Reported Decision : (2004) NSW ConvR 56-094 New South Wales Supreme Court CITATION : Application by John Gerard Klumper and Maxine Louise Klumper [2003] NSWSC 909 HEARING DATE(S) : 02/10/2003 JUDGMENT DATE : 3 November 2003 JURISDICTION: Equity JUDGMENT OF : Bryson J at 1 DECISION : Trustees appointed under CA 1919 s.151C: [20] CATCHWORDS : INFANTS and CHILDREN - property - children aged 6 and 3 were registered proprietors of land in Strata plans - parents appointed trustees under Conveyancing Act 1919 s.151C - Court declined to confer wide powers (including sale) usually found in family Discretionary Trusts, and declined to act under Conveyancing and Law of Property Act 1898. Conveyancing Act 1919 Conveyancing and Law of Property Act 1898 LEGISLATION CITED : Minors (Property and Contracts) Act 1970 Real Property Act 1900 Settled Land Act 1925 (U.K.) Trustee Act 1925 CASES CITED : Re Stack's Settled Estate (1909) 26 WN (NSW) 181 Application by John Gerard Klumper and Maxine Louise Klumper [2003] NSWSC 854 PARTIES : John Gerard Klumper - First Plaintiff Maxine Louise Klumper - Second Plaintiff FILE NUMBER(S) : SC 4816/2003 COUNSEL : J. Garnsey QC and J. Gooley - Plaintiffs SOLICITORS : Toltz La Hood Lawyers IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BRYSON J. MONDAY 3 NOVEMBER 2003 4816/2003 APPLICATION BY JOHN GERARD KLUMPER AND MAXINE LOUISE KLUMPER JUDGMENT 1 HIS HONOUR: The plaintiffs are the parents of two infants. By their Summons of 12 September 2003, in which there is no defendant, the plaintiffs ask the Court to appoint trustees of two parcels of land which have been transferred to the two sons of the plaintiffs; the sons are far too young to manage their own affairs, or their interests in the two properties, or to enter into any transaction such as leases. There is manifestly a need to appoint trustees to protect the interests of the infants until they reach majority. 2 Mathew Klumper was born on 15 September 1996 and is now seven years of age. His father Mr J.G. Klumper has had many successful years of experience as a property developer on the Central Coast of New South Wales and among other things he is the managing director and in sole control of Brentwood Village Limited. Brentwood Village Limited has developed a property at 150 Terrigal Drive, Erina, and there is now a strata scheme building on that property comprising four residential lots which are town houses, Lots 2 to 5 Strata Plan 69241 and commercial premises Lot 1 suitable for use as a restaurant. About 20 December 2002 Mr Klumper arranged for registered proprietorship of Lot 1, the restaurant lot, to be transferred to Mathew Klumper, who was then aged 6. No provision was made for management of Lot 1 during Mathew Klumper's minority, which will continue until he attains the age of 18 years on 15 September 2014. 3 Jean Marie Klumper was born on 2 January 1999 and is now four years of age. Brentwood Village Limited purchased and developed a property at 20 Terrigal Drive, Erina, and there is now a strata scheme building containing nine residential strata units on the property – Strata Plan 65034. About 15 March 2002 Mr Klumper arranged for registered proprietorship of Lot 9 in the Strata Plan to be transferred to Jean Marie Klumper, who is now the registered proprietor. Again no provision was made for management of Lot 9 during Jean Marie's minority until 2 January 2017. 4 The Court is responsible for the exercise of the powers of the Crown as parens patriae, and cannot leave the interests of the infants in their present unprotected state. The interests of the infants obviously require that the Court place the properties and the interests of the infants in them in the hands of suitably qualified adult persons and give those persons adequate powers to manage the property, in ways appropriate to such properties, so as to be able to protect the infants' interests until they attain majority. Those powers should include some powers which will enable the properties to be leased so as to generate income for the benefit of the infants. The powers will not necessarily include power to sell the properties, unless further consideration by the Court shows that sale is appropriate. 5 When the Summons came before Campbell J on 11 September 2003 his Honour, for reasons then stated [2003] NSWSC 854 made an order pursuant to s.50 of the Minors (Property and Contracts) Act 1970 authorising and appointing Mr J.G. Klumper to execute on behalf of Mathew Klumper a lease of Lot 1 Strata Plan 69241, the restaurant premises. Justice Campbell approved the terms of the lease, which provided for the restaurant premises to be leased to The Golden Cowrie Pty Ltd for five years with an option to renew for five years. Assuming that all goes well in the relationship of landlord and tenant and that the option is exercised, it appears now that there are suitable arrangements for realising the value of Mathew's interest in Lot 1 until some date about September 2013 which will be the tenth anniversary of the date when the lease took effect. Mathew Klumper will then be about 17 years of age. The order was made pursuant to s.50 of the Minors (Property and Contracts) Act 1970 and did no more than authorise and appoint Mr J.G. Klumper to execute the lease; it did not put him in the position of a trustee or give him any powers of management. No order has yet been made affecting the interest of Jean Marie Klumper in the residential unit Lot 9 DP65034. 6 Senior Counsel for the plaintiffs asked me to make orders, one in the case of each son, which will have the effect of appointing, or providing for the appointment of the plaintiffs as trustees of two trusts the terms of which are to be regulated by trust deeds which it is proposed to annex to the Court's orders. It is further asked that the trustees be authorised for the purpose of s.50 of the Minors (Property and Contracts) Act 1970 to grant leases of, manage and otherwise dispose of or deal with Lot 9 in accordance with powers set out in a number of subclauses of cl.4 of the Deed of Trust. The powers proposed are very extensive. In practical terms the trustees would be empowered, without qualification or conditions but in their absolute discretion, to deal with the trust property in any way, including converting it into other forms of investment by selling it, to lease it out on whatever terms the trustees may decide, to develop it and to choose any other form of investment. Powers like these, in practical terms with no limits, are quite often conferred by Deeds of Trust creating discretionary trusts for the benefit of family members, where the settlor is himself to be a trustee or can expect to have more or less direct influence over decisions made by trustees. It is not appropriate for the Court to confer powers of this amplitude. The order proposed would go on to provide for the possibility of death or incapacity of one of the parents by providing that the plaintiffs' solicitor Mr Warwick La Hood was to become a trustee in event of death or incapacity of one of them; with further provision for new trustees. 7 The situations of the two sons are markedly similar except as to the arrangements already made for entering into a lease with effect for up to 10 years over the property of Mathew Klumper, and except as to the difference in their ages. 8 The powers of the Court under s.50 of the Minors (Property and Contracts) Act 1970 are very wide and plainly extend not only to authorising the execution of a particular document, as was done with respect to the lease of the restaurant, but also to orders which would confer extensive and continuing powers of management. Rather than attempt to devise an extensive order under s.50 it appears to me to be appropriate to employ more familiar mechanisms to provide for the management of property, and to adopt some such mechanism as has been proposed, that is the creation of a trust and the conferral of powers to act as trustees. There should be at least two trustees of such a trust. In the first instance it is in my view appropriate that the parents of the child should be trustees of the trust. 9 The legislature has specifically dealt with the question of management of land during minority in s.151C of the Conveyancing Act 1919. Subsection 151C(1) empowers the Court, where an infant is entitled to a beneficial interest in possession affecting land and there are no trustees, to appoint persons as trustees for the purpose of s.151C; and the persons so appointed may enter into and continue in possession of the land on behalf of the infant. What the trustees are to do, and the powers conferred on them are then spelt out in subss.151C(2) and (3). 10 The Conveyancing and Law of Property Act 1898 deals in Pt.4 with leases and sales of settled estates and the estates of minors. Settlements of land and settled estate as defined in subss.37(1) and (2) of the Conveyancing and Law of Property Act 1898 were always uncommon in New South Wales and are now extremely uncommon. However subs.37(7) extends the operation of Pt.4 by providing: (7) Where a person in his own right seised or beneficially entitled to land for an estate in fee simple or for any leasehold interest at a rent is a minor, such land or leasehold interest shall be deemed to be settled estate within the meaning of this part. 11 The provisions of Pt.4 at many places show that Pt.4 was primarily directed to authorising dealings in settled land in which a number of persons had successive interests. However the powers of the Court are plainly available for exercise where the registered proprietor of the land is an infant. Sections 38 to 47 deal with the Court's power to authorise leases of settled estate; the terms of those sections show that the power was usually to be exercised in relation to a specific proposed lease but s.46 enables the Court to confer general power of leasing on trustees. By subs.38(1) the term of an occupation lease could not exceed 10 years. Sections 48 to 53 dealt with authorising sales. 12 Although the Court had power to grant to trustees general powers of leasing property, the practice of the Court was against doing so; in general the Court would only sanction a specific lease, after reviewing the terms of the lease itself; see Re Stack's Settled Estate (1909) 26 WN (NSW) 181. According to this practice, a lease would only be authorised by the process which occurred earlier in this case in which a specific lease was placed before the Court and was approved of. Section 151C was enacted by Act No. 44 of 1930 s.26, and was adapted from s.102 of the Settled Land Act 1925 (United Kingdom). Unlike Pt.4 of the Conveyancing and Law of Property Act 1898 it does not contemplate approval by the Court of specific leases, but rather contemplates the appointment of trustees who are to be authorised to grant leases for any term not exceeding three years. They were also to be given the duty of management of the land, and powers set out in subs.151C(2), which do not extend to selling the land. 13 The terms of subs.151C(1) show that it was contemplated, in some although not in all cases with which the subsection dealt, that it would apply where trustees have been appointed as trustees of a settlement. Subsection 7(2) of the Conveyancing Act 1919 states what constitutes a settlement; its provisions are very wide and extend to any instrument by virtue of which land stands vested in an infant in possession. This is far wider than the concept of a settlement in its meaning in ordinary language and in the meaning referred to in the interpretation provisions in s.37 of the Conveyancing and Law of Property Act 1898. Within the meaning of the references to a settlement in s.151C of the Conveyancing Act 1919 any instrument under which land stands vested in an infant in possession is a settlement, whether or not the interests of the infant arose in succession to some other interests under the instrument, and whether or not there are to be any other interests in succession to the interest of the infant. 14 In his judgment in these proceedings [2003] NSWSC 854 Campbell J said at para.7, dealing with subs.151C(1) "The requirement for that person to be entitled to 'a beneficial interest in possession affecting land' presupposes, it seems to me, however, that the interest of the child is not an interest of the absolute kind which the registered proprietor of Real Property Act land will hold." I must respectfully say that I take a different view. According to the ordinary and natural meaning of the words with which subs.151C(1) opens, an infant who is the registered proprietor of land and who is not subject to any trust in favour of any other person is a person "… who is entitled to a beneficial interest in possession affecting land …". In my opinion those words are quite appropriate to include fee simple ownership: a fee simple owner is entitled to a beneficial interest in possession. While I am of the view that this is the effect produced by the ordinary meaning of the words in subs.151C(1), the conclusion is reinforced by consideration of the use made of the word and concept of a settlement in subs.151C(1) and the breadth of that concept as appears from s.7(2). Accordingly I am of the view that the powers of the Court in s.151C are available. 15 Where, as in the case of these infants, it is necessary that trustees be appointed to provide for management of property over a lengthy period, s.151C is the provision under which it is appropriate for the Court to act. The legislature has pointed out by enacting s.151C the appropriate measure for the Court to take and the limitations which should exist upon the powers conferred including the power of leasing; leases may be for up to three years; and no power of sale is conferred. The enactment of s.151C, with its provision for authorising trustees to grant leases for up to three years, was to some extent a reform of the previous state of the law in which the Court was not in fact prepared to grant general powers of leasing and held in its own hands the decision whether any particular lease would be approved. The powers of the Court conferred by Pt.4 of the Conveyancing Law of Property Act 1898 still exist. They are somewhat archaic in their expression, and in the subject with which they deal. It would I would think be appropriate to continue to deal with a 19th Century settlement with which the Court had earlier dealt under the Act of 1898 by further orders under its provisions. However the enactment of s.151C is an indication from the legislature that the Court can and should, where it is appropriate, confer wider powers and higher confidence on trustees. 16 The restriction on granting leases for up to three years but no longer is not, in the circumstances of the present case, a narrow or inconvenient restriction. With respect to Jean Marie's Lot 9, a residential lot, three years is a very usual term for a lease of a residential property; leases are often shorter, and longer leases than three years are not often seen. With respect to Mathew's property, which has already been leased out for up to 10 years, there is not likely to be any real inconvenience about limiting the power of the trustees to grant leases to three years; they will probably not have an opportunity to grant another lease for 10 years, and then Mathew will be within about one year of attaining his majority, and it would not be suitable to create a lease extending for a lengthy term after his majority; he should make his own decisions when he is an adult. 17 If any real need arises for a sale, trustees appointed under s.151C would be in a position to ask the Court to authorise sale in exercise of powers in s.81 of the Trustee Act 1925 to authorise advantageous dealings. Ordinarily the duty of a trustee is to preserve the trust property, not to sell it or to change the form of investment. A wide power of sale would be appropriate if the business of the trust were to carry on investment business, but is not appropriate where the business of the trust is to hold and manage property on behalf of an infant. 18 It should be observed however that a trustee who holds land with power to manage the land may have a further power of leasing for any term not exceeding five years, conferred by s.36 of the Trustee Act 1925. I incline to the view that trustees appointed under s.151C, which is a later enactment, could not act under the power in s.36. 19 My view then is that I should, in relation to each infant, make an order under s.151C of the Conveyancing Act 1919 appointing the plaintiffs to be trustees for the purposes of s.151C, thereby conferring on them the powers and duties referred to in s.151C. On the other hand I am of the view that it would not be right for me to confer the very wide ranging, in practical terms unrestricted powers provided for in the draft trust deeds which have been submitted for my consideration by counsel. 20 ORDERS: (1) Order pursuant to Section 151C of the Conveyancing Act 1919 that John Gerard Klumper and Maxine Louise Klumper be appointed trustees for the purposes of that section of the land in Folio 1/69241 being Lot 1 in Strata Plan 69241 of which Mathew Klumper a minor born on 15 September 1996 is registered proprietor, to act as trustees with the powers referred to in subsection (2) and otherwise in accordance with that section. (2) Order pursuant to Section 151C of the Conveyancing Act 1919 that John Gerard Klumper and Maxine Louise Klumper be appointed trustees pursuant to that section of the land in Folio 9/65034 being Lot 9 in Strata Plan 65034 of which Jean Marie Klumper a minor born on 2 January 1999 is registered proprietor, to act as trustees with the powers conferred in subsection (2) and otherwise in accordance with that section. ********** Last Modified: 11/06/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.