AI v ADC [2007] NSWSC 505

New South Wales Supreme Court

CITATION : AI v ADC [2007] NSWSC 505

HEARING DATE(S) : 14 May 2007

JUDGMENT DATE : 14 May 2007

JURISDICTION : Equity Division Protective List

JUDGMENT OF : Windeyer J at 1

DECISION : Proceedings adjourned to be put into order

CATCHWORDS : MENTAL HEALTH - Protected Estates - proposed appointment of Trustee Company as manager - Trustee Company proposed declaring special trust of managed estate assets - possibility protected person might not be sole beneficiary - discussion of difference between trust estates and managed estates - many provisions of proposed trust deed not appropriate for an estate managed pursuant to an order under Protected Estates Act 1983

Protected Estates Act 1983, s13, s22 LEGISLATION CITED : Trustee Companies Act 1964 Trustee Act 1925

PARTIES : AI (Plaintiff) ADC (Defendant)

FILE NUMBER(S) : SC P27 of 2007

COUNSEL : Dr S Thornton (Plaintiff) No Appearance (Defendant)

SOLICITORS : Keddies (Plaintiff) No Appearance (Defendant)

- 3 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION PROTECTIVE LIST

WINDEYER J

MONDAY 14 MAY 2007

P27/07

JUDGMENT

1 HIS HONOUR: These two matters are applications under the Protective Estates Act 1983 (the Act) for declarations under section 13 of that Act that the defendant named in the proceedings is unable to manage his or her own affairs, and for orders under section 22 of the Act appointing the ANZ Executor and Trustee Company Limited as manager. That company is authorised to so act under the Trustee Companies Act 1964. 2 I directed that these matters be transferred from Chambers into court, as both raise the same issues. In each case the Trustee Services manager of the trustee company has sworn an affidavit as to what is proposed for the particular fund and the estate's management, and setting out the advantages the trustee company perceives for the management of the estate if it is appointed. The main advantage is in the fact it will invest directly, rather than through managed funds, thereby saving what is usually called the management expense ratio fees. There is also a comparison of its fees with those of the Protective Office, which may show a competitive advantage. 3 In each case the affidavit states that it is proposed to set up a stand alone trust, the assets in that trust being held separately from the assets held for other trust funds. It is that matter which brought the proceedings into court. 4 Division 3 of the Act sets out the procedure that applies where management of a protected estate is committed to the Protective Commissioner, and Division 4 of the Act sets out the provisions which apply where other persons or trust companies are appointed manager. 5 The manager is, of course, in a fiduciary relationship with the person whose estate is under management, but the manager is not a trustee. The property of the protected person is not trust property held by a trustee, where the protected person is beneficiary under that trust: the property remains that of the protected person. 6 It follows, therefore, that there is no power in the manager to declare a trust in respect of the fund committed to it for management. Apart from anything else, there is no need for a trust. The protected person, and no one else, has the interest in the property. 7 In cases where a trustee company is appointed as manager, I can see no reason why a separate account in its books could not be set up to deal with the estate of the protected person. There is no reason why investments cannot be kept separate. 8 The proposed trust deed is in any event inappropriate. While it provides that the protected person is the principal beneficiary and the sole beneficiary before its determination date, it does provide for general beneficiaries, which expression includes a reasonably wide range of persons, including grandchildren and grandparents, and, "a company all the shares of which are beneficially owned by the principal beneficiary". 9 It also provides a definition of ineligible person, as "any person nominated (revocably or irrevocably) by the trust deed as an ineligible person, and shall include a spouse or de facto spouse of the principal beneficiary". Why a spouse cannot be a general beneficiary I cannot understand, although, of course, I am of the view that there should be no general beneficiaries. 10 The trust deed provides for a determination date, being the date of death of the protected person, and it does provide under clause 3.1 that until the determination date the capital and income of the trust fund is to be applied for the benefit of the principal beneficiary, "or in any manner which the trustee considers to be for the maintenance, education, advancement or benefit of the principal beneficiary", and for that purpose the trustee may make payments for the benefit of the principal beneficiary to a person who, in the opinion of the trustee, falls within a new list of persons that in fact comprises the general beneficiaries. 11 It is true that a manager may be authorised to make payments to persons other than the protected person, provided they are for the benefit of that person. It is true that in certain circumstances payments may be made to members of the family of a protected person by way of gift, if they are likely to be payments that the protected person would have made as these are regarded as being for the general benefit of the protected person. It is quite unlikely that it would be for the benefit of a protected person to make a payment to a company, all the shares of which were owned by that person. 12 The trust deed then provides under clause 3.2 that on the determination date the trust fund is to be held and paid "in accordance with the will of the principal beneficiary or if there is no will in accordance with law". That, of itself, may give rise to some doubt as to whether or not the trustee pays directly to the beneficiaries or is required to pay, as ought to be the position, to the estate of the protected person. 13 For some reason, which is not apparent to me, clause 3.2 also provides that if the determination date is not the death of the principal beneficiary, then the trustee at its discretion is to pay the fund to any one or more of the general beneficiaries. This could not take place, of course, unless the trust were amended to change the determination date. Any such determination in favour of a general beneficiary not the protected person would be inappropriate. 14 The trust deed also includes what I would have thought were inappropriate powers of investment in options, hedging contracts, futures contracts and the like, and in managed investment schemes. I am not saying that that would not be proper, but there must at least be some doubt about it. 15 I should say that the matters to which I have referred all seem to me to be quite contrary to what is stated in the affidavit as being the purpose of the separate fund. The fact that a trust is intended to be constituted will, of course, give rise to powers under the Trustee Act 1925 relating to the appointment or removal of the trustee, which ought not to be in the hands of the trustee, but which clearly, under the Protected Estates Act, should be in the hands of the Court. 16 Finally, the trust deed provides in clause 11 that the trustee may amend any provisions of the deed, which, as I have said, would include power to change the determination date. It does provide that no amendment may be made for the benefit of an ineligible person, or so as to confer a beneficial interest on any person other than a general beneficiary, or so as to affect the beneficial entitlement of the principal beneficiary, or any other general beneficiary before the amendment, without their consent in writing. This clause does not really make sense, because as the principal beneficiary, being the protected person, has been declared to be incapable of managing his or her own affairs, it is perfectly clear that the person could not give his or her consent. 17 There is no reason why the trustee company should not be appointed as manager. It is entitled to be so appointed, and I would make that appointment if that is what the plaintiffs wish. However, I would not make the appointment in light of the stated present intentions of the trustee company. 18 I should add that it may be unlikely that, when the trustee company applied to the Protective Commissioner for directions, the trust would be approved. However I have said from time to time that where a statutory trustee company is appointed, then the control exercised by the Protective Commissioner would ordinarily be expected to be somewhat less than the control exercised where a private person is appointed as manager so that the problem with the trust might not be recognized by the Commissioner. 19 In any event, I consider that it is desirable for the Court to make the comments which I have made in this judgment, for the benefit of this trustee company and for any future applications which raise the same problem. 20 I propose therefore, to stand the matter over and if there is evidence that the trustee company and the plaintiff are content to proceed on proper management lines, then I would make that order. **********