Re the Nicholas Trust and Re the Trustee Ordinance 1957 [1986] ACTSC 243 (19 December 1986)

SUPREME COURT OF THE ACT

IN THE MATTER OF THE NICHOLAS TRUST and IN THE MATTER OF THE TRUSTEE
ORDINANCE 1957
S.C. No. 1586 of 1983
Trustee Ordinance 1957

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Kelly J.(1)

CATCHWORDS

Trustee Ordinance 1957 - Trustee Act 1925 N.S.W. in its application to A.C.T. - S.63 - Application for judicial advice or opinion - Whether power of appointment of contingent interest validly exercised - Whether exercise of power created such an interest "under the trusts (of the Trust Deed)" or under the Power of appointment - Whether power general or special

Hickling v. Fair (1899) AC 15

Hanbury v. Bateman (1920) 1 Ch 313

Grey v. Federal Commissioner of Taxation [1939] HCA 14; (1939) 62 CLR 49

Attorney General v. Chapman (1891) 2 QB 526

Attorney General v. Mitchell (1881) 6 QBD 548

Middleton v. Crofts (1736) 2 Atk 650: 26 ER 788

Muir or Williams v. Muir (1943) AC 468

Pedley-Smith v. Pedley-Smith [1953] HCA 27; (1953) 88 CLR 177

In re De La Bere's Marriage Settlement Trusts; De La Bere v. Public Trustee (1941) Ch 443

Perpetual Trustee Co. Ltd. v. Commissioner of Stamp Duties (N.S.W.) (1976) 1 NSWLR 127

Sweetapple v. Horlock (1879) 11 ChD 745

Jackson v. Commissioner of Stamps [1907] HCA 28; (1903) AC 350

Davidson v. Armytage [1906] HCA 63; (1906) 4 CLR 205

Farwell on Powers, 2nd Edn p 144

Sugden on Powers, 8th Edn 1861, p 470

HEARING

CANBERRA
19:12:1986

ORDER

THE COURT ADVISES THAT in its opinion the questions asked in the summons herein should be answered as follows:-

(a) Yes.

(b) No.
(c) No.

THE COURT ORDERS THAT:

The applicant trustee's costs of and incidental to the said summons be taxed on a trustee basis and paid out of the assets of the trust fund referred to in the summons.

The costs of Margaret Helen Nicholas and Alison Dorothy Nicholas of and incidental to the said summons be taxed on a common fund basis and be paid out of the said assets.

DECISION

On 23 February 1959 a Deed of Settlement was entered into between Brian Edward Nicholas as settlor and David Keith Nicholas and Margaret Helen Nicholas as trustees. A sum settled and any other sums or investments transferred to the trustees to be held pursuant to the deed were named the "Trust Fund".

2. Clause 1 of the deed provided that the Trust Fund was to be held

"UPON TRUST for such of the children of David
Keith Nicholas and Margaret Helen Nicholas as
within twenty-one years of the death of (a
large class) attain the age of thirty years
and if more than one in equal shares as
tenants in common PROVIDED THAT if any child
of David Keith Nicholas and Margaret Helen
Nicholas shall die before attaining a vested
interest in the Trust Fund leaving issue then
the issue of such child shall take per
stirpes the share which the said deceased
child would have taken had he survived to
acquire a vested interest PROVIDED THAT prior
to any child acquiring a vested interest in
the Trust Fund the Trustees may in their
absolute discretion by Deed appoint any share
to which any child is contingently entitled
to other objects of the trust . . ."

and also provided in its last sentence that -

"The Trustees shall hold any part of the
Trust Fund in which the issue of David Keith
Nicholas and Margaret Helen Nicholas do not
acquire a vested interest upon such trusts as
David Keith Nicholas and failing him Margaret
Helen Nicholas shall by deed or will
appoint."

3. Relevant parts of Clause 4 of the deed were as follows:-

"The Trustees may from time to time exercise
any one or more of the following powers and
authorities, that is to say:-

(a) during the minority of any child or
children who may be contingently entitled
to apply the whole or any part or parts
of the capital or income of the Trust
Fund and if necessary to the entire
exclusion of any other or others
contingently entitled as the Trustees may
in their absolute discretion think fit
for or towards his or her or their
maintenance education and benefit or
advancement in life . . .

(b) at any time or times to advance or raise
or apply or pay or by deed appoint to any
person or persons who may have a
contingent interest under the Trusts
hereof whether a minor or not the whole
or any part or parts of the capital or
income of the Trust Fund and if necessary
to the entire exclusion of any other or
others contingently entitled as the
Trustees may in their absolute discretion
think fit and to advance or raise or
apply or pay or by Deed appoint the same
for the maintenance education advancement
in life or benefit of such person or
persons with the like power of payment
mentioned in sub-clause (a) of this
clause.

. . .

(h) to take and act upon the opinion of
Counsel of five years standing practising
in any country where the Trust Fund or
any part thereof may for the time being
be invested in relation to the
interpretation of these presents or any
other document or statute or as to the
administration of the Trusts hereof
without being liable to any of the
persons beneficially interested in
respect of any act done by the Trustees
in accordance with such opinion BUT
nothing in this provision shall prohibit
or impede the Trustees from applying to
any Court if they shall think fit or
prohibit any of the beneficiaries from so
doing;"

4. Clause 10 of the Deed empowered the settlor during his lifetime and after his death the Trustees to appoint a new Trustee or new Trustees in or out of the Australian Capital Territory.

5. In 1963 the Trustees retired. By Deed of Appointment dated 23 December 1963 the Settlor exercised his power to appoint Damaral (Canberra) Pty. Limited, the applicant herein, trustee. The affidavit in support of the summons describes the retirement and new appointment as having taken place on 23 September 1963 but in this I think the deponent was mistaken.

6. The major assets of the Trust Fund consist of a house in Wollstonecraft, New South Wales, presently registered in the Trustee's name and an investment of $82,000 with C.B.F.C. Limited.

7. Early in 1978 the Trustee sought the opinion of Counsel of the requisite five years standing practising in New South Wales. He was asked to advise on two questions. They were:-

1. Is David Keith Nicholas legally entitled to make
Margaret Helen Nicholas contingently entitled
under the Trust by executing a Deed appointing her
the person who will receive the whole of the Trust
Fund in the event of the issue of David Keith
Nicholas and Margaret Helen Nicholas failing to
acquire a vested interest?

2. If by execution of such a Deed Margaret Helen
Nicholas "may have a contingent interest under the
Trust (of the Deed of Settlement)", is the Trustee
legally entitled, pursuant to the powers and
authorities vested in it under the Deed, "to
advance or raise or apply or pay or by deed
appoint . . . the whole or any part or parts of
capital or income of the Trust Fund" for
"maintenance education advancement in life or
benefit" of Margaret Helen Nicholas?

8. By his opinion dated 19 April 1978 Counsel answered each question in the affirmative.

9. Thereupon on 21 April 1978 David Keith Nicholas as appointor in exercise of the Power of Appointment given him by the last sentence of clause 1 of the Deed of Settlement irrevocably appointed the applicant to "hold the whole of the Trust Fund in which the issue of (him the appointor) and Margaret Helen Nicholas did not acquire a vested interest upon trust for Margaret Helen Nicholas for her own use and benefit absolutely". Immediately he gave notice of his purported exercise of the power to the Trustee.

10. On the same day the Directors of the Trustee in exercise of their powers under clause 4(b) of the Deed of Settlement resolved that the whole of the Trust Fund should vest in Margaret Helen Nicholas and resolved further to execute a form of appointment to effect such vesting. The appointment, dated the same day and bearing the common seal of the Trustee, recited that the Trustee as appointor in exercise of the Power of Appointment by Deed given to it by the Deed of Settlement irrevocably appointed the whole of the Trust Fund to be vested, in accordance with the Directors' resolution, in Margaret Helen Nicholas for her own use and benefit absolutely to the entire exclusion of all other persons.

11. As at 21 April 1978 there were then living only two children of David Keith Nicholas and Margaret Helen Nicholas, namely, David Robert Nicholas born 6 May 1948 and Alison Dorothy Nicholas born 14 April 1958. Neither of them has or had as at 21 April 1978 any children.

12. In 1978 Margaret Helen Nicholas brought proceedings in this Court seeking declaration against the Trustee that the appointments dated 21 April 1978 were invalid. In 1981 Alison Dorothy Nicholas brought proceedings in the Equity Division of the Supreme Court of New South Wales seeking similar declarations. After the filing of the originating process in each case, neither took any further step in the proceedings. Correspondence between solicitors established that neither was willing to proceed further with the actions she had commenced nor was she willing to abandon any challenge to the appointments dated 21 April 1978 and any vesting of the property of the Trust Fund in Margaret Helen Nicholas pursuant to the second of those appointments.

13. Letters from David Robert Nicholas indicate that he too is unwilling to take any action to challenge the validity of the transactions dated 21 April 1978 or to agree that the property of the Trust Fund should vest in Margaret Helen Nicholas and that the Trustee should be released from all liability in respect of the transfer to effect that vesting.

14. By summons dated 21 September 1983 the Trustee sought the advice of the Court under the Trustee Ordinance 1957 (the Ordinance) on the following questions:-

"(a) whether, on the true construction of a
Deed of Trust dated 23 February 1959
whereunder the plaintiff is the trustee
of a certain trust fund and in the events
which have happened, David Keith Nicholas
by Deed of Appointment dated 21 April
1978 validly appointed that the plaintiff
as trustee hold the whole of the said
Trust Fund for Margaret Helen Nicholas
absolutely;

(b) whether, by reason of the said Deed of
Appointment dated 21 April 1978 the said
Margaret Helen Nicholas became a person
who had a contingent interest under the
trusts of the said Trust Deed, for the
purposes of Clause 4(b) of the said Deed;

(c) whether on the true construction of the
Trust Deed and in the events which have
happened, the plaintiff as trustee by
Deed of Appointment dated 21 April 1978
validly appointed that subject to any
liabilities to creditors the whole of the
trust fund be vested in the said Margaret
Helen Nicholas for her own use and
benefit absolutely."

15. Directions were given that notice of the proceedings should be given to Margaret Helen Nicholas, David Robert Nicholas and Alison Dorothy Nicholas. In each case directions were given as to the method of service of the notice. It was to be served on David Robert Nicholas by being sent "by overseas express airmail letter" addressed to him at his address in Los Angeles, California. A direction was also given that any person served with a notice who desired to appear in the proceedings should make application to the Court for further directions in the proceedings. Appearances were filed on behalf of Margaret Helen Nicholas and Alison Dorothy Nicholas. No appearance has been filed on behalf of David Robert Nicholas. The notice, of which a copy was sent to each of the three named persons, referred to the commencement by summons of proceedings in this Court seeking judicial advice under the Ordinance as to the manner in which the Trustee should administer the Trust Fund established by the Deed of 25 February 1959. The questions on which advice is sought in the summons were set out in full. Notice was also given

(a) that an order would be sought that the costs
of the proceedings should be paid out of the
assets of the Trust Fund;

(b) of the Trustee's intention to distribute the
whole of the Trust Fund to Margaret Helen
Nicholas, subject to any liabilities to
creditors of the Trust, should the Court
answer affirmatively the third question
posed;

(c) that as a possible beneficiary of the Trust
Fund David Robert Nicholas might be entitled
to appear in the proceedings by legal
representatives and to present submissions on
the questions in issue;

(d) that the Court had given directions that
notice of the proceedings be given him; and

(e) that if he did not appear in the proceedings
in accordance with the terms of the notice he
would be bound by the opinion, advice,
directions or order of the Court given in the
proceedings in the same manner as if he had
been a party to the proceedings.

16. The directions plainly provided for a convenient method of bringing all concerned parties before the Court if they were willing to appear. Two have done so and I am not further concerned with the procedure adopted in relation to the notice given them. The third, David Robert Nicholas, has not appeared.

17. During the course of the hearing an affidavit was tendered to prove that a copy of the notice provided for by the order for directions was posted to David Nicholas by International Priority Paid mail, said to be the fastest international postal service available ensuring that the notice would be delivered by courier to the addressee on the west coast of the United States within 48 hours of posting in Sydney. I accepted that evidence. The same affidavit indicated that there is a type of mail called "Overseas Express Air Mail". Having noted the difference between the two types of mail, I came to the conclusion that what was done was a sufficient compliance with the direction unless the words "overseas express airmail" were to be given a fixed and rigid meaning as a term of art. I do not think they should.

18. In all the circumstances I am satisfied that the procedure laid down by s.63 of the Trustee Act 1925 of the State of New South Wales in its application to the Territory by virtue of the Ordinance has been followed sufficiently and I therefore proceed to consider the questions asked.

19. In the absence of any words controlling or limiting its meaning, I take the word "issue" where used in the Deed to mean the whole of the issue of any child of David Keith Nicholas and Margaret Helen Nicholas whether in existence or not at the time such child should attain a vested interest in the Trust Fund. Hickling v. Fair (1899) AC 15 at p 21 per Lord Watson. The use of the words "children" and "child" in clause 1 of the Deed, in my opinion, makes this plain. Counsel for Alison Nicholas did not seek to put a contrary view. (It should be noted that Margaret Helen Nicholas elected to make no submissions as to the substantive questions.)

20. Nor is it disputed that the first question should be answered in the affirmative.

"A power presently given to a designated
person, to be exercised upon a contingency,
can be well exercised before the contingency
happens."

Farwell on Powers, 2nd Edn. p 144, approved in Hanbury v. Bateman (1920) 1 Ch 313 at p 317. See also Grey v. Federal Commissioner of Taxation [1939] HCA 14; (1939) 62 CLR 49 at p 59 per Rich J. The power of appointment was, therefore, validly exercised.

21. The critical question, (b), is whether by virtue of the Deed of Appointment in her favour dated 21 April 1978 Margaret Helen Nicholas became a person who had a contingent interest under the trusts of the Trust Deed for the purposes of clause 4(b) of the Deed.

22. Counsel for the applicant trustee submitted that the only persons who could be in the category of contingent beneficiaries "under the trusts (of the Trust Deed) were the issue of the children of David Keith Nicholas and Margaret Helen Nicholas and any appointees under the power of appointment contained in the last sentence of clause 1". He referred to Attorney General v. Chapman (1891) 2 QB 526. In that case, as appears from the headnote, by a settlement made in consideration of marriage, H. transferred personal property to trustees upon trust to pay the income to herself for life; and, if certain events should happen, after her death upon trust for such person or persons as she, notwithstanding coverture, might appoint. The events happened, and she died in 1888, having, during her coverture, by deed exercised the power of appointment in favour of a niece. It was held that the property so appointed to the niece must be taken to be property "passing under" (the phrase used in the relevant legislation) the marriage settlement. At p 532, Wills J, giving the judgment of the Court (Denman and Wills JJ), said:-

"The expression 'passed under' is not a
phrase of art in the same strict sense in
which 'devise', grant', 'estate in fee',
'remainder', and a host of others having
exact and uniform technical significations
would be properly so termed. It is a phrase
of a comprehensive nature, and we think it
may fairly be used in respect not only of
dispositions which are effected by the words
of the instrument creating them but of those
which are effected by the subsequent
execution of a power created by the
instrument in question. A deed of
appointment would do nothing of itself, and
only owes its vitality to the instrument
creating it. It is surely, under such
circumstances, no stretch of language to say
that property, the right to direct the
application of which is created by deed A,
but the specific direction of which is
effected by deed B, passes under (not by)
deed A."

23. Counsel referred also to Attorney General v. Mitchell (1881) 6 QBD 548. In that case s.2 of the Succession Duty Act 1853 fell to be considered. Relevantly it provided that every disposition of property by reason whereof any person had or should become beneficially entitled to any property upon the death of any person dying after the commencement of the Act should be deemed to have conferred or to confer on the person entitled a "succession" and the term "successor" should denote the person so entitled and the term "predecessor" should denote the settlor etc. or other person from whom the interest of the successor had been or should be derived.

24. As appears from the headnote, a testator bequeathed personalty in trust for his daughter for life and afterwards for such persons as she should by deed appoint. After the Act came into operation, the testator having died before it did, the daughter, by deed, appointed the trust fund to her sister's daughters. It was held that the daughters derived their interest from their grandfather, the testator, as predecessor and not from their aunt the appointor.

25. Reference was made during the course of the judgments to earlier authorities which express the view that an appointment under a power is incorporated into the instrument creating the power. At p 555 per Lindley J (as he then was).

26. Counsel also referred to the following passage from Sugden on Powers, 8th Edn. 1861, at p 470:-

"The estates created by the execution of a
power take effect precisely in the same
manner (with the exception which will shortly
be noticed) as if created by the deed which
raised the power. Thus, suppose a general
power of appointment to be given to a man by
deed, and he by virtue of his power limit the
estate to A for life, with remainder to his
children in strict settlement, these
limitations will take effect as estates
limited by the original deed, and in exactly
the same way as they would have done had they
been limited in that deed by the grantor of
the power, in lieu of the power of
appointment by force of which they were
created."

27. The authority relied on in support of the proposition just quoted was Middleton v. Crofts (1736) 2 Atk 650: 26 ER 788, a decision of the whole Court of King's Bench, presided over by Lord Hardwicke, then Chief Justice of that court, who delivered its judgment. At p 661: 794, he said:-

". . . for nothing is more certain in law than
this, than (sic) when any act is done under a
power, that act is deemed to be done by the
grantor of the power, and to have its
validity from him, and not from the person
that executes it."

28. But in Muir or Williams v. Muir (1943) AC 468, Lord Romer, with whom Lord Wright and Lord Clauson agreed, and from whose views I do not understand Lord Thankerton and Lord Macmillan to have dissented, said at p 483:-

" . . . if a person be given a general power of
appointment over certain property he is
virtually the owner of that property. If and
when he exercises the power the interests of
his appointees come to them by virtue of and
are created by the deed of appointment. In
the case of a special power it is very
different. If, for example, property be
settled on trust for A for life and after his
death on trust for such of A's children or
remoter issue and in such proportions as B
shall by deed appoint, B has no interest in
the property whatsoever. He has merely been
given the power of saying on behalf of the
settlor which of the issue of A shall take
the property under the settlement and in what
proportions. It is as though the settlor had
left a blank in the settlement which B fills
up for him if and when the power of
appointment is exercised. The appointees'
interests come to them under the settlement
alone and by virtue of that document."

29. In Pedley-Smith v. Pedley-Smith [1953] HCA 27; (1953) 88 CLR 177 at p 190, the High Court referred with approval to the passage from the speech of Lord Romer just quoted. At p 191 the Court referred with approval also to a passage from the judgment of Simonds J (as he then was) in In re De La Bere's Marriage Settlement Trusts; De La Bere v. Public Trustee ((1941) Ch 443) where his Lordship said at p 448:-

"In fact, those cases (In re Dickinson's
Settlements; Bickersteth v. Dickinson (1939)
Ch 27 and In re Rush; Warre v. Rush (1922) 1
Ch 302) are examples of a principle which
seems to be perfectly clear, namely, that,
where there is an instrument creating a power
and a later instrument exercising that power,
the interest created by the exercise of the
power arises under the later instrument, for,
in fact, there never was such an interest
until the power was exercised so as to create
it."

The High Court went on to say immediately, at p 191:-

"But while the interest arises under the
later instrument in this sense it so arises
because of the operative effect of the
disposition contained in the instrument
creating the power. It would not be in
accordance with principle to deny that the
interest was acquired under that instrument."

Their Honours then went on to discuss the application of the principle. It is plain from that discussion, in my opinion, that they were referring to the grant in an instrument of a special power of appointment when by virtue of the fact that two instruments form part of the same assurance the interest arising under the later instrument can be said to have been acquired under the earlier instrument. It seems to me that the construction of the two instruments together is necessary to ascertain the extent of the interest created by the special power of appointment.

30. It follows that the apparent width of Lord Hardwicke's dictum in Middleton v. Crofts (supra) is to be read down when powers of appointment are in question in the light of Muir or Williams v. Muir (supra) and Pedley-Smith v. Pedley-Smith (supra). Those cases establish -

"that an exercise of a special power is read
back for the purposes of determining the
source and the validity of the gift to the
appointee: as was said in the High Court, it
is the instrument creating the power which
has the operative effect: Cf. Pedley-Smith
v. Pedley-Smith (supra)."

Perpetual Trustee Co. Ltd. v. Commissioner of Stamp Duties (N.S.W.) (1976) 1 NSWLR 127 at p 131.

31. Counsel for the applicant trustee referred also to Sweetapple v. Horlock (1879) 11 ChD 745. In that case, under a marriage settlement, real estate stood limited to H., the husband, for life, with remainder to the use of such of the children or issue of the marriage as he should by deed or will appoint and in default of appointment, to the use of the children of the marriage equally as tenants in common in fee. There were two children of whom one, the daughter, by a marriage settlement covenanted with the trustees for the conveyance and settlement of all property which she was then 'seised of, or interested in, or entitled to' upon the trusts therein mentioned. She survived her husband and thereupon her father appointed the real estate comprised in the original settlement, subject to his life estate, to the daughter and her brother equally in fee, the daughter thus taking the same share as she would have taken in default of appointment. It was held that inasmuch as the reversionary moiety appointed to the daughter constituted a new interest acquired by her subsequently to the date of her settlement, such moiety was not bound by the convenant in her marriage settlement.

32. Counsel also referred to Jackson v. Commissioner of Stamps [1907] HCA 28; (1903) AC 350, a decision of the Privy Council on appeal from the Supreme Court of New Zealand. At p 354 their Lordships said:-

"It has been determined in this country that
a person entitled under a will in default of
appointment, who takes by appointment
precisely the same interest which he would
have taken if no appointment had been made,
takes a new interest, and takes under the
appointment and not under the will.
(Sweetapple v. Horlock (1879) 11 ChD 745.)"

33. Counsel sought to distinguish the two cases just referred to but, in my opinion, unsuccessfully. Additionally, it is to be noted that Sweetapple v. Horlock (supra) was referred to by the High Court in Davidson v. Armytage [1906] HCA 63; (1906) 4 CLR 205 at p 211 where Griffiths CJ, giving the judgment of the court, said:-

"That is, of course, not an exhaustive
definition, but that condition is fulfilled
in the present case, because, although in
default of these deeds of appointment the
same persons would have taken a share of the
property as tenants in common in fee, it is
settled by Sweetapple v. Horlock (supra), the
authority of which has not been disputed,
that the interests taken under the deeds are
new interests."

34. In my opinion, the somewhat confusing conflict of authority is to be resolved in favour of the proposition that the interest which Margaret Helen Nicholas took under the power of appointment exercised by David Keith Nicholas was not a contingent interest under the trust instrument but a contingent interest under the power of appointment.

35. The same result is achieved, I think, by consideration of the nature of the power. In my opinion it is a general power of appointment which may be exercised without limit in respect of the interest over which it purports of operate.

36. On the authorities it seems to me therefore that any interest created by the exercise of the power of appointment in favour of Margaret Helen Nicholas depends for its effect, not on the Trust Deed, but upon the exercise of the power. Hence it does not create, within the meaning of the Trust Deed, a contingent interest "under the trusts (t)hereof".

37. In my opinion, therefore, the questions asked should be answered -

(a) Yes.
(b) No.
(c) No.