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Re Pickering: Court rescues a trust deed without a variation power!

A key aspect of a modern trust deed is a mechanism that allows the terms of the deed to be varied, so it can be updated over time to respond to changes in law and the circumstances of the trust. The recent case of Re The Pickering Family Trusts [2024] VSC 5 (Re Pickering) demonstrates the Victorian Supreme Court's application of section 63A of the Trustee Act 1958 (Vic) (Trustee Act) to amend the deed in the absence of an express variation power.

The case is an important reminder for trustees that if a trust deed lacks a variation power, a State or Territory Act such as the Trustee Act may provide an avenue to allow an amendment to the trust deed, provided that the required criteria in section 63A are met.

Laura McKenzie, Maddocks Lawyers

Overview of the case of Re Pickering

Re Pickering concerns two family trusts established by brothers Ted and George with largely identical trust deeds (Trust Deeds), each without variation powers. The trustee of each trust (Trustees) sought approval from the Court to amend the Trust Deeds on behalf of underage and unborn future beneficiaries under section 63A of the Trustee Act. The proposed amendments were to expand the class of beneficiaries and impose obligations on the Trustees to give effect to the brothers' succession plans.

In deciding whether the Court should make an order to vary the Trust Deeds under section 63A, Lyons JA applied the two-stage test from Perpetual Trustees Victoria Ltd v Barns (2012) 34 VR 387, 395 [36] (Barns). That test required consideration of whether:

  1. carrying out the arrangement would be for the benefit of the relevant persons; and 
  2. whether the arrangement was, in its nature, proper and fair.

For the reasons set out below, Lyons JA determined that the test had been satisfied and the Court was able to make the order requested.

Facts

Ted and George had a succession plan, including for their business, the Pickering Transport Group (the Group). The succession plan provided for their children who were managers in the Group (Group Managers) to take equal ownership shares in Ted's and George's assets which related to the Group, whereas the remaining children would share in 'non-Group' assets. Lyons JA noted that the succession plan was logical, and that the intentions of the succession plan had already been reflected in previous disbursements and in Ted's and George's wills.

Neither of the Trust Deeds permitted distributions to be made from Group assets equally to the Group Managers, as each Group Manager was a beneficiary of only one of the two trusts. While it was possible to make uneven distributions to the Group Managers under the existing rules of the Trust Deeds, the Court noted that the necessary subsequent transfers between Group Managers would attract significant capital gains tax, stamp duty and other legal and professional expenses.

Applications under section 63A Trustee Act

Section 63A of the Trustee Act gives the Court jurisdiction to approve an arrangement varying or revoking a trust on behalf of a number of different classes of people who are unable to give consent: these classes include persons who are minors, who are unborn, or who lack mental capacity.  
Lyons JA applied the two-stage test set out below, noting that application of this test is 'necessarily fact specific'. For example, he noted that the enquiry would be different in the case of an application to vary a trust for the benefit of an adult lacking mental capacity, as was the case in Re CL [1969] 1 Ch 587. In that scenario, Lyons JA reiterated the view that it would be appropriate to consider: ''would the adult well-advised be willing to agree to this or would they agree to it? And if it involves the taking of a risk, would they be willing to take that risk?''

The Courts' decision 


Stage 1: is the arrangement is for the benefit of the relevant person?

Lyons JA concluded that the arrangement satisfied stage 1 of the test, finding that carrying out of the arrangement would be for the benefit of the relevant persons.

Lyons JA distilled the following overarching principles for stage 1 of the test:

  • the word ''arrangement'' is broad and covers any proposal to vary or revoke a trust;
  • approval should not be granted where the benefit is theoretical or illusory, instead the benefit must operate in fact by the carrying out of the arrangement; and
  • 'benefit',is not limited to financial benefit but may include benefit of any other kind including social, familial, moral or educational benefits, however in most cases it will require more than merely avoiding possible future family friction between family members living apart.

In applying the stage 1 test, Lyons JA noted that a previous application by the plaintiffs under section 63A - for an arrangement that expanded the class of beneficiaries and permitted an immediate distribution of trust assets - would provide at best ''illusory and not real'' benefit to underaged and unborn future beneficiaries of the trusts. In contrast, the plaintiffs' revised application, which was the subject of this decision and which expanded beneficiaries to include a child or grandchild of each brother and introduced trustee undertakings that limited the ability to make distributions so that the trust would be preserved, satisfied the requirement that it was for the benefit of underage and potential unborn beneficiaries.

Stage 2: is the arrangement is in its nature, proper and fair?

Lyons JA held that the arrangement was, in its nature, proper and fair and therefore satisfied stage 2 of the test. 

Lyons JA noted that the second stage requires businesslike consideration of the arrangement as a whole including the total advantages for various parties and their bargaining strength as well as the purpose of the trust, intention of the settlor and attitude of other beneficiaries or interested persons, referring to the case of Barns.

In considering the second stage test, Lyons JA noted the significant tax and other savings of the arrangement which avoided risks to the commercial viability of the Group. Further, the adult beneficiaries, and other relevant parties such as a guardian of the underaged beneficiaries were in favour of the Court approving the proposed amendments. 

Conclusion

This case serves as a timely reminder that where trust deeds do not expressly permit variations, Courts are empowered to vary trust deeds under the provisions of the Trustee Act, with similar legislation in most Australian jurisdictions.

The trusts available on Cleardocs contain variation powers enabling trustees to adapt trust deeds for a fraction of the cost and time it would take to bring a section 63A Trustee Act application. On this page you can see the variety of trust deed products available.

More Information from Maddocks

For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Corporate & Private Clients team.

More Cleardocs information on related topics

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Lawyer in Profile

Stephen Dyason
Stephen Dyason
Associate
+61 3 9258 3247
stephen.dyason@maddocks.com.au

Qualifications: LLB, Deakin University

Stephen is a member of Maddocks Commercial team. He is a corporate and commercial lawyer, who assists clients across a diverse range of industries including financial services, consumer markets and manufacturing in a wide variety of legal matters.

His experience includes:

  • mergers and acquisitions,
  • corporate reorganisations, and
  • general commercial law work.

He focusses on drafting, advising on and negotiating contracts, transactions and agreements for clients and also assists with providing general corporate advice.

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