Kennon v Spry

[2008] HCA 56

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(Judgment by: French CJ)

Kennon
v.Spry

Court:

Judges:
French CJGummow J
Hayne J
Heydon J
Kiefel J

Legislative References:
Family Law Act 1975 - s 4(1); s 79(1); s 85A; s 106B
Matrimonial Causes Act 1959 - s 86(1)
Matrimonial Causes Act 1857 (UK) - s 45
Bankruptcy Act 1966 - The Act
Matrimonial Causes Act 1859 (Eng) - s 5
Finance Act 1940 (UK) - s 43
Corporations Act 2001 - The Act
Duties Act 1997 (NSW) - s 163U(1)
Land Tax Assessment Act 1910 - The Act
Matrimonial Causes Act 1859 - s 5

Hearing date:
Judgment date: 3 December 2008

Canberra

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Judgment by:
French CJ

[1] Ian Charles Fowell Spry is a retired barrister and Queen's Counsel in the State of Victoria. He was born on 17 January 1940. In 1968 he created by parol a trust called the ICF Spry Trust, of which he was settlor and trustee (the trust). Its terms were reflected in an instrument made in October 1981 (the 1981 instrument). The beneficiaries were himself and his siblings, his and their issue, and the spouses of all of them. On 29 December 1978 he married Helen Marie Spry, who was born on 20 August 1956. There were four children of the marriage:

(1)

Elizabeth, born 23 September 1980;

(2)

Catharine, born 18 August 1982;

(3)

Caroline, born 25 October 1984; and

(4)

Penelope, born 3 November 1987.

By a deed varying the trust in 1983 (the 1983 deed), Dr Spry excluded himself as a beneficiary. He appointed his wife to be trustee on his death or resignation and his daughter Elizabeth to succeed her upon her death or resignation.

[2] In December 1998, at a time when his marriage was in difficulty, Dr Spry made a further variation to the trust excluding himself and his wife as capital beneficiaries (the 1998 instrument). On 30 October 2001 he and his wife separated. Subsequently she applied to dissolve the marriage. In January 2002 Dr Spry established trusts in favour of his four children (the children's trusts) and applied to them one quarter each of all of the capital and income of the trust (the 18 January 2002 dispositions). On 20 January 2002 Dr Spry conveyed to the four children shares held by him beneficially (the 20 January 2002 dispositions). On 20 May 2002 he appointed Mr Edwin Kennon as joint trustee with him of each of the children's trusts from 1 July 2002. The marriage was dissolved when the decree nisi became absolute on 17 February 2003.

[3] In April 2002, Mrs Spry filed an application in the Family Court of Australia seeking orders for property settlement and maintenance. The application relevant to these proceedings was a second amended version of that application. In particular she sought orders under s 106B of the Family Law Act 1975 (Cth) (the Family Law Act) setting aside the 1998 instrument, the instruments creating the children's trusts and the 18 January 2002 dispositions. She asked for an order that her husband pay her, inter alia, 50% of the assets and resources held in their individual or joint names, the trust and the children's trusts.

[4] Following procedural steps, which are not material for present purposes, Carter J made orders on 30 October 2003 granting leave to the three adult children, Elizabeth, Catharine and Caroline Spry, to intervene and be made parties to the proceeding. On 10 November 2003 Carter J also gave leave to Penelope Spry to intervene by a next friend.

[5] After a hearing extending over 5 days in August 2005 in the Family Court at Melbourne, Strickland J delivered judgment on 30 November 2005: [2005] FamCA 1181. His Honour set aside the 1998 instrument. He also set aside the 18 January 2002 Dispositions and ordered that on or before 28 February 2006 Dr Spry pay his wife the sum of $2,182,302.

[6] Dr Spry appealed against the decision. Dr Spry and Mr Kennon cross-appealed jointly in their capacities as trustees of the Catharine Spry Trust, the Caroline Spry Trust and the Penelope Spry Trust. Dr Spry cross-appealed jointly with his daughter Elizabeth in their capacity as trustees of the Elizabeth Spry Trust. On 13 July 2007 the Full Court of the Family Court (Bryant CJ and Warnick J, Finn J dissenting) dismissed the appeal and cross-appeal and ordered the appellant and cross-appellants jointly to pay Mrs Spry's costs of and incidental to the appeal and cross-appeal : Stephens v Stephens ( 2007) 38 Fam LR 149 ; 212 FLR 362 ; [2007] FamCA 680.

[7] On 7 March 2008 special leave to appeal to this court from the decision of the Full Court of the Family Court was granted to the joint trustees of the children's trusts in matter No M25 of 2008 and to Dr Spry in matter No M26 of 2008.

[8] For the reasons that follow I would dismiss the appeals with costs in favour of Mrs Spry but not the other respondents. I would also dismiss Mrs Spry's applications for special leave to cross-appeal with no order as to costs. The relevant provisions of the Family Law Act are set out in the joint judgment of Gummow and Hayne JJ.

The trust and the 1981 instrument

[9] The trust was created on 21 June 1968. It was created by parol, although Dr Spry had prepared a trust instrument. He did not execute the instrument then because of the stamp duty that would be applicable to it. It was eventually signed and stamped in October 1981. It was not in dispute that the 1981 instrument was not a deed.

[10] By cl 1 of the 1981 instrument, Dr Spry designated himself as settlor and trustee. He could appoint any other person as an additional trustee and could remove any such person as he saw fit. Clause 2, which assumed importance in the argument, provided:

The settlor may at any time vary the terms of this trust but not in such a manner as to increase in any way his rights under this trust to the beneficial enjoyment of the fund.

The fund was defined in cl 3 as "the trust fund from time to time in existence".

[11] The beneficiaries were defined in cl 4 as "all issue" of Dr Spry's father, Charles Chambers Fowell Spry, which of course included Dr Spry, and all persons married to such issue. The class would extend to their further issue and any persons married to them, as well as the Attorney-General as parens patriae. As at 30 May 2005, when Dr Spry swore his affidavit in the proceedings in the Family Court, the beneficiaries comprised his living sister and her children, the daughter of his deceased sister and his four daughters. This contraction of the class to exclude himself and his wife followed upon the 1983 deed and the 1998 instrument which are discussed below.

[12] The "date of distribution" was defined in cl 4 as the earlier of 100 years from 21 June 1968 and 21 years after the death of the last survivor of all children alive at 21 June 1968 of three named persons (unrelated to the beneficiaries).

[13] Clause 6 provided:

The trustee shall have the power from time to time, as he in his absolute discretion sees fit, to apply all or any part of the income and/or capital of the fund to or for all or any of the beneficiaries, either by making payments to or applications for the benefit of the beneficiary in question or payments to a trust set up substantially for the benefit of such beneficiary; and income not from time to time lawfully paid or applied shall be accumulated.

[14] Clause 7 provided for division of the fund at the date of distribution equally between such beneficiaries "as the trustee thinks fit" and, in default, equally among all male beneficiaries save for the settlor.

[15] Clause 9 provided:

The trustee may from time to time invest or deal with the fund in any way as if it were his own absolute property, save that it shall be held beneficially by him on the trusts hereof.

The 1983 deed

[16] Dr Spry said that he suggested to his wife in 1983 that she become a trustee upon his death or resignation until one or more of the children was old enough to take over. On 4 March 1983, as settlor and trustee, he executed with his wife the 1983 deed as a deed under seal. It was entitled "The ICF Spry Trust". It included provisions to the following effect:

(1)

Dr Spry as settlor of the trust released the trustee from any loans advanced by him. He acknowledged that no amount was or remained owing to him by the trustee or in relation to the trust fund and that he had "no rights to or interest in the trust fund or the income thereof": cl 1.

(2)

He released and abandoned all and any beneficial interest or rights which he might as settlor have held under the trust or in the trust fund or income and confirmed that by reason thereof he ceased to be a beneficiary of the trust or a person to whom or for whose benefit all or any part of the trust fund and income thereof could be applied: cl 2.

(3)

Clause 3 provided:

For the purpose of removing doubts it is confirmed and provided that the expression "issue" used in the said instrument includes all [descendants] however remote, and not merely children; that appointments by the settlor of a trustee or trustees may be revocable or irrevocable; and that any variation of the trusts of the said instrument shall be invalid to the extent to which it purports to confer directly or indirectly any right or benefit upon the settlor.

(4)

The deed confirmed that no loans to the trustee by Mrs Spry or any other person were outstanding: cl 4.

(5)

Dr Spry, as settlor, appointed Mrs Spry to be the trustee on his death or resignation and their daughter Elizabeth upon the death or resignation of Mrs Spry, provided that the appointment was revocable by the settlor at any time: cl 5.

(6)

In all other respects the trusts of the 1981 instrument were confirmed.

The 1998 instrument

[17] By an instrument of variation dated 7 December 1998 Dr Spry provided that, after his death or resignation as trustee, the trustees of the trust would be his two eldest daughters, Elizabeth and Catharine, jointly. If he ceased to be trustee no payment or distribution or application of the income or capital of the fund or exercise of any powers under cl 6 or cl 7 of the 1981 instrument could be made during his lifetime without his prior written consent.

[18] The power of variation in cl 2 of the 1981 instrument was itself varied as follows:

The power of variation set out in clause 2 of the trust instrument is hereby varied so that (a) it may be exercised by the settlor either in writing during his lifetime or by his will, and (b) any exercise of that power of variation may be either revocable or irrevocable (but unless expressly stated to be irrevocable any such exercise shall be revocable).

[19] Clause 4 excluded Dr Spry and his wife from the receipt of any part of the capital of the trust:

Clauses 6 and 7 and the other terms of the trust set out in the trust instrument are hereby varied so that no power or discretion to pay or apply the capital of the fund or any part thereof shall be exercised in favour of the settlor or Helen Marie Spry or in favour of any trust in which either of them has any interest, right or possibility, and the settlor and the said Helen Marie Spry are hereby excluded absolutely and irrevocably from all and any interests, rights and possibilities in the capital of the fund. The variation made by this clause 4 of this instrument of variation shall be irrevocable, and no future purported variation purporting to amend this clause 4 or purporting to confer any interest, right or possibility in the capital of the fund on the settlor [or] on the said Helen Marie Spry shall be valid in any way.

The children's trusts -- 18 January 2002

[20] On 18 January 2002, Dr Spry established four separate trusts in identical terms save for the name of each primary beneficiary. Each trust related to one of his four daughters. It is sufficient to refer to the terms of the Elizabeth Spry Trust. By the trust deed he appointed himself as trustee. On his death, he was to be succeeded by a person or persons specified in his will and, absent such specification, by Helen Spry. Elizabeth Spry was to become a trustee upon her attaining 32 years.

[21] The beneficiaries were defined as the primary beneficiary, Elizabeth Spry, and her children, grandchildren, sisters, nephews and nieces and their spouses: cl 2. The trustees had a power of appointment from time to time in their absolute discretion to apply all or any part of the income and/or capital of the fund for the benefit of all or any of the beneficiaries and income not from time to time so applied was to be accumulated: cl 3. Dr Spry and Elizabeth were empowered to appoint or remove trustees from time to time: cl 1. They also had a power to amend any of the provisions of the trust instrument: cl 8. Dr Spry was "excluded absolutely" from any interest or benefit in or from the fund. Neither the fund nor any part thereof was to be paid or applied for his benefit in any way, or for the benefit of any company or trust in which he might have any beneficial interest or from which he might receive any benefit: cl 9.

[22] The trust was amended on 20 May 2002 so that Edwin Philip Kennon, a solicitor, became a further trustee from 1 July 2002. The age at which Elizabeth Spry would become a further trustee was reduced to 25 years. On that basis she became a trustee on 23 September 2005. Mr Kennon has evidently not continued as a trustee of that trust although he continued as a joint trustee with Dr Spry of the other children's trusts.

The 18 January 2002 dispositions

[23] By a document executed on 18 January 2002 Dr Spry, as trustee of the trust, confirmed that in his personal capacity he had forgiven and released all and any amounts owing to him by the trust and that no amount was owing by him to the trust or by the trust to him: cl 1. He also declared that Mrs Spry was forgiven and released from all or any amounts owing by her to the trust and that no amount was owing by her to the trust or by the trust to her: cl 2.

[24] Clause 3 of the document provided that Dr Spry applied all of the income and capital of the trust fund of the trust:

(i) by applying one-quarter thereof by assigning it hereby to the Trustees of the Elizabeth Spry Trust constituted on 18 January 2002 so as to be held by them from the execution hereof by them beneficially on the trusts of the Elizabeth Spry Trust.

By cl 4 he varied the terms of the trust by providing that from the execution of the instrument:

(i) one-quarter of the income and capital as at the execution hereof of the trust fund of that Trust is held for the Trustees of the Elizabeth Spry Trust (and is hereby assigned to them) to be held by them beneficially on the trusts of the Elizabeth Spry Trust.

Identical provisions were made in relation to each of the other children's trusts.

Further dispositions and appointment to the children's trusts

[25] By the 20 January 2002 dispositions, Dr Spry conveyed to his four children shares held by him beneficially. By an instrument of 20 May 2002 he appointed Mr Kennon as joint trustee with him of each of the children's trusts.

Judgment of the primary judge

[26] The learned primary judge made extensive findings of fact and law. Key findings for present purposes are summarised in the following paragraphs. As to the effect of the 1983 deed, his Honour held:

(1)

Prior to the 18 January 2002 dispositions Dr Spry was able to benefit from the assets of the trust to an extent that, if the Family Court were to set aside the 1998 instrument, the assets could be treated as his property. In that case, Dr Spry would then be reinstated as capital beneficiary subject to the terms of the trust and the 1983 deed.

(2)

There was nothing to prevent Dr Spry from revoking the 1983 deed or just cl 2 of it. Clause 2 was not a variation of the terms of the trust. Its revocation could not be invalidated by cl 3. Clause 3 was invalid to the extent it attempted to vary the power of variation. If cl 2 were a variation, Dr Spry was not thereby validly excluded as a beneficiary and remained a person to whom any part of the trust fund and income could be applied.

(3)

Even if cl 2 of the 1983 deed remained, Dr Spry sufficiently controlled the trust such that once the instruments and dispositions of 7 December 1998 and 18 January 2002 were set aside its assets could be treated as his property.

(4)

In the alternative, Dr Spry's level of control over the assets of the trust meant that they could be treated as "a financial resource".

(5)

Although his Honour regarded the trust assets as "at the very least" able to be taken into account as a financial resource of Dr Spry, he proceeded on the basis of treating them as Dr Spry's property.

[27] As to the 1998 instrument, his Honour found, inter alia:

(1)

Dr Spry did not tell his wife of the instrument.

(2)

Its primary effect was to exclude Dr and Mrs Spry as capital beneficiaries and create a situation where that could not be changed.

(3)

Mrs Spry remained an income beneficiary.

(4)

Dr Spry made the 1998 instrument knowing the marriage was in trouble and that an order dealing with the property of the parties, including the assets of the trust, was likely. He wanted to remove the assets of the trust from the reach of the Family Court and considered the instrument would achieve that result. He was looking to defeat an anticipated order for property settlement.

(5)

All the necessary elements of s 106B were satisfied in relation to the 1998 instrument and it was open to make an order setting it aside.

[28] As to the children's trusts and the 18 January 2002 dispositions, his Honour found:

(1)

There was no need for Mrs Spry to pursue an application to set aside the children's trusts under s 106B. The crucial step was the transfer of assets to those trusts.

(2)

Dr Spry, as trustee of the trust, applied one quarter of all of its income and capital to each of the children's trusts. As a result each of the children's trusts acquired assets to the value of approximately $875,000, which included $1,888,000, being net proceeds of the sale of a property at Mathoura Rd, Toorak. That property had been purchased by the trust in December 1979 for about $152,000, then rented until occupied by the family from 1983.

(3)

There was no money owing by the trust to either Dr Spry or his wife.

(4)

Dr Spry had not made an agreement with his wife that the assets of the trust could be passed to the children when Dr Spry determined to do so.

(5)

Dr Spry did not adequately explain why it was necessary to set up the children's trusts and apply the capital and income of the trust to them.

(6)

At a time not long after separation at which it could clearly be anticipated an order would be made dealing with the parties' property, Dr Spry determined, without informing Mrs Spry, that it was time to move approximately $3,500,000 from the trust and place it in the children's trusts. He was concerned that despite the 1998 variation the assets of the trust might still have been within the reach of Mrs Spry and the Family Court.

(7)

The instruments were made to defeat an anticipated order in future proceedings.

[29] Dr Spry and the children argued that s 106B was not applicable in respect of either the 1998 instrument or the 18 January 2002 dispositions, as the divorce was a supervening event which defeated any anticipated orders. His Honour did not accept that submission. As long as the elements of s 106B were satisfied it did not matter that there might have been a supervening event to defeat the order. In any event the divorce could only affect Mrs Spry's ability to benefit from the capital and income of the trust. The trust assets could still be treated as Dr Spry's property. The instrument and dispositions were made with the intention of defeating an anticipated order and should not be allowed to stand.

[30] In respect of the 20 January 2002 dispositions and the appointment of Mr Kennon as joint trustee of the children's trusts, his Honour found:

(1)

There was no agreement between Dr Spry and his wife, as claimed by Dr Spry, that his personal assets would go to the children and that he would determine when.

(2)

Dr Spry did not adequately explain why the transfer of shares (to the value of $500,000) had to take place at that time.

(3)

Dr Spry intended to defeat a contemplated order at the time he entered into these transactions.

(4)

The wife's entitlement, on her case, would be met even if the disposition of the shares were not set aside, provided the assets of the trust were treated as Dr Spry's property. Therefore this was a case where s 106B did not need to be applied to the disposition of the shares.

(5)

The current value of the shares should be notionally added to the pool of assets for distribution between the parties.

(6)

Mr Kennon's appointment as joint trustee of the children's trusts would only need to be set aside if the alternative position that the assets of the children had to be taken into account as a financial resource of Dr Spry were to apply.

[31] His Honour rejected a contention that orders could be made under s 90AE in Pt VIIIAA of the Family Law Act. He then summarised the basis upon which he proposed to proceed as follows:

189.1.1 The instrument executed by the husband as settlor on 7 December 1998 should be set aside. The effect of this is that subject to the 1983 instrument the husband remains a capital and income beneficiary of the [ICF Spry] Trust.

189.1.2 The instrument executed by the husband as trustee on 18 January 2002 whereby the income and capital of the [ICF Spry] Trust was applied to the four children's trusts should be set aside. The effect of this is to return the capital and income of the children's trusts to the [ICF Spry] Trust.

189.1.3 The instrument executed by the husband on 20 January 2002 whereby he assigned to the four children shares held by him beneficially can be set aside to the extent of the assignment of those shares. The effect of this would be to return to the husband all of the shares save and except those which were the subject of the inheritance to the children from the husband's father. However, given that the assets of the Trust will be available for distribution between the parties there is no need to in fact apply Section 106B, and these assets can be notionally added back to the pool of assets pursuant to the principles espoused in TOWNSEND.

[32] His Honour considered the assets, liabilities and financial resources of Dr and Mrs Spry at the dates of their marriage and separation and at the date of the hearing. A schedule prepared by Dr Spry, reflecting agreements reached between the parties (subject to some points of difference with the wife), showed:

[33] His Honour found, after adding back the sum of $114,000 referred to above, a net asset pool which amounted to a money equivalent of $9,818,144.37. ^[1] He considered the respective contributions of Dr and Mrs Spry for the purposes of s 79(4) of the Family Law Act. They were assessed at 52%/48% in Dr Spry's favour. The effect was that the first 4% of the net asset pool would be treated as having been contributed by Dr Spry and the parties would be taken as entitled equally to the remaining 96%. His Honour did not alter the percentages after considering the factors prescribed in s 75(2). On this basis his Honour found Dr Spry entitled to net assets totalling $5,105,435 and Mrs Spry to $4,712,709.

Orders of the primary judge

[34] On 30 November 2005 his Honour ordered, inter alia:

2.

That pursuant to the provisions of Section 106B of the Act the [ICF Spry] Trust Instrument of Variation dated 7 December 1998 be set aside.

3.

That pursuant to the provisions of Section 106B of the Act the instrument entitled "The ICF Spry Trust" dated 18 January 2002 and the dispositions made pursuant thereto whereby the husband:

3.1

Forgave and released all amounts owing by him to the said Trust;

3.2

Forgave and released all amounts owing by the wife to the said Trust; and

3.3

Applied all of the income and capital of the trust fund of the said Trust;

3.3.1

as to one quarter thereof to the [Elizabeth Spry] Trust;

3.3.2

as to one quarter thereof to the [Catharine Spry] Trust;

3.3.3

as to one quarter thereof to the [Caroline Spry] Trust;

3.3.4

as to one quarter thereof to the [Penelope Spry] Trust;

be set aside.

4.

That on or before 28 February 2006 the husband pay to the wife the sum of $2,182,302.00.

Other orders were made relating to specific assets to be retained respectively by Mrs Spry and by Dr Spry and the division of paintings owned by them. Ancillary orders were also made. Mrs Spry was directed to transfer to the trustees of the children's trusts 14,600 shares in Westpac Banking Corporation held by her as nominee of the trust together with dividends and interest.

The judgment of the Full Court

[35] The Full Court, by majority (Bryant CJ and Warnick J, Finn J dissenting), dismissed the appeals from the judgment of Strickland J. Relevantly to the appeals to this court, Warnick J, who wrote the principal majority judgment, came to the following conclusions:

(1)

Dr Spry was able, notwithstanding the 1983 deed, to reverse his election not to be considered in the exercise of the trustee's discretion. This would not involve a variation of the trust. He would not so much be reinstating himself as a beneficiary as declaring himself again available as an object of the exercise of the trustee's discretion.

(2)

The trial judge was wrong to conclude that even if cl 2 of the 1983 deed remained in place, the assets of the trust could be treated as Dr Spry's property.

(3)

The trial judge did not err in setting aside the 1998 instrument.

(4)

The trial judge was not in error in setting aside the 18 January 2002 dispositions.

In summary, Warnick J was of the view that the trial judge correctly:

•

found that the release by Dr Spry in the 1983 deed of his entitlements as a beneficiary of the trust could be rescinded;

•

set aside the 1998 instrument and the 18 January 2002 dispositions;

•

found that the assets of the trust could then be included in the pool of assets for division; and

•

made orders that did not require of the husband any fraud on the powers that the husband could exercise in respect of the trust.

[36] Bryant CJ agreed with Warnick J save as to one point. She did not consider that Dr Spry could simply "reverse his election" under the 1983 deed. However, it remained open to Dr Spry and his wife, as parties to the 1983 deed, to cancel it. Her Honour held that once it was accepted that the effect of the 1983 deed could be reversed, the case became one like any other where assets were held in a discretionary trust and the husband had control of them as trustee and was capable of having the capital and income distributed to him as a beneficiary.

[37] Finn J dissented. Her Honour held that the release in cl 2 of the 1983 deed could not be withdrawn. She rejected Mrs Spry's submission that Dr Spry could amend the trust to reinstate himself as a beneficiary notwithstanding the 1983 deed. The relevant words of cl 2 of the 1981 instrument did not speak as at the date of the original settlement but referred to "this trust" as constituted from time to time. Moreover, cl 2 of the 1983 deed effected a total abandonment of all Dr Spry's rights and entitlements under the trust. To reinstate his rights would be contrary to the covenant he made as settlor in cl 2 of the 1983 deed.

[38] Her Honour disagreed with the trial judge's conclusion that even if the 1983 deed remained in place the trust assets could still be treated as the property of Dr Spry. Control of the trust was not sufficient for that purpose. Earlier authorities in the Family Court, relied upon by the trial judge, involved a spouse who also had some capacity to benefit from the trust. Control alone, without the capacity to benefit from the assets of the trust, was not sufficient to permit those assets to be treated as the property of Dr Spry. Her Honour was not prepared to entertain, at that late stage, submissions that Pt VIIIAA of the Family Law Act could be invoked.

[39] Her Honour considered that if, after 1983, the trust assets could not be regarded as the property of Dr Spry, there would be no point in making the orders under s 106B setting aside the 1998 instrument and the 18 January 2002 dispositions. Nor was there any utility in setting aside the 1998 instrument in so far as it removed Mrs Spry as a capital beneficiary. Because of the divorce, she could no longer be a beneficiary.

[40] Her Honour said: ^[2]

[142] The correct approach would have been for his Honour to treat the assets of the children's trust [sic] as a financial resource of the husband. This approach would have been available in light of earlier authorities, given the husband's control as trustee and the indirect benefits he had received from the trusts such as housing and payment of his children's educational expenses. Such an outcome would have necessitated some adjustment in favour of the wife on account of the s 75(2) matters.

The issues in the appeals

[41] The notices of appeal raised the same issues. In summary, Dr Spry and the trustees of the children's trusts asserted:

(1)

The 1983 deed could not be revoked or cancelled.

(2)

The trust assets therefore could not be treated as Dr Spry's property.

(3)

The trustee of the trust could not be compelled or empowered by the Family Court to add Dr Spry as a beneficiary or otherwise confer upon him beneficial interests or rights.

[42] In Mrs Spry's notices of contention, she argued:

(1)

The assets of the trust or property returned to it, pursuant to orders under s 106B, should have been treated as property of the parties to the marriage or either of them.

(2)

The power of variation within cl 2 of the 1981 instrument was wide enough to be exercised lawfully within its terms or pursuant to orders authorised by the Family Law Act by the husband as settlor varying the terms of the trust so that the beneficiaries within cl 4 would include all issue of Charles Chambers Fowell Spry irrespective of whether they had sought to release, disclaim or abandon any beneficial interest or rights under the trust and all persons presently or previously married to such issue.

Amended notices of contention and applications for special leave to cross-appeal

[43] In the course of oral submissions to this court, counsel for Mrs Spry invoked s 85A as a basis for orders sought in the second amended application. Section 85A had not been raised in Mrs Spry's notices of contention. An amendment to those notices was required. To the extent that a new order was sought, in each matter an application was required for special leave to cross-appeal and a draft notice of cross-appeal to be filed. Directions were given to allow amended notices of contention to be filed and served together with applications for special leave to cross-appeal. Directions were also made as to written submissions.

[44] In her amended notices of contention Mrs Spry asserted that the Full Court ought to have found that s 79 and/or s 85A of the Family Law Act enabled and permitted Dr Spry to deal with the assets of the trust and the children's trusts so as to comply with all four of the orders made by Strickland J.

[45] Draft notices of cross-appeal in both matters were also filed by Mrs Spry after the hearing along with submissions in support of the grant of special leave. The single ground stated in each draft notice was:

1.

That s 79 and/or s 85A of the Family Law Act 1975 (Cth) ("the Act") authorise Dr Spry to appoint to Mrs Spry, or himself, monies from the ICF Spry trust, including realising the corpus or income of the ICF Spry trust, so as [to] provide for a just and equitable settlement on Mrs Spry in respect of the settlements made in relation to the marriage, including varying the ICF Spry Trust if necessary.

The trust

[46] Dr Spry created the trust. He was the settlor. He so designated himself in cl 1 of the 1981 instrument. He appointed himself as trustee. He assumed the power to appoint and remove further trustees. He did so, according to the terms of the 1981 instrument, in his personal capacity. The power to vary the trust he conferred upon himself personally as "the settlor". That power was not constrained by fiduciary duties. ^[3] It was, however, limited so as not to authorise an increase in his rights to the beneficial enjoyment of the fund. Under the terms of the trust neither he nor any of the other "beneficiaries" had any rights to the beneficial enjoyment of the fund or any portion of it except upon his decision as trustee to apply all or any of it to himself or one or more of the other beneficiaries pursuant to cl 6. While the character of the trust remained unchanged and Dr Spry remained as trustee there was, as counsel for Mrs Spry submitted, no beneficial interest in possession in any of the objects of the trust including Dr Spry.

[47] The trust fell within the genus of "discretionary trust", a term which has "no fixed meaning and is used to describe particular features of certain express trusts". ^[4] Absent an obligation on the part of the trustee to apply any of the income or capital of the trust to any of the beneficiaries at any time it answered the description "purely discretionary" ^[5] or "non-exhaustive". ^[6] The class of beneficiaries was "open". It extended to the spouses from time to time of the issue of Charles Chambers Fowell Spry and further issue of that issue, including persons unborn when the trust was created, and their spouses from time to time.

[48] As sole trustee of the trust Dr Spry had the legal title. He was the only person entitled in possession to the assets. His power as trustee to apply the income or capital under the terms of the trust was not a species of property according to the general law ^[7] but his legal title was.

[49] Absent a specific application of trust capital or income to one of the objects of the trust, there was no equitable interest in its assets held by anyone. There did not need to be. In Glenn v Federal Cmr of Land Tax ^[8] Griffith CJ declined to accept "the assumption that whenever the legal estate in land is vested in a trustee there must be some person other than the trustee entitled to it in equity". ^[9] The Privy Council, in similar vein, pointed out in Commissioner of Stamp Duties (Qld) v Livingston ^[10] that the law does not require for all purposes, and at every moment in time, the separate existence of two different kinds of estate or interest in property, the legal and the equitable.

[50] In CPT Custodian Pty Ltd v Cmr of State Revenue (Vic) ^[11] the court described the observation of Griffith CJ in Glenn as "a prescient rejection of a 'dogma' that, where ownership is vested in a trustee, equitable ownership must necessarily be vested in someone else because it is an essential attribute of a trust that it confers upon individuals a complex of beneficial legal relations which may be called ownership". ^[12]

[51] Against that background it is necessary to consider the question at the heart of the present appeals, namely whether Dr Spry or his wife or both of them had, prior to 1998, interests in or in relation to the assets of the trust that could answer the description of "property of the parties to the marriage" in s 79(1).

The assets of the trust as property

[52] The word "property" is used in different ways in different statutory contexts. There have been, for example, many cases in which the question has arisen whether and when the objects of a discretionary trust have "property" interests for the purpose of revenue legislation. ^[13]

[53] Section 79(1) of the Family Law Act and the non-exhaustive definition of "property" in s 4(1) of the Act had their antecedent in s 86(1) of the Matrimonial Causes Act 1959 (Cth). The collocation "property to which the parties are, or either of them is, entitled (whether in possession or reversion)" can be traced back to its gendered ancestor in s 45 of the Matrimonial Causes Act 1857 (UK), which applied to the property of an adulterous wife.

[54] Section 79 confers a wide discretionary power to vary the legal interests in any property of the parties to a marriage or either of them and to make orders for a settlement of property in substitution for any interest in the property. It is subject to the limitation that it validly applies only with respect to a claim based on circumstances arising out of the marriage relationship. ^[14] The word "property", appearing in the section, construed by reference to its ancestry in matrimonial causes statutes, has been given a wide meaning. In 1977 the Full Court of the Family Court said: ^[15]

The word has also been comprehensively defined in statutes both State and Imperial relating to married women's property. We do not propose to instance those definitions here, but in Jones v Skinner ^[16] Langdale MR said: "Property is the most comprehensive of all terms which can be used inasmuch as it is indicative and descriptive of every possible interest which the party can have." This is a definition which commends itself to us as being descriptive of the nature of the concept of "property" to which it is intended that the Family Law Act 1975 should relate and over which the Family Court of Australia should have jurisdiction to intervene when disputes arise in relation to the property of spouses as between themselves or when the court is asked to exercise the powers conferred upon it under Pt VIII or its injunctive powers under s 114 so far as they are expressed to relate to a property of the party to a marriage.

[55] In In the Marriage of Kelly (No 2) ^[17] the Full Court of the Family Court did not think the word wide enough to cover the assets of a trust in which the relevant party to the marriage was neither settlor nor appointor nor beneficiary and over which he or she had no control. ^[18] The court was concerned, inter alia, with the assets of a family company and family trust which were under the "de facto control" of the husband. The assets could be taken into consideration as a "financial resource" of the husband within the meaning of s 75(2)(b) of the Family Law Act. The trust assets, however, did not fall within the description of the "property" of the husband for the purposes of s 79 because "the husband could not assert any legal or equitable right in respect of them". ^[19] That was a case in which the husband had neither a legal nor a beneficial interest.

[56] In In the Marriage of Ashton ^[20] a husband who had been the trustee of a family trust replaced himself as trustee with a company but continued as sole appointor. He was not a beneficiary but received income from the trust. It was conceded that he was "in full control of the assets of the trust". ^[21] The evidence made clear that he applied the assets and income from them as he wished and for his own benefit. ^[22] The Full Court held that "[n]o person other than the husband has any real interest in the property or income of the trust except at the will of the husband". ^[23] Special leave to appeal from that decision was refused by the High Court on 5 December 1986 (Gibbs CJ, Wilson and Brennan JJ). ^[24]

[57] Where the husband was not entitled to be a trustee but was sole appointor and also a beneficiary, the Full Court of the Family Court in In the Marriage of Goodwin upheld a finding that "the trust property was, in reality, the property of the husband" ^[25] and in so doing applied as a statement of principle the perhaps unremarkable proposition that: ^[26]

... [T]he question whether the property of the trust is, in reality, the property of the parties or one of them ... is a matter dependent upon the facts and circumstances of each particular case including the terms of the relevant trust deed.

In that case the husband had the sole power of appointment of the trustee which was a creature under his control and he was a beneficiary to whom the trustee could make payments exclusive of other beneficiaries as the husband saw fit. ^[27]

[58] Although a settlor is taken to transfer to the trustee the property in respect of which he or she creates a trust, there may be retained a right to take a benefit under it. Prior to the 1983 deed Dr Spry as sole trustee had the "absolute discretion" to apply all or any part of the income and/or capital of the fund to himself as one of the "beneficiaries". On the basis of that power, and consistently with authority including the decisions of the Full Court referred to above, the assets of the trust would properly have been regarded as his property as a party to the marriage for the purposes of s 79. But the coexistence of the power together with Dr Spry's status as a beneficiary does not define a necessary condition of that conclusion.

[59] By the 1983 deed Dr Spry removed himself as a beneficiary of the trust. In terms the 1983 deed provided that he "releases and abandons all and any beneficial interest ... in the trust fund or income". This left him, however, in possession of the assets, with the legal title to them and to the income which they generated unless and until he should decide to apply any of the capital or income to any of the continuing beneficiaries. The question remains whether the trust fund was part of the "property of the parties to the marriage" at that time within the meaning of s 79.

[60] Counsel for Mrs Spry submitted that when the primary judge determined the proceedings the assets of the trust were the property of a party to the marriage as Dr Spry was the only person entitled in possession to them. On that basis the Family Court had the power to make the order it did. No object in the trust had any fixed or vested entitlement. Dr Spry was not obliged to distribute to anyone. The default distribution (cl 7) gave male beneficiaries other than Dr Spry no more than a contingent remainder. None had a vested interest subject to divestiture. The application of s 79, as a matter of construction, to the trust assets was said to be supported by a number of considerations. Among these was the "true character" of the trust as a vehicle for "Dr and Mrs Spry and their children".

[61] In response, counsel for Dr Spry submitted that his legal title, absent any beneficial interest, did not justify treating the trust property as his own. A policy question was said to be raised. It would be "inappropriate" for the court to treat the assets of a trust as a trustee's property where the trustee had no interest under the trust. The court was invited to consider the implications of Mrs Spry's submissions for the case of a trustee with no personal relationship to the beneficial objects of the trust. The Family Court, it was said, must take the property of a party to the marriage as it finds it. It cannot ignore the interests of third parties nor the existence of conditions or covenants limiting the rights of the party who owns the property. In this connection reference was made to Ascot Investments Pty Ltd v Harper. ^[28]

[62] In my opinion the argument advanced on behalf of Mrs Spry should be accepted save that it is the trust assets, coupled with the trustee's power, prior to the 1998 instrument, to appoint them to her and her equitable right to due consideration, that should be regarded as the relevant property. It should be accepted that, in the unusual circumstances of this case and but for the 1998 instrument and the 18 January 2002 dispositions, s 79 would have had effective application to the trust assets. Dr Spry was the sole trustee of a discretionary family trust and the person with the only interest in those assets as well as the holder of a power, inter alia, to appoint them entirely to his wife. This is perhaps not quite the same as the second argument advanced on behalf of Mrs Spry, which is accepted by Gummow and Hayne JJ in their joint judgment. But the distinction may not amount to a difference. Even on the second argument the power of appointment and the right to due consideration, absent a legal estate upon which they can operate, are meaningless.

[63] The terms "dry legal title" or "dry legal estate or interest" have sometimes been used to describe the legal estate in property held on trust. ^[29] The term describes a legal title divorced from any powers or duties. Under the general law such a title could not be treated as property of the trustee. But where a statute is involved the matter is one of interpretation. Even under the general law, where the legal title is associated with substantial powers or duties, the "dry" metaphor may not be appropriate. ^[30]

[64] The word "property" in s 79 is to be read as part of the collocation "property of the parties to the marriage". It is to be read widely and conformably with the purposes of the Family Law Act. In the case of a non-exhaustive discretionary trust with an open class of beneficiaries, there is no obligation to apply the assets or income of the trust to anyone. Their application may serve a wide range of purposes. In the present case, prior to the 1998 instrument those purposes could have included the maintenance or enrichment of Mrs Spry.

[65] Where property is held under such a trust by a party to a marriage and the property has been acquired by or through the efforts of that party or his or her spouse, whether before or during the marriage, it does not, in my opinion, necessarily lose its character as "property of the parties to the marriage" because the party has declared a trust of which he or she is trustee and can, under the terms of that trust, give the property away to other family or extended family members at his or her discretion.

[66] For so long as Dr Spry retained the legal title to the trust fund coupled with the power to appoint the whole of the fund to his wife and her equitable right, it remained, in my opinion, property of the parties to the marriage for the purposes of the power conferred on the Family Court by s 79. The assets would have been unarguably property of the marriage absent subjection to the trust.

[67] An exercise of the power under s 79 requiring the application of the assets of the trust in whole or in part in favour of Mrs Spry would, prior to the 1998 instrument, have been consistent with the proper exercise of Dr Spry's powers as trustee and would have involved no breach by him of his duty to the other beneficiaries.

[68] As to the position of the other beneficiaries, it has long been accepted that in some circumstances the Family Court has power to make an order which will indirectly affect the position of a third party. That acceptance, which predated the enactment of Pt VIIIAA of the Family Law Act, is reflected in the judgment of Gibbs J in Ascot Investments. ^[31] That case concerned the validity of an order in favour of a wife made by the Family Court requiring directors of a company not completely controlled by the husband to register a transfer of shares into her name. It is in that context that the passage relied upon by Dr Spry is to be understood: ^[32]

Except in the case of shams, and companies that are mere puppets of a party to the marriage, the Family Court must take the property of a party to the marriage as it finds it. The Family Court cannot ignore the interests of third parties in the property, nor the existence of conditions or covenants that limit the rights of the party who owns it.

The articles of the company in that case gave to its directors a discretion to register or refuse to register a transfer of any shares in the company. The Family Court was found to have no power to direct them as to the manner in which their discretion should be exercised. Giving full effect to the generality of the passage quoted from the judgment of Gibbs J, the case does not stand against the proposition that s 79 would apply in the circumstances of this case where the only property interests are those of the trustee who is a party to the marriage, and where no other beneficiary has any legal or equitable interest apart from a right to due consideration and administration. That, of course, is a right which is a relevant consideration informing the exercise of the court's discretion, as is any indirect effect upon a third party's rights : R v Dovey; Ex parte Ross. ^[33]

[69] The preceding conclusion does not involve some general extension of s 79 which would require that it be hedged about with protective discretions of uncertain application to prevent its intrusion into trust arrangements affecting assets foreign or extraneous to those acquired by the parties to the marriage in their own right. So if the husband were trustee of a charitable trust or executor of the will of a friend or client the mere legal title to the assets of such trusts, because of their origins and character, could not be regarded as part of the husband's property as a party to the marriage within the meaning of the Family Law Act. Importantly, in such a trust there could be no power of appointment to his wife and no corresponding equitable right enjoyed by her. The question of a trust involving a combination of purposes and family and extraneous assets does not arise.

[70] The characterisation of the assets of the trust, coupled with Dr Spry's power to appoint them to his wife and her equitable right to due consideration, as property of the parties to the marriage is supported by particular factors. It is supported by his legal title to the assets, the origins of their greater part as property acquired during the marriage, the absence of any equitable interest in them in any other party, the absence of any obligation on his part to apply all or any of the assets to any beneficiary and the contingent character of the interests of those who might be entitled to take upon a default distribution at the distribution date.

[71] I agree with Gummow and Hayne JJ that the conclusion reached by the primary judge, that Dr Spry could have applied the whole or part of the trust assets to or for his own benefit, was inconclusive of the outcome. It is not necessary for me to express a view on whether the primary judge's finding in that respect was erroneous. The conclusion I have reached is independent of any question whether Dr Spry could have reinstated himself at any time as a beneficiary of the trust.

[72] I agree also with Gummow and Hayne JJ that the reference in s 79 to "the parties to the marriage or either of them" includes a reference to a marriage terminated by divorce at a time before the court makes an order under that section. As their Honours point out, the Family Court, when it is just and equitable to do so, can make orders in property settlement proceedings as if changes to property rights otherwise effected by the divorce had not occurred.

[73] In light of the trial judge's findings about the purposes of the 1998 instrument and the 18 January 2002 dispositions, the preceding conclusion is sufficient to support the trial judge's orders and the dismissal of these appeals. They are also supported by a consideration of Mrs Spry's equitable right to due consideration as an object of the trust prior to the 1998 instrument and, for the reasons enunciated by Gummow and Hayne JJ, by consideration of that right in conjunction with Dr Spry's power as trustee to apply the assets or income of the trust to any of the beneficiaries in his discretion. It is desirable to say something further specifically about that.

The rights to due consideration and due administration as "property"

[74] Each of the beneficiaries had the right to compel the trustee to consider whether or not to make a distribution to him or her and a right to the proper administration of the trust. ^[34] In Gartside, Lord Wilberforce put it thus: ^[35]

No doubt in a certain sense a beneficiary under a discretionary trust has an "interest": the nature of it may, sufficiently for the purpose, be spelt out by saying that he has a right to be considered as a potential recipient of benefit by the trustees and a right to have his interest protected by a court of equity. Certainly that is so, and when it is said that he has a right to have the trustees exercise their discretion "fairly" or "reasonably" or "properly" that indicates clearly enough that some objective consideration (not stated explicitly in declaring the discretionary trust, but latent in it) must be applied by the trustees and that the right is more than a mere spes. But that does not mean that he has an interest which is capable of being taxed by reference to its extent in the trust fund's income: it may be a right, with some degree of concreteness or solidity, one which attracts the protection of a court of equity, yet it may still lack the necessary quality of definable extent which must exist before it can be taxed.

[75] The rights to consideration and to due administration are in the nature of equitable choses in action. There has been considerable judicial discussion about the nature of a beneficiary's right to due administration in the case of the residuary legatee of an unadministered deceased estate and members of superannuation funds whose benefits have not vested. The residuary legatee has an equitable right, ^[36] "a chose in action, capable of being invoked for any purpose connected with the proper administration of [the] estate". ^[37] Such a right has been treated as property for the purposes of the Bankruptcy Act 1966 (Cth). ^[38] In the case of a residuary legatee the right to due administration is connected to a real expectancy of an interest in the property. The same is true for the members of a superannuation fund, although vesting of a benefit may be many years in the future. However, the right to due administration taken by itself in relation to a superannuation fund was described by the Full Court of the Family Court in 1986, in a brief consideration of the question, as "an empty present right of no relevance". ^[39]

[76] In In the Marriage of Evans ^[40] the majority in the Full Court of the Family Court found that consideration of the right to due administration of a superannuation fund offered "no solution as to how realistically to make practical orders under s 79 about that 'property' until it is in fact received". ^[41] The case concerned a future entitlement to benefits from a superannuation fund. Nygh J drew the analogy between the unvested interest in a superannuation fund protected by a right of due administration and "the interest which a potential beneficiary has in the proper administration of a trust". ^[42]

[77] The beneficiary of a non-exhaustive discretionary trust who does not control the trustee directly or indirectly has a right to due consideration and to due administration of the trust, but it is difficult to value those rights when the beneficiary has no present entitlement and may never have any entitlement to any part of the income or capital of the trust.

[78] Gummow and Hayne JJ, in their joint reasons, characterise Mrs Spry's right with respect to the due administration of the trust as part of her property for the purposes of the Family Law Act. I respectfully agree with their Honours that prior to the 1998 instrument the equitable right to due administration of the trust fund could be taken into account as part of the property of Mrs Spry as a party to the marriage. So too could her equitable entitlement to due consideration in relation to the application of the income and capital. In so agreeing, however, I acknowledge, consistently with the observations of the Full Court in Hauff and Evans, that it is difficult to put a value on either of these rights though a valuation might not be beyond the actuarial arts in relation to the right to due consideration.

[79] Dr Spry's power as trustee to apply assets or income of the trust to Mrs Spry prior to the 1998 instrument was, as pointed out by Gummow and Hayne JJ, able to be treated for the purposes of the Family Law Act as a species of property held by him as a party to the marriage, albeit subject to the fiduciary duty to consider all beneficiaries. This is so even though it may not be property according to the general law. So characterised for the purposes of the Family Law Act it had an attribute in common with the legal estate he had in the assets as trustee. He could not apply them for his own benefit but that did not take them out of the realm of property of a party to the marriage for the purposes of s 79. In so far as Gummow and Hayne JJ rely upon the property comprised by Dr Spry's power as trustee and Mrs Spry's equitable rights prior to 1998, I agree that these property rights were capable of providing a basis for the orders which Strickland J made. I do so, as already indicated, by considering that power and the equitable rights, in conjunction with Dr Spry's legal title to the trust assets, without which the power and the rights were meaningless.

[80] Mrs Spry's right to due consideration as an object of the trust could also be taken into account in determining whether it was just and equitable to make an order under s 79 on the basis that the assets of the trust were property of the marriage. As noted in the preceding section the equitable entitlement of the children and other existing beneficiaries to due consideration could also be taken into account in making that judgment. There is no reason to suggest that his Honour did not do so appropriately.

Conclusions

[81] The assets of the trust, coupled with Dr Spry's power to appoint them to his wife and her right to due consideration, were, until the 1998 instrument, the property of the parties to the marriage for the purposes of s 79. The fact that Dr Spry removed himself as a beneficiary by the 1983 deed does not affect that conclusion. Because the 1998 instrument effectively disposed of Mrs Spry's equitable right to be considered in the application of the trust fund, and having regard to the trial judge's conclusions about the purpose of the instrument, the order setting it aside was an appropriate exercise of the Family Court's power under s 106B. Mrs Spry's equitable right could then be considered as part of the property of the parties to the marriage. The setting aside of the 18 January 2002 dispositions was also appropriate. The ancillary order that Dr Spry pay his wife the sum of $2,182,302 was appropriate for the reasons stated by Gummow and Hayne JJ in their joint judgment.

[82] It is not necessary in the light of the preceding conclusions to consider whether s 85A has any application. I am, however, inclined to doubt that s 79 and s 85A have mutually exclusive areas of operation notwithstanding the concerns that led to the enactment of s 85A. I would dismiss the applications for special leave to cross-appeal but with no order as to the costs of those applications.

[83] I would dismiss the appeals with costs in favour of Mrs Spry in each case. There should be no order for costs in favour of the other respondents.