Cavill Hotels Pty Ltd, Re [1997] QSC 6 [1998] 1 Qd R 396

IN THE SUPREME COURT OF QUEENSLAND Brisbane Before the Hon. Justice Williams BETWEEN: AND: AND: AND: This judgment is to bo copi~~ ; only. It is not to be resclc: (; No 5120 of 1996 IN TIlE MA TIER OF the Trusts Act 1973 and IN TIlE MA TIER OF a Deed of Trust dated 27 June 1979 made between Trevor Foster Ward as settlor and Brisbane Land Syndicates Pty Ltd (now called Cavill Hotels Pty Ltd) as trustee known as The Greg Cavill Family Trust as varied by a deed of variation dated 3 March 1983 and a further deed of variation dated 20 July 1994. CAVILL HOTELS PTY LTD (ACN 009 832 848) as trustee of The Greg Cavill Family Trust First Applicant DONNA MARGARET GARDE on behalf of and for the benefit of herself and the grandchildren of Gregory Cavill and Marguerite Vere Cavill now living or to be born, who qualified or who would qualify, but for the Deed of Variation dated 20 July 1994, as beneficiaries of the Greg Cavill Family Trust pursuant to the original terms of the Deed of Trust dated 27 June 1979. Second Applicant CAVILL HOTELS PTY LTD (ACN 009 832 848) First Respondent GREGORY CAVILL, MARGUERITE VERE CAV ILL, JENNIFER JOYCE CAVILL, MARIANNE SCOTI SEYMOUR, PETER JAMES SCOTI CAVILL, GREGORY JOHN CAVILL & RICHARD GRAYDON CAVILL Second Respondent , ~...;. dy .~I; ! (pOSe of r,sses:!"cn and pllvate ~lU i'"; .¥: in any other way WIthout .1..------------.--...- -- 1 of 15 -- AND: AND: AND: AND: AND: CATCHWORDS: Counsel: Solicitors: Hearing Date: GUY VICKERMAN, RICHARD HAROLD SEYMOUR, HELEN CAVILL & SUSAN CAVILL Third Respondent WARRIOR INVESTMENTS PTY LTD, BREAKFAST CREEK HOTEL PTY LTD & LACESTONE PTY LTD Fourth Respondent LACESTONE PTY LTD as Trustee for the Wynnum West Tavern Trust and BREAKFAST CREEK HOTEL PTY LTD as trustee for the Breakfast Creek Hotel Trust Fifth Respondent GREGORY CAVILL HOLDINGS PTY LTD AND TARMOAT PTY LTD as Trustee for the Kingsford Smith Property Trust Sixth Respondent ELIZABETH RALPH Seventh Respondent REASONS FOR JUDGMENT - GN WILLIAMS J Judgment delivered 16/1/97 TRUSTS - power to vary by deleting named beneficiaries - power not validly exercised by identifying classes of continuing beneficiaries - Deed of Variation set aside - Tumerv. Tumer (1984) Ch. 100 applied. Alexander for first applicant Logan for second defendant Quayle for respondents other than Greg Cavill Hunt and Hunt for first applicant Broadley Rees for second applicant McCullough Robertson for respondents other than Greg Cavill 25 November 1996 -- 2 of 15 -- IN THE SUPREME COURT OF QUEENSLAND Brisbane BETWEEN: AND: AND: AND: No 5120 of 1996 IN THE MA TIER OF the Trusts Act 1973 and IN THE MA TIER OF a Deed of Trust dated 27 June 1979 made between Trevor Foster Ward as settlor and Brisbane Land Syndicates Pty Ltd (now called Cavill Hotels Pty Ltd) as trustee known as The Greg Cavill Family Trust as varied by a deed of variation dated 3 March 1983 and a further deed of variation dated 20 July 1994. CAVILL HOTELS PlY LID (ACN 009 832 848) as trustee of The Greg Cavill Family Trust First Applicant DONNA MARGARET GARDE on behalf of and for the benefit of herself and the grandchildren of Gregory Cavill and Marguerite Vere Cavill now living or to be born, who qualified or who would qualify, but for the Deed of Variation dated 20 July 1994, as beneficiaries of the Greg Cavill Family Trust pursuant to the original terms of the Deed of Trust dated 27 June 1979. Second Applicant CAVILL HOTELS PlY LTD (ACN 009 832 848) First Respondent GREGORY CAVILL, MARGUERITE VERE CAVILL, JENNIFER JOYCE CAVILL, MARIANNE SCOTf SEYMOUR, PETER JAMES SCOTf CAVILL, GREGORY JOHN CAVILL & RICHARD GRAYDON CAVILL Second Respondent -- 3 of 15 -- AND: AND: AND: AND: AND: 2 GUY VICKERMAN, RICHARD HAROLD SEYMOUR, HELEN CAVILL & SUSAN CAVILL Third Respondent WARRIOR INVESTMENTS PTY LTD, BREAKFAST CREEK HOTEL PTY LTD & LACESTONE PTY LTD Fourth Respondent LACESTONE PTY LTD as Trustee for the Wynnum West Tavern Trust and BREAKFAST CREEK HOTEL PTY LTD as trustee for the Breakfast Creek Hotel Trust Fifth Respondent GREGORY CAVILL HOLDINGS PTY LTD AND TARMOAT P1Y LTD as Trustee for the Kingsford Smith Property Trust Sixth Respondent ELIZABEm RALPH Seventh Respondent REASONS FOR JUDGMENT- GN WILLIAMS J Judgment delivered 16/1/97 By these proceedings the court is asked to rule upon the proper construction of an original deed of trust and to rule in consequence of that construction whether a clause of a subsequent deed of variation was ultra vires the original deed of trust. Alternatively, if the clause in the second deed of variation is not ultra vires, the court is asked to determine whether on the facts there was a breach of fiduciary duty by the trustees so that the second deed of variation was invalid. That relief is sought on an originating summons to which there was no opposition. Earlier orders of the court ensured that all possible persons (some of whom are yet to be born) affected by the determination were represented before the court. -- 4 of 15 -- , , 3 It should also be formally recorded that the applicants did not pursue the relief sought in paragraph 4 of the amended summons of 1 October 1996. I am satisfied that all beneficiaries, including potential beneficiaries and all distinct interests, are sufficiently represented before the court. I would also record, because in the narrative of relevant events there will be reference to the ANZ Bank, that that bank was provided with copies of the material relied upon but did not seek to appear and make submissions. The Commissioner of Stamp Duties is also aware of the application. It will be noted that the first applicant is Cavill Hotels Pty Ltd in its capacity as Trustee of The Greg Cavill Family Trust, and that that company is also the first respondent. Section 59 of the Trusts Act 1973 recognises that a trustee can sue itself in its personal capacity; that is the position here. By orders of this court the second applicant, Donna Margaret Garde, has been appointed as representative applicant for the grandchildren of Gregory Cavill and Marguerite Vere Cavill, both living and to be born; all those grandchildren are beneficiaries under the original Deed of Trust. I am satisfied that there was adequate representation on this application for all of those persons, living and yet to be born, who were excluded from the class of beneficiaries by the second Deed of Variation. The second applicant received independent legal advice and was represented at the hearing separately from the representation for the first applicant. The material also establishes that Cavill Holdings Pty Ltd has been given all necessary and proper advice with respect to seeking independent advice as to its personal position. Gregory Cavill has been served with all material but did not appear. He was the only respondent not represented by counsel. -- 5 of 15 -- 4 Against that background I tum to the relevant background facts which are not in dispute. On or about 27 June 1979 a Deed of Trust constituting The Greg Cavill Family Trust was executed and Cavill Hotels Pty Ltd (at the time called Brisbane Land Syndicates Pty Ltd) accepted appointment a~ trustee. The Articles of Association of Cavill Hotels Pty Ltd contained an interested director's clause, but the Deed of Trust did not contain an interested persons clause. However, at the time the Deed of Trust was constituted, to the knowledge of the settlor, Gregory Cavill was a director and shareholder of the trustee company as well as a beneficiary of the trust. Another company in which Gregory Cavill had a substantial interest, Gregory Cavill Holdings Pty Ltd, was also both a shareholder of Cavill Hotels Pty Ltd and a beneficiary under the Deed of Trust. At all material times Cavill Hotels Pty Ltd has acted solely as trustee of The Greg Cavill Family Trust and has not carried on business in its own right. The Deed of Trust was first varied by a Deed of Variation dated 3 March 1983; the details of that variation are not relevant for present purposes. The material establishes that Cavill Hotels Pty Ltd, as trustee of The Greg Cavill Family Trust: (i) was a member of a group of companies and trusts under the control of members of the Cavill Family; (ii) owned land at 10-12 Higgs Street, Albion next to the Breakfast Creek Hotel which it rented to Breakfast Creek Hotel Pty Ltd as trustee of the Breakfast Creek Hotel Trust, which carried on business as lessee of the Breakfast Creek Hotel; (iii) has. received substantial distributions of trust income from the Breakfast Creek Hotel Pty Ltd as trustee of the Breakfast Creek Hotel Trust over many years; · , -- 6 of 15 -- 5 (iv) has made substantial distributions of trust income to other companies and trusts in the group, including Lacestone Pty Ltd as trustee of the Wynnum West Tavern Trust and Warrior Investments Pty Ltd, as well as other adults who were family members; (v) at the time of execution of the Second Deed of Variation dated 20 July 1994 owed substantial amounts to, and was owed substantial amounts by, other companies and trusts in the group. Against that background on or about 17 October 1988, Cavill Hotels Pty Ltd as trustee' of The Greg Cavill Family Trust executed a Cross-Deed of Covenant in favour of the ANZ Bank as collateral security for, inter alia, finance facilities provided to Lacestone Pty Ltd as trustee of the Wynnum West Tavern Trust for the purchase of the Wynnum West Tavern on 24 October 1988. Subsequently the Wynnum West Tavern was sold at a loss. Thereafter Lacestone Pty Ltd as trustee of the Wynnum West Tavern Trust purchased the Norman Hotel at Woolloongabba for $2 million with finance from ANZ Bank. One of the conditions of the finance facility granted for that purchase obliged Cavill Hotels Pty Ltd as trustee of The Greg Cavill Family Trust to execute registered mortgages over the land 10-12 Higgs Street, Albion in favour of ANZ Bank. Those mortgages were duly executed and registered. By a letter dated 17 September 1993, the ANZ Bank offered to renew finance facilities to three corporate trustees in the group on terms and conditions set out in that letter. That offer was accepted. One of the conditions required execution of a Cross-Deed of Covenant in favour of the ANZ Bank by Breakfast Creek Hotel Pty Ltd in its own capacity and as trustee for the Breakfast Hotel Trust, Cavill Hotels Pty Ltd in its own capacity and as trustee for The Greg Cavill Family Trust, Lacestone Pty Ltd in its own capacity and as trustee for the Wynnum West Tavern Trust, Warrior Investments Pty'Ltd, Gregory Cavill Holdings Pty -- 7 of 15 -- 6 Ltd, Gregory Cavill, and Marguerite Vere Cavill. It will be remembered that the bank already held first registered mortgages from Cavill Hotels Pty Ltd as trustee for The Greg Cavill Family Trust over the property of 10-12 Higgs ,Street. By letter dated 20 September 1993 the ANZ Bank drew to the attention of the accountants for the Cavill Group the fact that The Greg Cavill Family Trust did not contain an adequate personal interest clause, and the bank further expressed the view that the interested directors were not able to amend the Deed in an appropriate manner. The letter contained a recommendation that independent directors be appointed for that purpose. However attempts to have accountants or lawyers who acted for the Cavill Group to accept such an appointment for that purpose were unsuccessful. It was then suggested by a solicitor acting on behalf of the Group that the variations to the Deed of Trust involving the inclusion of an interested persons clause be consented to by all the beneficiaries who were sui juris. Documents were prepared which would have given effect to such a proposal. The ANZ Bank was informed of what was intended. The solicitors for the ANZ Bank indicated that the proposal was not acceptable. They suggested that the classes of beneficiaries be closed and that the beneficiaries under the trust be limited to those over the age of 18 years who consented to the proposed variations to the Deed of Trust to include an interested persons clause. The accountant advising the Group did not believe that the class of beneficiaries should be so limited and advised accordingly. The material suggests that no one in the Cavill camp was in favour of the Bank's proposal. Neither Greg Cavill nor Marguerite Vere Cavill, who were directors of Cavill Hotels Pty Ltd took an active part in the refinancing negotiations with the ANZ Bank. Those negotiations were primarily the responsibility at the time of Jenny Cavill who was also a director of Cavill Hotels Pty Ltd. Given the attitude of the ANZ Bank -- 8 of 15 -- 7 the only alternative that Jenny Cavill and Gregory Cavill could see was to change banks and they gave consideration to that. However they ultimately decided that it was too much trouble and expense to make that change merely because of the matter raised by the ANZ Bank. It would appear from the material, and I am prepared to accept, that neither Gregory Cavill nor Jenny Cavill, who were the directors responsible for the passing the necessary resolutions and executing the Deed of Variation in question on behalf of the trustee, believed that it was in the best interests of The Greg Cavill Family Trust that the grandchildren and others in question be excluded from the class of beneficiaries. They acted as they did because they could not see any other practical alternative; they simply accepted the ANZ proposal. Against that background the accountants, who as previously noted were not in favour of limiting the class of beneficiaries, advised that the Trust Deed be varied by naming those persons who were sui juris and were to continue as beneficiaries. Through an oversight three beneficiaries who were sui juris were left out; they were Elizabeth Ralph, Gregory Cavill Holdings Pty Ltd, and Tarmoat Pty Ltd as trustee of the Kingsford Smith Property Trust. Those three were made the sixth and seventh respondents and were represented on the hearing. There was some further correspondence between the solicitors for the trustee and the solicitors for the ANZ Bank which resulted in some minor amendments being made to the draft. A Deed of Variation was then prepared and submitted to the trustee for execution. On or about 20 July 1994 the Deed of Variation was executed. Subsequently the Cross-Deed of Covenant sought by the ANZ Bank was executed by the trustee. It is now necessary to look in some more detail at the provisions of the original Deed and the second Deed of Variation of 20 July 1994. -- 9 of 15 -- 8 The original Deed of Trust provided for "capital beneficiaries" and "income beneficiaries". The following definitions were contained in that Deed: "The Capital Beneficiaries" shall mean those persons mentioned in the Second Schedule hereto subject to any addition thereto and deletion therefrom made in accordance with the provisions of this Deed." "The Income Beneficiaries" shall mean those persons mentioned in the Third Schedule hereto subject to any addition thereto and deletion therefrom made in accordance with the provisions of this Deed." The Second Schedule was in the following terms: "The Capital Beneficiaries are as follows: (a) Gregory Cavill (b) Marguerite Vere Cavill (c) Any child, adopted child, grandchild or remoter issue of the said Gregory Cavill and Marguerite Vere Cavill whether born or unborn (d) Any spouse of any child adopted child or grandchild or remoter issue of the said Gregory Cavill and Marguerite Vere Cavill (e) The Trustee of any other trust (howsoever created) the capital or income of which is or may be held in whole or in part (and whether absolutely contingently or otherwise) for anyone or more of the said children, adopted children or grand children or any spouse of any child adopted child or grandchild or remoter issue of Gregory Cavill and Marguerite Vere Cavill provided that no part thereof is or may be held for the Trustee (f) Any child or adopted child of the sister of the said Gregory Cavill. (g) Any Company (other than the Trustee for the time being hereof) at least one share in which is held by or on behalf of anyone or more of either Gregory Cavill, Marguerite Vere Cavill or by or on behalf of the trustees of any trust referred to in subclause (e) of this Clause The Third Schedule to that Deed was as follows: "The Income Beneficiaries are as follows:- (a) Gregory Cavill (b) Marguerite Vere Cavill -- 10 of 15 -- 9 (c) Any child, adopted child, grandchild or remoter issue of the said Gregory Cavill and Marguerite Vere Cavill whether born or unborn (d) Any spouse of any child adopted child or grandchild or remoter issue of the said Gregory Cavill and Marguerite Vere Cavill (e) The Trustee of any other trust (howsoever created) the capital or income of which is or may be held in whole or in part (and whether absolutely contingently or otherwise) for anyone or more of the said children, adopted children or grand children or any spouse of any child adopted child or grandchild or remoter issue of Gregory Cavill and Marguerite Vere Cavill provided that no part thereof is or may be held for the Trustee (f) Any child or adopted child of the Sister of the said Gregory Cavill. (g) Any Company (other than the Trustee for the time being hereof) at least one share in which is held by or on behalf of anyone or more of either Gregory Cavill, Marguerite Vere Cavill or by or on behalf of the trustees of any trust referred to in subclause (e) of this clause (h) Any person as defined by Clause 1 of the Deed as may be appointed by the Trustee to be a Beneficiary in respect of income derived in any financial year Clause 22 thereof provided that the Trustee should not in any circumstances amend the Schedules except as provided in the Deed. Clause 2( c) contained the provision relating to the variation of the Second Schedule, and cl. 3(c) provided for variation of the Third Schedule. Those clauses are in the following terms: "2(c) While GREGORY CAVILL, presently a Director of BRISBANE LAND SYNDICATES PTY. LTD. continues to be a Director of Brisbane Land Syndicates Pty. Ltd., the Trustee may by Deed or Deeds, revocable or irrevocable and with or without power of alteration: (i) Vary the provisions of the Second Schedule hereof: (a) by adding the name of any person or persons as a Capital Beneficiary; or (b) by deleting the name of any Capital Beneficiary referred to therein or subsequently added by a variation under this clause; -- 11 of 15 -- 10 (ii) Determine and nominate the proportion in which any Capital Beneficiary is to share in the Trust Property at the time of such vesting; (iii) At any time or times vary the proportion in which any Capital Beneficiary is to share in the Trust Property at the time of such vesting PROVIDED HOWEVER that the Trustee shall not have power under this Deed to acquire any beneficial interest in the income or capital of the Trust Property. 3(c) The Trustee may by deed or deeds, revocable or irrevocable and with or without power of alteration vary the provisions of the Third Schedule hereof; (i) by adding the name of any person or persons as an Income Beneficiary; or (ii) by deleting the name of any Income Beneficiary referred to therein or subsequently added by a variation under this clause PROVIDED HOWEVER that the Trustee shall not have power under this Deed to acquire any beneficial interest in the income or capital of the Trust Property." The Deed of Variation of July 1994 recited that the trustee had determined to restrict the class of beneficiaries eligible to benefit pursuant to the Trust to those beneficiaries as are specifically referred to in the Deed of Variation. The recitals also contained the following provIsIOn: "The Family Beneficiaries, the Spouse Beneficiaries, the Company Beneficiaries and the Related Trust Beneficiaries are all potential Beneficiaries of the Trust and are also sui juris and at the request of the Trustee are prepared to consent to the amendment of the Trust Deed in the manner prescribed by the Trustee and to allow the Trustee to restrict the eligibility of the beneficiaries as proposed by the Trustee." Effect was then given to those provisions by cl. 2 of the Deed of Variation which is in the following terms: -- 12 of 15 -- 11 "Restriction upon Eligibility of Beneficiaries 2.1 Under the Powers conferred upon it by Clause 2( c)(i) and Clause 22 of the Trust Deed, the Trustee varies the Second Schedule of the Trust Deed by deleting references to all Capital Beneficiaries other than:- the Family Beneficiaries; the Spouse Beneficiaries; • the Company Beneficiaries; and the Related Trust Beneficiaries described in this Deed. 2.2 Under the Powers conferred upon it by Clause 3(c)(ii) and Clause 22 of the Trust Deed, the Trustee varies the Third Schedule of the Trust Deed by deleting references to all Income Beneficiaries other than:- the Family Beneficiaries; • the Spouse Beneficiaries; • the Company Beneficiaries; and the Related Trust Beneficiaries described in this Deed." Further it should be noted that the Family Beneficiaries, the Spouse Beneficiaries, the Company Beneficiaries, and the Related Trust Beneficiaries were all named in the heading to the deed, and each executed it. Clause 1.3 inserted the interested persons clause required by the Bank. The practical effect of that variation was to delete from the class of beneficiaries (both capital and income) under the original Deed all those who were not sui juris as at July 1994 including as yet unborn grandchildren, and the sixth and seventh respondents. The submission advanced by each counsel on behalf of the first and second applicants, and not opposed by the legal representatives of the other parties to the summons, was that cl. 2 of the Deed of Variation contravened cll. 2, 3 and 22 of the Deed of Trust because the only way a beneficiary could be deleted in accordance with those provisions was by expressly naming the beneficiary to be excluded. The Deed of Trust only permitted exclusion of a -- 13 of 15 -- 12 beneficiary within the Second or Third Schedule by "deleting the name of any ... Beneficiary referred to therein". It was said where the beneficiary was not expressly named in the Schedules to the original Deed, but referred to only by the description of a class, the expression" deleting the name" is only satisfied by identifying the name of the beneficiary to be excluded. Literally that would appear to be so. On that basis the power to "delete the name of any ... Beneficiary" referred to in the Second or Third Schedule could not be exercised by only identifying those who were not to be deleted. That is what was done here. The unintended deletion of the sixth and seventh respondents demonstrates the wisdom of requiring the naming of those to be deleted. There are no reported cases which are of assistance. Cases such as Evans v. FCT (1988) 19 ATR 1784 and Re Williams deceased (1967) SASR 10 are clearly distinguishable. In the end result the question is one of construction of these documents. I have come to the conclusion that in the present case the power to vary the beneficiaries was strictly and severely limited. The trusts could not be varied "in any manner whatsoever"; relevantly the power was expressly limited by what was permitted by cll. 2 and 3 of the original Deed of Trust. It seems clear that in exercising the power as it did the trustee concentrated on the beneficiaries who should continue to be so and not on the identity of those who should be deleted from the list. The only power the trustees had was to delete "the name" of any beneficiary. Even if the provisions of cll. 2 and 3 be wide enough to permit deletion by naming a class of beneficiaries it would have been necessary to identify the class being deleted. In the circumstances of this case that could not be done by merely identifying the categories of continuing beneficiaries. The trustee's power to vary the original Deed of Trust by deleting the name of any capital or income beneficiary (which is analogous to a power of appointment) has not been , -' -- 14 of 15 -- 13 validly exercised, and the purported exercise of it is in consequence a nullity and the court can set it aside. The position here is, in my view, similar to that considered by Mervyn Davies J in Turner v. Turner (1984) Ch. 100 especially at Ill. In the circumstances it is not necessary to consider other arguments which may also result in the conclusion being reached that clauses 2.1 and 2.2 of the Deed of Variation of 20 July 1999 are invalid and should be set aside. My orders will therefore be as follows: 1. Declare that on the proper construction of the Deed of Trust dated 27 June 1979 constituting The Greg Cavill Family Trust, the trustee cannot exercise its powers of variation pursuant to subclauses 2( c) and 3( c) thereof to exclude any person or persons as a Capital Beneficiary or Income Beneficiary thereunder except by deleting the name or names of any such Capital Beneficiary or Income Beneficiary in accordance with the express requirements of those subclauses. 2. Order that clauses 2.1 and 2.2 of the Deed of Variation" dated 20 July 1994 executed by the trustee of The Greg Cavill Family Trust are an invalid exercise of the power conferred upon the trustee and each of those clauses be set aside. -- 15 of 15 --