governing trust deed of a charitable trust with a model trust deed that would enable the charitable trust to become a prescribed private fund for taxation purposes was a 'transaction' that was expedient 'in the management or administration' of trust property. Several judges of this court have referred to Kirby with approval."

A Queensland case

83 Mr Barlin of counsel, with whom Ms Kako appeared on the hearing of the appeal, later drew attention to a judgment of the Supreme Court of Queensland delivered after the Court had reserved its decision. In Re Arthur Brady Family Trust; Re Tuckmores Trading Trust [2014] QSC 244 (30 September 2014), Philip McMurdo J made, in each of two proceedings, an order that the applicant trustee be "empowered and authorised to amend" a trust deed by extending the specified vesting day. Each order was expressed to be made pursuant to s 94 of the Trusts Act 1973 (Qld). I have described that section above as an "analogue" of s 81 of the New South Wales Act. The opening words of the Queensland section are:

"Where in the opinion of the court any sale, lease, mortgage, surrender, release or other disposition, or any purchase, investment, acquisition, retention, expenditure or other transaction is expedient in the management or administration of any property vested in a trustee, or would be in the best interests of the persons, or the majority of the persons, beneficially interested under the trust, but it is inexpedient or difficult or impracticable to effect the disposition or transaction without the assistance of the court, or it or they can not be effected by reason of the absence of any power for that purpose vested in the trustee by the trust instrument (if any) or by law, the court may . . ."

84 A major difference between that provision and s 81 is that, in Queensland, the court's power is available not only in relation to some activity or step of a relevant kind that is "expedient" in the "management or administration" of trust property but also in relation to an activity or step that is in the "best interests" of the beneficiaries or a majority of them. The description of the activities or steps is, however, the same, save that in the Queensland provision "other" appears before "disposition", and "retention" is inserted between "acquisition" and "expenditure".

85 Philip McMurdo J held that, in the cases before him, extension or deferral of the vesting date was in the "best interests" of relevant beneficiaries and, to that extent, within the terms of the Queensland section. His Honour also accepted a submission that "the amendment of each of the trust deeds by the alteration of the vesting date would itself constitute a transaction in this sense" - that is, the sense with which the section is concerned. The decisions in Re Bowmil Nominees Pty Ltd, Stein v Sybmore Holdings Pty Ltd, James N Kirby Foundation v Attorney General (NSW) and Barry v Borlas Pty Ltd were seen as supporting that conclusion.

86 Philip McMurdo J noted and dealt with the contrary view expressed by the primary judge in the decision from which this appeal is brought. He also referred to the primary judge's reliance on re Downshire Settled Estates and said (at [39]):

"In Downshire, the limitation of the court's jurisdiction under s 57, namely the facilitation of the management or administration of trust property affected the meaning of the word 'transaction'. The court could confer upon a trustee a power to effect a transaction only of a managerial or administrative kind. With respect, there is much force in Young AJ's view that the reasoning in Stein, that the amendment of the trust deed to extend the vesting date was a transaction of a relevant kind, was inconsistent with Downshire. Whilst Campbell J in Stein did refer to several authorities, it would appear that, as in the present cases, Downshire was not cited to the court."

Discussion

87 It may readily be accepted that "transaction" is a word of wide import and that, as referred to in Riddle v Riddle, s 81(1) is a provision which is "not intended to be restricted by implications" (per Dixon J at 214) and is "couched in the widest possible terms" (per Williams J at 220). It is nevertheless clear that the section does not authorise the court to confer every conceivable power on a trustee. Powers may be conferred only to the extent that the words of the section allow.

88 The court may, under s 81(1), "confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose" of effecting, "in the management or administration of any property vested in trustees", "any sale, lease, mortgage, surrender, release or disposition, or any purchase, investment, acquisition, expenditure or transaction" that cannot be effected "by reason of the absence of any power for that purpose vested in the trustees by the instrument, if any, creating the trust, or by law".

89 The dealings that may thus be facilitated fall into two classes, each of which is introduced by the word "any". The first class consists of "any sale, lease, mortgage, surrender, release, or disposition". Each of these words describes a dispositive act of an owner of property by which the property or some interest in it passes or accrues to another person. Dealings within the first class are thus, of their nature, dealings of a kind engaged in by an owner of property or, as the section recognises, trustees in whom property is vested.

90 The second class of dealings is defined or delineated by the words "any purchase, investment, acquisition, expenditure, or transaction". Ignoring, for the moment, "transaction", these words concentrate principally on ways of deploying money. That is certainly the case in relation to "purchase", "investment" and "expenditure" and will very often be the case in relation to "acquisition" (for example, subscription for shares or other securities).

91 "Transaction", of itself, does not imply an outlay of money. Nor should any such limitation be taken to be indicated by the fact that the reference to "transaction" comes immediately after references to "purchase", "investment", "acquisition" and "expenditure". A "transaction" that in fact involves an outlay of money is certainly in contemplation. But so too, in my view, is one that does not. Justice White, writing extra judicially, has suggested in relation to s 81(1) that "transaction" should be "construed eiusdem generis, that is, the preceding words would naturally limit its meaning" but notes, referring to Re Bowmil Nominees Pty Ltd and his own decision in James N Kirby Foundation Ltd v Attorney-General (NSW), that that has not been how the courts have construed it: R W White, "Trusts - an Australian perspective", [2010] NSWJSchol 10.

92 Although "transaction" is a very wide expression, power for a trustee to effect a particular "transaction" may be supplied by the court only if, in the management or administration of any property vested in the trustee, the "transaction" is, in the court's opinion, "expedient" - that is, according to Dixon J in Riddle v Riddle (at 214), expedient "in the interests of the beneficiaries" or, according to Williams J (at 222), "advantageous", "desirable" or "suitable to the circumstances of the case" but, in every case, with expediency tied to management or administration of trust property. A wider criterion of the Queensland kind, based solely on what is in the best interests of the beneficiaries, does not play any part under the New South Wales legislation.

93 I return to the so-called "mere throwaway line" and the cases in which it has been regarded as supporting the view that, for the purposes of s 81(1), variation of the terms of the trust is, of itself, a "transaction" undertaken by the trustee.

94 Variation of the terms of a trust (including by way of conferral of some new power on the trustee) is not something within the ordinary and natural province of a trustee. It is not something that it is "expedient" that a trustee should do; nor, fundamentally, is it something that is done "in the management or administration of" trust property. A trustee's function is to take the trusts as it finds them and to administer them as they stand. The trustee is not concerned to question the terms of the trust or seek to improve them. I venture to say that, even where the trust instrument itself gives the trustee a power of variation, exercise of that power is not something that occurs "in the management or administration of" trust property. It occurs in order that the scheme of fiduciary administration of the property may somehow be reshaped.

95 In several of the decided cases to which reference has been made, the court has, by reference to s 81(1) or an equivalent provision, made orders which, in terms, empower the trustee to amend the trust instrument so as to include particular and specific new powers of the trustee. If those orders have any force and efficacy at all, it can only be as orders conferring the substantive new powers. If the court has concluded that it is expedient that powers to effect dealings to which s 81(1) refers should be made available to the trustee by the indirect method of authorising alteration of the terms of the trust to include those powers, the court's order might be regarded as within the scope of the section. In such a case of powers with respect to identified dealings, there is what Evershed MR and Romer LJ, in Re Downshire Settled Estates (at 252), described as a "proposed transaction . . . which is specifically related to the management or administration by trustees of trust property, quoad property". Amendment of the trust instrument by the trustee so as to add such a specific power of advantageous dealing is merely a procedural step in the implementation of the conferral of the power that the court has decided should be given.

96 In such cases, however, the creation of what is, in terms, a power of the trustee to amend the trust instrument is a superfluous and meaningless step. When the court, acting under s 81(1), confers on a trustee power to undertake a particular dealing (or dealings of a particular kind), "it must be taken to have done it as though the power which is being put into operation had been inserted in the trust instrument as an overriding power": Re Mair [1935] Ch 562 at 565 per Farwell J. The substantive power that the court gives comes into existence by virtue of the court's order. It does not have its source in the terms of the trust. There is no addition to the content of the trust instrument. That content is supplemented and overridden "as though" some addition had been made to it. The terms of the trust are reshaped accordingly.

97 Conferral of specific new powers pursuant to s 81(1) should not be by way of purported grant of authority to amend the trust instrument so that it provides for the new powers. Rather, the court's order should directly confer (and be the sole and direct source of) the powers which then supplement and, as necessary, override the content of the trust instrument. And, of course, the only specific powers that can be conferred in that direct way are those that fall within the s 81(1) description concerned with management and administration of trust property..

98 If the power to be given to the trustee is not a specific power with respect to a particular dealing (or dealings of a particular kind) but, rather, a wide discretionary power to alter the terms of the trust as the trustee thinks fit, the case is not with s 81(1). The reason was explained in Re Downshire Settled Estates (at 247-248):

"We have already pointed out that neither trustees nor the court itself at any time, before 1925, had any general power to depart from the precise directions (provided that they were within the law) that a settlor thought proper to declare. If Parliament, in enacting s 57, had intended to confer this power on the court it is, in our view, inconceivable that it would not have done so in express terms, having regard not only to the novelty but also to the width of the jurisdiction that it was creating; and it is equally incredible that it should have done so without imposing any kind of limit, other than expediency, upon the extent to which, or the manner in which, the court was to exercise its powers."

99 If, under the guise of giving the trustee a power to undertake a "transaction" of amending the trust deed by adding a comprehensive and virtually unrestrained amendment provision, an order is made that purports to put the trustee into a position from which it can make all and any alterations to the terms of the trust it thinks desirable, the court takes the impermissible course of both appropriating to itself and giving to the trustee a "general power to depart from the precise directions . . . that a settlor thought proper to declare" (Downshire at 247). Because there is no "proposed transaction . . . which is specifically related to the management or administration by trustees of trust property, quoad property" (Downshire at 252), the matter is not within the scope of the section.

100 For these reasons, I share the opinion of the primary judge that the post-1997 decisions that have proceeded on the basis that variation of the terms of a trust is, of itself, a "transaction" within the contemplation of s 81(1) rest on an unsound foundation. The court is not empowered by the section to grant power to the trustee to amend the trust instrument or the terms of the trust. It may only grant specific powers related to the management and administration of the trust property, being powers that co-exist with (and, to the extent of any inconsistency, override) those conferred by the trust instrument or by law.

Some other recent cases

101 Before returning to the specific matters to which the application relates, I should make reference to three other recent cases.

102 The first is the decision of Smellie CJ of the Grand Court of Cayman Islands in Re Z Trust [2009] CILR 593. An application was made under an equivalent of s 81(1) for an order giving the trustee of a family trust power to divide the trust fund into three equal shares and to make what was, in effect, allocation of one such share or sub-fund to each of the three daughters of the life tenant, so that each sub-fund could be administered in accordance with the terms of the trust for one daughter alone. The proposal was described as the final step in a "peace agreement" between disputing family members and had the support of the life tenant (the mother). As things stood, the undivided fund was administered as a whole but in the context of:

"divergent financial and practical needs of each branch of the family (who live in at least two different jurisdictions) involving such matters as different tax implications and different investment imperatives and which therefore require the trustee to approach their needs differently, even while being bound by the duty to treat each branch and each beneficiary equally."

103 In deciding that the power to create the sub-funds could be conferred pursuant to the equivalent of s 81(1), the Chief Justice quoted extensively from the joint judgment in Re Downshire Estates. He also referred to Anker-Petersen v Anker-Petersen [2000] WTLR 581 where authorisation was given for the enlargement of investment powers and for delegation to investment managers who could adopt different policies and thereby affect beneficial enjoyment; Re Harvey [1941] 3 All ER 284 where authorisation was given to blend two trust funds left on virtually identical terms by testatrices each of whom desired to found an aged care home; and Re Thomas [1930] 1 Ch 194 where trustees holding the residuary estate in equal undivided shares were given power to administer the property by effecting partition. Smellie CJ referred to these as cases in which different incidental outcomes had been held not to stand in the way of the availability of the statutory power.

104 In the case before him, as Smellie CJ emphasised, no alteration of beneficial interests or entitlements was contemplated. The proposal was "only for the more efficacious management and administration of the trust" - by which he obviously meant "property vested in trustees" as referred to in the legislation. The power sought was therefore conferred.

105 The second recent case is the decision of the English Court of Appeal in Southgate v Sutton [2011] EWCA Civ 637; [2012] 1 WLR 326. That was also a case in which trustees sought power to subdivide into sub-trusts. Under the relevant settlement made in 1940 by four brothers, the trust fund was to be divided per stirpes among the issue of the settlors living at the death of the last survivor of the issue living at the date of the settlement. Some of the beneficiaries (the "Southgate Beneficiaries") were residents of the United States, others were United Kingdom residents. Shortly stated, the purpose of the subdivision was, as described by Mummery LJ (at [20]), to "avoid UK tax and reduce US tax". Also shortly stated, the reasons of Mummery LJ (in which Smith and Wilson LJJ concurred) for concluding that power should be conferred under the equivalent of s 81(1) were (at [41]):

"In conclusion, I was in favour of this appeal being allowed, as I was satisfied by the submissions of Leading Counsel on the law and by the evidence in this case that the court had jurisdiction to grant the application as one relating to the administration of the trust property; that the impact of the proposal on the beneficial interests was incidental only; that there was no legal precedent or other obstacle to granting the application and making the order asked; and that the proposed transaction for appropriation and partition was one that was clearly expedient in the interests of the trust as a whole and was the only way in which the benefits of the separation of the interests of the Southgate Beneficiaries could be achieved."

106 The third recent decision is that of Hammerschlag J in Cameron v Jeffress (above). That was a case of will trusts where no power to accumulate income was given. The absence of that power had adverse taxation consequences. The application dealt with by his Honour was for an order under s 81(1) empowering the trustee to amend the terms of the trust to allow accumulation. Faced with the difference of opinion between Young AJ in the case from which this present appeal is brought and the judges who decided the cases disapproved by Young AJ, Hammerschlag J preferred not to decide whether variation of the terms of the trust was a "transaction". He took a more direct approach (at [50]):

"Here, the transaction (or transactions) which would, but for an order, be beyond the power of the trustees is (or are) the accumulation of income of the trust and payment out of it to beneficiaries. These proposed actions also fall within the descriptions 'acquisition' or 'expenditure' in s 81(1), as the case may be."

The present case

107 The powers that Dion Investments wishes the court to confer are those suggested by the provisions mentioned at [26] above which are, in essence powers:

(a) to adopt a system of accounting based on a "year" from 1 July to the next 30 June;

(b) to pay or allocate to any beneficiary any amount of capital gains even if there is no other amount of income in a particular year;

(c) to decide what is income and what is capital for a particular year; and

(d) to maintain multiple income accounts, to credit each income receipt to one or more of the income accounts, to credit any capital gain (that is, a part of capital receipts treated as assessable income for tax purposes) to one or more of the income accounts and to credit and debit certain other items to the income accounts,

together with a comprehensive power to revoke add to or vary all or any of the trusts, terms and conditions of the deed and to declare, revoke and vary new trusts concerning the trust fund or any part of it, subject to provisos against infringement of the rule against perpetuities and interference with amounts already set aside for beneficiaries.

108 For reasons I have stated, the last of these (the comprehensive amendment power) is not a power that s 81(1) allows the court to confer on a trustee, whether by way of amendment of the trust instrument or otherwise. The primary judge correctly declined to countenance creation by the court of a comprehensive discretionary power enabling the trustee to vary the terms of the trust.

109 As to items (a) to (d), the primary judge correctly rejected the proposition that an order under s 81(1) could empower the trustee to amend the trust deed by incorporating new terms as proposed. A result generally as sought by Dion Investments Pty Ltd may, however, be achieved by orders under s 81(1) that directly confer powers which supplement and, as necessary, override the provisions of the trust instrument.

110 The court could make an order to the effect that the trustee had power, in managing and administering the trust property in accordance with clause 4(a) of the trust deed, to deal separately with the income of each and every year ending on 30 June, to distinguish income from corpus on the footing that receipts or gains of such a nature as to be within assessable income for the purposes of the taxation legislation are of an income nature regardless of their character at general law, to maintain in respect of each beneficiary such account or accounts as the trustee thinks fit and to credit to each such account (and thereby allocate to the particular beneficiary) the whole or a part of an amount paid or applied under clause 4(a) in respect of that beneficiary. I do not suggest that this would be the precise wording. I am concerned only to outline the concepts.

111 Clause 4(a) is a provision under which the trustee has a discretion to "pay or apply" any part of the settled property. It applies indiscriminately to income and corpus, as understood according to the law of trusts. The verb "pay" is applicable only to money. In the ordinary course, therefore, exercise of the postulated new power in managing and administering the trust property in accordance with clause 4(a) would involve the payment of money or the application of financial resources, both of which are within the s 81(1) concept of "expenditure". Things done in exercise of the new power would also be within the "transaction" concept. In Southgate v Sutton (above) which involved subdivision into sub-trusts and, in effect, administration of the trust property in two separate accounts instead of as an undivided whole, there was reference to "the proposed transaction for appropriation and partition" (emphasis added). In the present case, it would be accurate to refer to the proposed "transaction" (or "transactions") of segregating income from corpus according to a particularly defined meaning of "income" and of apportioning or allocating elements of such "income" in specified ways, including those envisaged by the "specifically entitled" concept in the taxation legislation referred to at [23]-[25] above..

112 Because the processes contemplated by the postulated new power would not, of themselves, involve discrimination among beneficiaries (the potential for discrimination being inherent already in the discretion that clause 4(a) entails), creation of the power would not involve any change of beneficial interests or adjustment of the respective rights of beneficiaries.

113 Effectuation of clause 4(a) is probably the most significant aspect of the trustee's function of administering the trust property. More efficient and economical performance of that function with the aid of the new power would be part of the management and administration of the trust property, a concept that has been said to "pick up everything that a trustee may need to do in practical or legal terms in respect of trust property": Royal Melbourne Hospital v Equity Trustees Ltd [2007] VSCA 162: 18 VR 469 at [150].

114 An order along the lines outlined could properly be made under s 81(1) on principles underlying Re Z Trust (above), Southgate v Sutton (above) and Cameron v Jeffress (above). The evidence - particularly the KPMG advice - establishes that it is expedient in the management and administration of the trust property by way of efficient and economical effectuation of clause 4(a) that the powers should be given to Dion Investments Pty Ltd as trustee.

Proposed disposition

115 While the primary judge was correct to proceed on the basis that an order giving the trustee power to amend the trust deed in the ways desired was not authorised by s 81(1) and, in particular, that the court could not, under that section or otherwise, give the trustee a comprehensive power to vary the terms of the trust, the appropriate course, in my view, is to allow the appeal to the extent of permitting the appellants to bring in such draft short minutes as it may desire with a view to this Court's making under s 81(1) limited orders along the lines indicated at [110] above.

116 I therefore propose orders as follows:

1. Direct that a notice of appeal in the form of the draft in the white folder be filed within seven days.

2. Allow the appeal to the extent only of permitting the appellants to bring in short minutes of an order or orders under s 81(1) of the Trustee Act 1925 (NSW) in conformity with the reasons of this Court.

3. Direct that final formulation of such order or orders be dealt with on the papers unless the Court sees fit to appoint a further hearing.

4. Order that the costs of the proceedings in this Court be paid out of the assets of the Dion Family Trust.

117 GLEESON JA: I agree with Barrett JA.

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Decision last updated: 11 December 2014