Case: Australian Securities and Investments Commission v Carey (No 6) [2006] FCA 814 ; (2006) 153 FCR 509
Outcome: discussed
The reasoning of the Tribunal appears in the following two paragraphs: The [Elliotts] say they do not fit within s 1207V(2)(d) because as beneficiaries under a discretionary trust they do not have any beneficial interest in the income or corpus of the trust. They referred to a number of authorities for this proposition, including Commissioner of Stamp Duties (NSW) v Buckle [1998] HCA 4 ; (1998) 192 CLR 226 and Gartside v Inland Revenue Commissioners [1967] UKHL 6 ; [1968] AC 553 ; see also R &amp; I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd (1992) 10 WAR 59 at 79 per Owen J and Australian Securities Investments Commission; In the matter of Richstar Enterprises Pty Ltd v Carey (No 6) [2006] FCA 814 at para 28 per French J. The [Secretary] say [s] the words of the section change whatever the position might be at general law. Mr Belcher argued use of the word aggregate 'requires consideration of what the combined beneficial interest of the beneficiaries would be as if they were collected or united into one'. The only persons who can benefit under the trust are the [Elliotts] , their daughter and other persons who, upon their birth, would be relatives of the [Elliotts] . The beneficiaries at any given time are therefore associates of each other. Between them, they account for the whole of the beneficial interest in the property. I agree with this approach. While the individual respondents do not hold any beneficial interest under the general law, the use of the word aggregate in the statute requires the decision-maker to recognise a kind of group right arising when the beneficiaries between them control the whole of the beneficial interest in the corpus of the trust: cf Gartside at 606 per Lord Reid. The use of the associate concept requires the 'group' interest to be attributed to the [Elliotts] because they are related to the other group members. It follows the [Elliotts] hold in excess of 50% of the beneficial interest in the corpus of the trust assets. They therefore satisfy the control test. Hence, the Tribunal held that the trust was a "controlled private trust" within the meaning of s 1207V of the Social Security Act and set aside the SSAT decision to the contrary. 17 The Elliotts argued that, under the trust created by clause 5(b), until the trustees exercised their discretion to make payment out of the trust fund to them, they have merely a right to invoke the equitable jurisdiction of a court to ensure that the trust is duly administered and that the trustees exercise their discretion properly. It followed, so they said, that they could not affect the outcome of the trustees' decision-making process in order to secure the payment of trust funds to themselves. In this circumstance, so they submitted, neither they nor their daughter (or any other discretionary beneficiary) could hold a beneficial interest in the corpus or income of the trust within the meaning of par 1207V(2)(d). Accordingly, so they contended, they could not satisfy par (d) of subs 1207V(2) since none of the discretionary beneficiaries held a beneficial interest capable of being aggregated. Counsel for the Elliotts supported this argument by reference to such authorities as Gartside v Inland Revenue Commissioners [1967] UKHL 6 ; [1968] AC 553 ( "Gartside" ), R &amp; I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd (1993) 10 WAR 59 (" Anchorage ") and Australian Securities and Investments Commission v Carey (No 6) [2006] FCA 814 ; (2006) 153 FCR 509 (" Carey "). 35 The nature of the rights enjoyed by the beneficiaries of a discretionary trust depends very much on the terms of the discretionary trust in question: see, e.g., the discussion in Carey at 515-6 per French J. Adopting the terminology that his Honour there uses, the trust created under clause 5(b) is a "non-exhaustive" trust because the trustees have a discretion (subject to the directions previously mentioned at [15] above) to distribute part or none of the income and capital of the trust as they see fit: see Carey at 516. The discretionary beneficiaries are an "open" class: see Carey at 516. That is, the trust is capable of benefiting not only living family members (the Elliotts and their daughter) but also persons as yet unborn. As French J commented in Carey at 516, "[t]he naming of these species of discretionary trusts, like the term 'discretionary trust' itself, is a matter of taxonomical convenience rather than expository of principle". At the same time, as French J's discussion in Carey shows, the distinction between "exhaustive" and "non-exhaustive" and "closed" and "open" trusts may have a significant bearing on the nature of the rights or interests held by the discretionary beneficiaries. 36 For example, as French J records, the Court of Appeal in Re Nelson [1928] Ch 920 at 921-2 (" Re Nelson ") held that the three beneficiaries of an exhaustive discretionary trust with a closed class were able to mortgage their share and interest under a will since they were "of age and sui juris" and concurred "in assigning by way of mortgage their interest". In that case, Swinfen Eady MR distinguished the earlier case of Re Coleman (1888) LR 39 Ch D 443 (" Re Coleman "), where the trustees had power to apply the income of the trust fund for the benefit of a class or any one of them to the exclusion of the others (as in the present case). In Re Coleman, one of the beneficiaries assigned his share and claimed that an appropriate portion should be paid to his assignee. In Re Nelson at 921, the Master of the Rolls said (in relation to the issue in Re Coleman ): The answer to that was that he did not take an equal fourth or any other share and the trustees could have applied the whole of the income to the other members of that class. That is quite a different case from the present, where all the members of the class have assigned their shares to the mortgagees. Having regard to these authorities, French J concluded in Carey (at 517) that "[w]here there is an exhaustive discretionary trust with a closed class of beneficiaries, then all the beneficiaries may collectively require the trustee to transfer the fund to them or deal with the property subject to discretion as if they were the absolute owners of it". This is not, however, the position with respect to a non-exhaustive trust where the class of objects is open, as in the case of the trust created under clause 5(b) of the will. 44 The third of the decisions on which the Elliotts relied was that of French J in Carey , where a receiver was appointed under s 1323 of the Corporations Act 2001 (Cth) in respect of the property of a person under investigation. Holding that the provision applied to the relevant person's equitable estate or interest in property the subject of a non-discretionary or fixed trust, his Honour turned to the "less straightforward question ... when the relevant person is a beneficiary of a discretionary trust": see Carey at 515. At 518-9, his Honour stated his opinion that "in the ordinary case the beneficiary of a discretionary trust, other than perhaps the sole beneficiary of an exhaustive trust, does not have an equitable interest in the trust income or property ... amenable to control by receivers under s 1323". His Honour accepted that "there are some rights enjoyed, even by the beneficiaries of a non-exhaustive discretionary trust with an open class of beneficiaries" such as the right to inspect trust documents, the right to require the trustee to provide information about the management of the trust fund, and a right to enforce proper management of the trust by the trustee. In Carey at 520, French J rejected the submission that a beneficiary under a discretionary trust held a contingent interest, saying: The difficulty with applying the notion of contingent interests to beneficiaries of a discretionary trust lies partly in the uncertain scope of the distribution be it income or capital, which may be made in favour of any given beneficiary. I am inclined to think that a beneficiary in such a case, at arms length from the trustee, does not have a "contingent interest" but rather an expectancy or mere possibility of a distribution. His Honour noted that different considerations arose where a discretionary trust is controlled by a trustee "who is in truth the alter ego of a beneficiary" (at 520). This observation is pertinent in the context of subs 1207V(2) of the Social Security Act . 45 Carey is helpful at the level of principle, amongst other reasons, because it concentrates attention on the terms of the particular trust in question. It also draws attention to the fact that the degree of control, if any, that a discretionary beneficiary may enjoy under a discretionary trust depends on the terms of the trust, having regard to the circumstances of the case. Subsection 1207V(2) works on a similar assumption. It is therefore a mistake to treat all so-called discretionary trusts in the same way, as the Secretary's argument tends to do. 46 Furthermore, Gartside , Anchorage , Carey and Livingston (see Weinberg J's discussion in Geeves at 143) make it plain that, although the object of a discretionary trust holds a bundle of rights, these rights do not necessarily amount to what can be termed an "interest" or "beneficial interest", when considered from the perspective of a particular statute: compare M Stone and V Lesnie, "Some Thoughts on Beneficial Interests and Beneficial Ownership in Revenue Law" (1996) 19(1) UNSW Law Journal 181 at 183 and David Hayton, Paul Matthews &amp; Charles Mitchell, Underhill and Hayton Law Relating to Trusts and Trustees (LexisNexis Butterworths, 17 th ed, 2006) at [1.1]. Of course, this is not to say that, in a particular statute, such rights might not be so regarded and described. The question, then, is whether or not the rights of the discretionary beneficiaries in this case amount to "beneficial interests in the corpus or income" such that they might be "aggregated" within the meaning of par 1207V(2)(d).