Milligans & Sons Pty. Ltd. v. Chief Commissioner of Land Tax (N.S.W.).

Judges:
Rogers J

Court:
Supreme Court of New South Wales

Judgment date: Judgment handed down 26 June 1986.

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Rogers J.

The Chief Commissioner of Land Tax has brought to tax certain land owned by Milligans & Sons Pty. Ltd. The company is the trustee for the Milligan family trust. The land in question is subject to that trust.

It is appropriate to refer to the terms of the deed of settlement which established that trust before outlining the problem posed. The deed of settlement bears date 3 February 1981 and is in a fairly usual form. It defines in cl. 1(C) ``the vesting day'' as the day on which shall expire the period of 50 years after the execution of the settlement or 21 years after the death of the last survivor of King George VI, whichever shall be the shorter, although there is provision for earlier vesting.

Clause 1(D) defines ``the beneficiaries'' as meaning Mr Milligan, his wife for the time being or widow, any child or grandchild of Mr Milligan, the trustees of any other trust or any company or corporation in respect of which one or more shares shall be held by any of the beneficiaries mentioned.

Clause 3 then deals with income and provides:

``Until the vesting day the trustee shall stand possessed of the trust fund upon trust to hold the annual income thereof for the beneficiaries or for any one or more of them absolutely to the exclusion of the other or others in such shares and proportions as the trustee in its absolute discretion may from year to year determine. In default of any effective determination having been made by the trustee as to the distribution of the income of the trust fund for a current year by the thirtieth day of June the trustee shall hold the same upon trust for such of the children of the said James Thompson Milligan as are then living and, if more than one, in equal shares absolutely.''

Clause 6 deals with corpus in the same way, by providing for an appointment by the trustee to all or such of the beneficiaries as it should in its absolute discretion determine and in default of any such determination or exercise of discretion for such of the children of Mr Milligan as shall be living on the vesting day and if more than one as tenants in common in equal shares.

There is also a proviso which it is unnecessary to recite.

The relevant date for present purposes at which the statutory setting should be looked at is 31 December 1984. On that date there was brought to tax land ``owned by a person and subject to a discretionary trust''. The term ``discretionary trust'' was defined by the Land Tax Management Act, 1956 as at the relevant date in the following terms:

``Discretionary trust means a trust under which the vesting of the whole or any part of the capital of the trust estate, or the whole or any part of the income from that capital, is required to be determined by a person either in respect of the identity of beneficiaries, or quantum of interest to be taken, or both.''

There then follows an immaterial exemption.

It is submitted that on the true construction of the deed of settlement it is unnecessary for the purpose of establishing the identity of beneficiaries, or quantum of interest to be taken, either of income or corpus, that there should be a determination by the trustee. In other words, the mandatory requirement of the definition that there is ``required'' a

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ATC 4435

determination by a trustee is absent. Vesting may take place pursuant to the provisions of the default clause in the entire absence of any determination by the trustee.

Counsel for the defendant has put a submission which substitutes for the wording of the definition, in so far as it contains the need for a determination enshrined in the word ``required'', the possibility of a determination. In other words he would have me read the provision as though it provided for vesting which ``may'' be determined by the trustee.

Counsel put an alternative argument to the effect that, whether the vesting takes place following upon a choice or election by the trustee or by default is itself an act of determination. However, that submission disregards the true nature of a default provision. Quite obviously, the purpose of a default clause is that in the absence of a determination, whether by oversight, conscious choice or perhaps sheer inability due to absence or lack of legal capacity, a vesting should none the less take place.

Counsel for the plaintiff called my attention to the fact that in 1985, by Act 215 of that year, the definition of ``discretionary trust'' was amended so that it now reads:

``(a) a trust under which the vesting of the whole or any part of the capital of the trust estate, or the whole or any part of the income from that capital, or both -

• (i) is required to be determined by a person either in respect of the identity of the beneficiaries, or the quantum of interest to be taken, or both; or
• (ii) will occur in the event that a discretion conferred under the trust is not exercised; or

(b) a trust which is, by or under the regulations, declared to be a discretionary trust for the purposes of this Act.''

There is once again an exception to which it is unnecessary to refer.

The nature of the amendment makes clear that the deficiency from which the previous definition suffered was recognised and was thereafter cured. Counsel for the defendant called my attention to the Second Reading Speech in Parliament and suggested that the purpose of the 1985 Act is merely to clarify. In so far as clarification means putting into words what may have been the original intention but not effected, what counsel submits may be conceded. However, although there is no doubt that the earlier provision was intended to bring to tax discretionary trusts, the verbiage employed failed to engage trusts which were in the customary form containing both a power of appointment and a default clause. In my view it would be legislative rather than judicial to consider the provision as it existed at the relevant date so as to embrace the deed of settlement here under consideration. In those circumstances, I order that the objection be allowed and I order the defendant to pay the plaintiff's costs.