New South Wales Supreme Court CITATION : Mongar Pty Ltd v Levko Pty Ltd [2008] NSWSC 445 HEARING DATE(S) : 5 May 2008 JUDGMENT DATE : 8 May 2008 JURISDICTION : Equity Division JUDGMENT OF : Young CJ in Eq DECISION : Will construed, orders to be made to supplement proposal. CATCHWORDS : SUCCESSION [229]- Wills- Construction- Life interest or absolute interest. TRUSTS AND TRUSTEES [204]-Orders proposed under s 81 Trustee Act 1925- Proposal to channel distributions through intermediary corporation- Whether proposal was for the management and administration of the trust- Whether expedient. LEGISLATION CITED : Trustee Act 1925, ss 45, 81 CASES CITED : James N Kirby Foundation Ltd v AG (2004) 62 NSWLR 276 Re Cosaf Pty Ltd (Young J, 15.12.1992, unreported) Mongar Pty Limited (P1) PARTIES : Bettgar Pty Limited (P2) Levko Pty Limited (D1) [other defendants' names suppressed] FILE NUMBER(S) : SC 1995/08 COUNSEL : T Jucovic QC (P) M Cashion SC (D2) SOLICITORS : Addisons (P) Kemp Strang (D2) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION YOUNG CJ in EQ Thursday 8 May 2008 1995/08 – MONGAR PTY LTD v LEVKO PTY LTD JUDGMENT 1 HIS HONOUR: The present proceedings concern the construction of the will of a wealthy gentleman and whether an order should be made under section 81 of the Trustee Act 1925 with respect to the administration of some of the trusts resulting from his estate. 2 The testator died on 6 December 1997, having first made and published his last will of 19 November 1997. Probate of that will was duly granted. 3 The testator was married twice and had three children. He has two daughters whom I will call Betty and Monica. Betty is a child of the testator's first marriage, Monica of the second. He also has a son whom I will call Fred: Fred is a son of the first marriage. 4 Fred is a person who clearly is not able to manage his affairs. The testator clearly realised this and made special, though complicated provisions for him. 5 The estate has been fully administered and on 25 October 2007, the plaintiff companies became the trustees of the trusts of the will so far as they affect the testator's son. 6 The general scheme of the testator's will is that Betty, Monica and Fred share equally in the testator's estate. The daughters take their shares outright. Fred's share is burdened by the provisions to which I will shortly refer. 7 The testator had considerable assets of his own and also had control of other assets in the name of companies and trusts. 8 By clause 5 of the will, the testator left his shares in his Foundation as to one-third for each of his children for life with remainder to their issue. 9 The testator had set up separate discretionary trusts focused on each of his children. By clause 6 of his will he gave the shares in each of the companies operating as trustees of those trusts to the trustees of his will with various specific directions. The trustee of the trust focused on Fred is the first defendant Levko Pty Ltd. 10 It is common ground that those directions operate as guidelines to the trustee rather than mandatory imperatives as to how it must act. 11 The plaintiffs are the holders of the shares formerly held by the testator in Levko Pty Ltd. 12 The plaintiffs' summons seeks clarification of the true construction of the will and also orders under s 81 of the Trustee Act 1925 to enable them to administer the trusts thereof more expediently. 13 I need to turn to the will whose relevant provisions I set out in an anonymised form. "5. I GIVE to my Trustee all the shares in the Foundation Trustee forming part of my estate at my death to divide same into three equal parts and to hold each such part upon the following trusts: (a) as to one of such parts for the BETTY TRUST during the life of my daughter BETTY and subject thereto absolutely for such of the issue of my said daughter BETTY as shall be living at the date of her death and attain the age of twenty-five (25) years and if more than one then as tenants in common in equal shares per stirpes; (b) as to one of such parts for the MONICA TRUST during the life of my daughter MONICA and subject thereto absolutely for such of the issue of my said daughter MONICA as shall be living at the date of her death and attain the age of twenty-five (25) years and if more than one then as tenants in common in equal shares per stirpes; (c) as to one of such parts for the FRED TRUST during the life of my son FRED and subject thereto absolutely for such of the issue of my said son FRED as shall be living at the date of his death and attain the age of twenty-five (25) years and if more than one then as tenants in common in equal shares per stirpes. PROVIDED THAT where any beneficiary under this clause has not yet reached the requisite age, the shares to which that person would become entitled upon reaching that age shall be held by my Trustee UPON TRUST for such beneficiary until that person has reached the requisite age AND PROVIDED FURTHER THAT should the trusts of any part under paragraphs (a), (b) or (c) of this Clause 5 fail then that part shall be added in the case of more than one other parts to the other parts equally and if only one other part then to that other part only. 6. I GIVE: (a) all the shares in X Ltd forming part of my estate at my death to my Trustee to hold the same UPON TRUST for my daughter the said BETTY during her lifetime and subject thereto absolutely for such of the issue of my said daughter BETTY as shall be living at the date of her death and attain the age of 25 years and if more than one as tenants in common in equal shares per stirpes and in the meantime during the lifetime of my said daughter BETTY my Trustee shall exercise the rights attaching to such shares so that: (i) any income determined by the trustee for the time being of the BETTY TRUST to be distributed is distributed to my daughter BETTY during her lifetime and upon her death to her issue as tenants in common in equal shares per stirpes; and (ii) any capital of the BETTY TRUST allocated before upon or after the termination or winding up of the BETTY TRUST shall be distributed to any one or more of my daughter the said BETTY and her issue as my Trustee shall in their absolute and uncontrolled discretion determine and in such amounts shares and proportions as my Trustee shall in their absolute and uncontrolled discretion determine but if none of my daughter the said BETTY or her issue are then alive then to such of the FRED TRUST and the MONICA TRUST as shall then be in existence and if both then as tenants in common equally; (iii) my said daughter BETTY will at such times and in such instalments as my Trustee shall determine during the period of 10 years from the date of my death receive whether by way of capital or income distribution the sum of Fifteen million dollars ($15,000,000.00) PROVIDED THAT such distribution does not in my Trustee's opinion affect the financial stability of the Foundation; (iv) my said daughter BETTY will during her lifetime receive in addition to the money referred to in Clause 6(a)(iii) above whether by way of capital or income distribution the sum of One hundred and sixty thousand dollars ($160,000.00) per annum by way of equal monthly instalments commencing from the date of my death PROVIDED THAT such amount will be increased at the date of my death and then with the base date being the date hereof annually in accordance with such inflationary indicator as my Trustees may in their absolute discretion determine; (b)(a) all the shares in Levko forming part of my estate at my death to my Trustee to hold the same UPON TRUST for my son FRED during his lifetime and subject thereto absolutely for such of the issue of my said son FRED as shall be living at the date of his death and attain the age of 25 years and if more than one as tenants in common in equal shares per stirpes and in the meantime during the lifetime of my said son FRED my Trustee shall exercise the rights attaching to such shares so that: (i) any income determined by the trustee for the time being of the FRED TRUST to be distributed is distributed during the life of my son the said FRED and until the protective trust referred to in Clause 10(c)(ii)(A) of this my Will shall fail or determine as referred to in Clause 10(c)(ii)(A) of this my Will to the protective trust referred to in Clause 10(c)(ii)(A) of this my Will and in the event of failure or determination during the life of my son FRED of the protective trust referred to in Clause 10(c)(ii)(A) of this my Will then as provided in sub-paragraph (B) of the said Clause 10(c)(ii); and (ii) any capital of the FRED TRUST allocated before upon or after the termination or winding up of the FRED TRUST shall as to the income thereof be dealt with as provided in Clause 6(b)(i) of this my Will and subject thereto the said capital shall be distributed to my Trustee who shall hold same upon trust for the issue of my son FRED living at his death and attain the age of 25 years and if more than one as tenants in common in equal shares per stirpes PROVIDED THAT should such aforesaid trust fail then to such of the BETTY TRUST and the MONICA TRUST as shall then be in existence and if both then as tenants in common equally; (iii) notwithstanding the foregoing provisions of this Clause 6(b) of this my Will, in the event referred to in Clause 10(c)(ii)(D) of this my Will both the income and capital shall be dealt with as provided in Clause 10(c)(ii)(D) of this my Will; and (b)(b) In connection with my directions to my Trustees as set out in Clause 6(b)(a) above I WISH TO RECORD that it is my earnest desire that subject to my said son's health and ability to manage his affairs and money in which regard my Trustee's determination shall be final and conclusive my son should be treated equally and in the same manner as my daughters. (c) all the shares in Y Ltd forming part of my estate at my death to my Trustee to hold the same UPON TRUST for my daughter MONICA during her lifetime and subject thereto absolutely for such of the issue of my said daughter MONICA as shall be living at the date of her death and attain the age of 25 years and if more than one as tenants in common in equal shares per stirpes and in the meantime during the lifetime of my said daughter MONICA my Trustee shall exercise the rights attaching to such shares so that: (i) any income determined by the trustee for the time being of the MONICA TRUST to be distributed is distributed to my daughter MONICA during her lifetime and upon her death to her issue as tenants in common in equal shares per stirpes; and (ii) any capital of the MONICA TRUST allocated before upon or after the termination or winding up of the MONICA TRUST shall be distributed to any one or more of my daughter the said MONICA and her issue as my Trustee shall in their absolute and uncontrolled discretion determine and in such amounts shares and proportions as my Trustee shall in their absolute and uncontrolled discretion determine but if none of my daughter the said MONICA or her issue are then alive then to such of the BETTY TRUST and the FRED TRUST as shall then be in existence and if both then as tenants in common equally; (iii) my said daughter MONICA will at such times and in such instalments as my Trustee shall determine during the period of 10 years from: (a) the date of my death; or (b) the date my said daughter attains the age of 25 years, whichever date shall last occur receive whether by way of capital or income distribution the sum of Fifteen million dollars ($.15,000,000.00) PROVIDED THAT such distribution does not in my Trustee's opinion affect the financial stability of the Foundation; (iv) my said daughter MONICA will during her lifetime receive in addition to the money referred to in Clause 6(c)(iii) above whether by way of capital or income distribution the sum of One hundred and sixty thousand dollars ($160,000.00) per annum by way of equal monthly instalments commencing from the date of my death or the date when my said daughter attains the age of 25 years whichever date shall last occur PROVIDED THAT such amount will be increased when payment as aforesaid shall first be made and then annually in accordance with such inflationary indicator as my Trustees may in their absolute discretion determine. ….. 10. I GIVE all of my estate both real and personal of whatsoever nature and wheresoever situate not hereinbefore given or otherwise disposed of (hereinafter called "my residuary estate") to my Trustee to hold the same UPON TRUST: (a) firstly to pay all debts of my estate (including all debts the payment of which is secured over any properties specifically herein devised or bequeathed), all funeral and testamentary expenses and all local, state or federal probate, death, estate, succession and other duties and all transfer or other taxes and income tax payable in respect of my death or this Will or any related matter (including, without limiting the foregoing, all duties and taxes assessed upon or in respect of assets included in my estate or the disposition thereof), so that all gifts herein, (other than in this Clause 10) shall as far as possible be free and clear thereof; and (b) secondly to pay from the remainder of my residuary estate (after payment out of the aforesaid debts, expenses, duties taxes and income tax) [list of legacies follows] (c) Thirdly to hold the remainder of my residuary estate UPON TRUST : (i) as to one-third (1/3) share thereof for my daughter the said BETTY PROVIDED THAT should my said daughter die before me leaving issue surviving her then such issue upon the attaining the age of 25 years (and if more than one equally between them as tenants in common per stirpes) shall take the share of the remainder of my residuary estate which his her or their parent would otherwise have taken and in the meantime to pay to such issue or any one or more of them so much of the income thereof as my Trustee in their absolute and uncontrolled discretion determine to be adequate for their respective personal support maintenance education advancement or benefit but having regard to their respective incomes from all other sources BUT if the trusts of this share of the remainder of my residuary estate shall fail my Trustee shall hold the said share upon the same trusts as are provided in sub-paragraphs (ii) and (iii) of this Clause 10(c) of this my Will equally; (ii) as to one-third (1/3) share thereof: (A) as to the income thereof on protective trusts as referred to in Section 45 of the Trustee Act, 1925 as amended for the benefit of my son the said FRED for his life unless and until the said trust shall fail or determine in the events referred to in sub-section (3) of Section 45 of the Trustee Act, 1925 as amended; and (B) in the event of failure or determination during the life of my son the said FRED of the trust referred to in paragraph (c)(ii)(A) of this Clause 10 of this my Will I DIRECT my Trustee during the remainder of his life to pay or apply all or any part of such income for the personal support, maintenance, education, advancement or benefit of all or any one or more to the exclusion of the other or others, of my son the said FRED his wife (if any) and his children or more remote issue (if any) as my Trustee shall in its absolute and uncontrolled discretion think fit; and (C) as to the corpus thereof upon trust for the issue of my son the said FRED living at his death and attain the age of 25 years and if more than one as tenants in common in equal shares per stirpes; and (D) notwithstanding all the foregoing provisions of this Clause 10(c)(ii) of this my Will, if at any time after my son the said FRED attains the age of thirty-five (35) years, my Trustee (who may or may not do so in their absolute and uncontrolled discretion) record in writing their opinion that my said son is able to personally handle his financial affairs and make judgments in relation thereto and will be able to continue to do so then as from the time of the making of such record the one-third share the subject of this Clause 10(c)(ii) and any accretion thereto by virtue of Clause 10(c)(i) or Clause 10(c)(iii) hereof shall be held upon trust as to corpus and income for my son the said FRED absolutely. For the purpose of considering the exercise of the discretion herein conferred my Trustee after my said son shall attain the age aforesaid may obtain and at their discretion act upon such evidence, medical and otherwise as they may think desirable and any expenses of my Trustee therein incurred shall be borne out of the income of such one-third of the remainder of my residuary estate; and (E) if the trusts of this share of the remainder of my residuary estate shall fail my Trustee shall hold the said share upon the same trusts as are provided in sub-paragraphs (i) and (iii) of this Clause 10(c) of this my Will equally; (iii) as to the remaining one-third (1/3) share, for my daughter the said MONICA upon her attaining the age of twenty-five (25) years, and in the meantime to pay to her so much of the income thereof as my Trustee in their absolute and uncontrolled discretion determine to be adequate for her personal support maintenance education advancement or benefit but having regard to her income from all other sources PROVIDED THAT should my daughter MONICA die before me or before attaining a vested interest in the remainder of my residuary estate leaving issue surviving her then such issue upon the attaining the age of 25 years (and if more than one equally between them as tenants in common per stirpes) shall take the share of the remainder of my residuary estate which his her or their parent would otherwise have taken had such parent survived me and attained a vested interest in such remainder and in the meantime to pay to such issue or any one or more of them so much of the income thereof as my Trustee in their absolute and uncontrolled discretion determine to be adequate for their respective personal support maintenance education advancement or benefit but having regard to their respective incomes from all other sources BUT if the trusts of this share of the remainder of my residuary estate shall fail my Trustee shall hold the said share upon the same trusts as provided in sub-paragraphs (i) and (ii) of this Clause 10(c) of this my Will equally." 14 The question of construction that is posed for me is whether Fred takes a life estate or an absolute interest in the distributions from the Fred discretionary trust. 15 On this question, Mr T Jucovic QC appeared for the plaintiff trustees, to contend that Fred took only a life estate and Mr M Cashion SC appeared for Fred's tutor to submit that Fred took an absolute interest. The other beneficiaries were served, but submitted. 16 It is clear that at least two streams of money will be passing through to Fred. The first stream derives from Levko and the Fred Trust, the second flows through the assets of the estate. 17 So far as the first stream is concerned, the distributions are governed by the trust deed of the Fred Trust. However, the plaintiffs hold the shares in Levko and also receive distributions from both Levko and the estate on behalf of Fred. 18 The testator's clear direction was that all monies would flow into the protective trust for Fred under cl 10(c)(ii)(A) of the will. 19 By s 45 of the Trustee Act 1925, the use of the words "protective trust" set up the trust noted in s 45(6) that is for the maintenance, support or benefit of the propositus as the trustees in their absolute discretion think fit. 20 Mr Jucovic noted that s 45 itself is predicated on there being income held for a person for life or any lesser period. Thus, a life estate is the maximum period for which a protective trust can enure. 21 Mr Cashion puts that it is clear that there are provisions in the will for Fred to receive benefits during his life. The real issue to be addressed is whether if the protective trust does not fail or determine during Fred's lifetime, what is to happen to any unexpended income distribution or accretions to income distributions at the time of Fred's death. 22 Mr Cashion says that there are three possible answers to this question, viz: (a) those monies form part of Fred's estate; (b) those monies are dealt with in accordance with Fred's trust on the basis that he had but a life estate; or (c) the monies fall into the residuary estate. 23 At first blush, it would seem that it matters little as the great probabilities are that Fred will never marry nor produce issue so that his share will either accrete to his sisters equally or else pass on intestacy. 24 However, if clauses 6(b)(a)(ii) and 10(c)(ii)(C) of the will apply, both sisters will share equally. If there is an intestacy, assuming the rules of intestacy are then the same as they are today, only the deemed sister of the full blood will inherit. Furthermore, one cannot exclude the possibility of Fred leaving issue. 25 The scheme of the will is that the testator wished to treat his three children equally. The only purpose of entrenching the gift to Fred was because of his inability to manage his money. Each of the daughters receives the whole of her distributions absolutely. On her death, her executors keep what was distributed to her, though fresh distributions will go to her issue. 26 Surely it must follow, Mr Cashion submits, that, when Fred dies, any unexpended distributions or accretions form part of his estate. 27 Mr Cashion further puts that the words "for his life" in cl 10(c)(ii)(A) merely refer to the duration of the protective trust and do not imply that Fred only has a life estate. Indeed, if the protective trust comes to a premature end, there can be a distribution to Fred's wife and children. Surely it was never intended that such wife or children would have to return unexpended monies or accretions on Fred's death. 28 It is also to be noted that the will does not contain the expected residue clause if life interests were created. This is because the gifts to the children were all absolute. 29 I must confess that I cannot see any difficulty in possible refunds of payments. If a distribution is made to Fred during his life and Fred has not spent it, it remains Fred's property. Likewise if the benefit is paid to a third party on absolute trust for Fred. If, at the time of Fred's death, Levko has funds ready to distribute, but has not actually distributed them, the funds simply are not distributed. 30 The problem centres on the funds which, at the date of Fred's death have been appropriated by the trustees for Fred out of the distributions from Levko or otherwise, but not paid over to Fred in cash. 31 This problem is solved by s 45(6)(b) of the Trustee Act which operates so that these monies would be held on trust for one or more of the persons entitled on Fred's death as the trustees thought fit. 32 Mr Cashion submitted that s 45(9) of the Trustee Act meant that subsection (6) did not apply. I do not consider that the will is sufficiently strong in its terms to exclude subsection (6). 33 In the way I have approached the question, it does not arise for a black and white answer. 34 There was also some debate as to what would happen to any accretions to Fred's share. Mr Jucovic put that one must note the phrase "for the benefit of my son" in cl 10(c)(ii)(A). This, he says, points to the purpose of money being supplied to Fred for his personal benefit only. The whole scheme of the will points to Fred being supplied with funds for his personal benefit. 35 I do not consider that possible accretions affect the matter. They will then merely augment the funds that are to be dealt with as Fred's share from the two sources. 36 Turning to the summons, I am not at all sure that the declarations sought, other than proposed declaration 1 are apposite. I will leave the plaintiffs to bring in the appropriate short minutes. In accordance with the request of the parties and the spirit of these reasons, the short minutes should not use Fred's real name. 37 I now turn to the application under s 81 of the Trustee Act 1925. 38 The plaintiffs seek orders that I can summarise as follows: (a) they be empowered as trustees of the shares in Levko to permit Levko to appoint the income referred to in cl 6(b)(a)(i) of the will to permit to a corporation whose shares are held on trusts being on protective trust for Fred during his life and then as per the will; and (b) that they be authorised as trustees of Fred's one-third residuary estate referred to in cl 10(c)(ii) of the will and as trustees of the deed of 25 October 2007 for the benefit of Fred, to pay or apply any of the trust assets or funds for the benefit of Fred including payments as contributions for Fred's superannuation as the trustees in their absolute discretion think fit. 39 The affidavit material shows that to make these orders would be of benefit to Fred and that they are supported by all interested parties. 40 My concern was as to whether this order was within the scope of the court's power under s 81. Having reread what I said in Re Cosaf Pty Ltd (unreported, 18.12.1992) and what White J said in James N Kirby Foundation Ltd v AG (2004) 62 NSWLR 276, I am prepared to accept that what is proposed is a transaction or series of transactions which are expedient in the management and administration of property vested in the plaintiffs as trustees. 41 The arrangement made at the end of the oral hearing was that I would publish these reasons and then have the matter listed at 9:50am on Thursday 15 May 2008 for the making of orders. 42 I invite the plaintiffs to prepare draft short minutes and to discuss the draft with counsel for the second defendant. If there needs to be a matter in these reasons that needs to be adjusted or supplemented, it can be dealt with at the same time. 43 Because the focus of these proceedings is on the benefit of an alleged incapable person, an order should be made, pursuant to s 72 of the Civil Procedure Act 2005 that the publication of the identity of the second defendant and the evidence given in these proceedings be prohibited. However, I believe that such orders should be made sparingly, and, unless convinced otherwise, I would permit these anonymised reasons to be dealt with in the usual manner. ************************ 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.