Case: Gartside v Inland Revenue Commissioners [1967] UKHL 6 ; [1968] AC 553
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 "). 25 The Social Security Act does not define "beneficial interests". The expression "beneficial interest" has no precise received meaning: compare RP Meagher, JD Heydon, and MJ Leeming, Meagher, Gummow and Lehane's Equity Doctrines and Remedies (Butterworths, LexisNexis, 4th ed, 2002) at [4-040] and R Speed, "Beneficial Ownership" (1997) 26 ATR Rev 34 at 50. Indeed, the word "interest" is itself "capable of a very wide and general meaning": see Gartside at 617 per Lord Wilberforce; Commissioner of Stamp Duties (Qld) v Livingston (1964) 112 CLR 12 (" Livingston ") at 22 per Viscount Radcliffe; and CPT Custodian Pty Ltd v Commissioner of State Revenue [2005] HCA 53 ; (2005) 224 CLR 98 at 114 per Gleeson CJ, McHugh, Gummow, Callinan and Heydon JJ. The expression "beneficial interests" therefore falls to be interpreted principally by reference to the statutory context in which it is used, and any guidance that the general law can provide. The Court may also have regard to extrinsic materials such as the second reading speech or the explanatory memorandum accompanying the Bill to confirm that the ordinary meaning of the expression is applicable or to assist in resolving any ambiguity: see Acts Interpretation Act 1901 (Cth), s 15AB. 39 Under clause 5(b) of the will, each of the Elliotts and their daughter has a right to be considered by the trustees as a possible recipient of a payment out of the income and capital of the trust in accordance with the terms of the trust. They also have a right to have the trustees consider whether they should be permitted to reside rent free in any property forming part of the estate. Each of them has a right to have the trust administered duly and properly: compare Gartside at 617-8 per Lord Wilberforce. They also had a right to receive information about the management of the trust fund and to see trust documents: see [44] below. Furthermore, the discretionary beneficiaries have a right to trace and follow the trust assets if they are misappropriated: Livingston 23-24; also Hardingham IJ and Baxt R, Discretionary Trusts (Butterworths, 2 nd ed, 1984) at [517]. It is by no means self-evident, however, that, because of these rights, any of them has "beneficial interests in the corpus or income of the trust" within the meaning of par 1207V(2)(d) of the Social Security Act . 41 As noted earlier, counsel for the Elliotts placed a good deal of reliance on the decision of the House of Lords in Gartside in which a question arose as to whether a person who might benefit, in his lifetime, from the exercise of a trustee's power to make payment to him out of a fund under a discretionary trust held an "interest in possession" within the meaning of s 43 of the Finance Act 1940 so as to attract a tax on death. Gartside held that there was no "interest in possession" within the meaning of the relevant statute: see Gartside at 618 per Lord Wilberforce, with whom Lord Hodson agreed; also 607 per Lord Reid, with whom Lord Morris of Borth-y-Gest and Lord Guest agreed. Whilst the answer is immaterial here, their Lordships' consideration of the nature of the right held by an object of a discretionary trust is helpful. The trust in question was similar in relevant terms to the trust created by clause 5(b) of the will, as the following observations of Lord Wilberforce (at 614-5) show: Under the trusts of income which applied during his life, no one of [the] beneficiaries had any right to receive any income. The trustees had an absolute discretion to distribute or to withhold distribution of the income of any year, and, as regards any income they decided to distribute, to give all or none of it to any one beneficiary. Any undistributed income had, during the permissible period, to be accumulated, i.e., added to capital. ... It is also necessary to appreciate that the discretionary beneficiaries taken together had no right to receive any or, a fortiori, all of the income. ... [T] he trustees had power to accumulate so much as they did not distribute, which might be the whole, for the possible benefit of persons unborn. To describe them as 'the only people who could during the relevant period obtain any benefit from the property or have any beneficial enjoyment of it' may be misleading, unless one bears in mind that, singly or collectively, they had no right in any year to receive a penny. 42 Gartside therefore reinforces what is largely evident from clause 5(b) that, until the trustees exercise their discretion in his or her favour, none of the discretionary beneficiaries has a right to receive any payment of income or capital. At most, each has a right to require the trustees to consider whether to make such a payment in accordance with the terms of the trust: see [39] above. The question remains whether the Elliotts' entitlements as discretionary beneficiaries gives rise to "beneficial interests in the corpus or income of the trust" within par 1207V(2)(d) of the Social Security Act . 43 The second of the decisions relied on by the Elliotts was that of the Full Court of the Supreme Court of Western Australia in Anchorage , which involved contempt proceedings for alleged breach of a Mareva injunction. The question for determination was whether certain transactions amounted to breach of the injunction. A person bound by the injunction exercised his power as the appointor under a trust deed to make his son guardian of the trust and removed himself as appointor. His son removed the other trustee, Anchorage, and appointed a company with which he was associated in its stead. The new trustee, with his consent and that of his wife, declared that they were excluded as general beneficiaries. The Bank argued that the transactions breached the injunction. On appeal, Owen J, with whom Ipp J agreed, held that a beneficiary of the trust in question did not have any proprietary interest in any particular assets of the trust fund or in the fund as a whole. Owen J said (at 79): The Trust Deed confers on the trustee a mere power. It is a power of very wide import. The trustee can determine whether an individual beneficiary is to benefit at all, and if so, in what way, from the exercise of the power in his or her favour. In this sense, the beneficiary has nothing more than an expectancy. The trustee has a duty to administer the trust bona fide having regard to the purpose for which it was established. This is a duty which the court will enforce at the behest of a beneficiary. In this way, the remedy defines the nature of the interest of an individual beneficiary. It is to require the trustee to consider the matter, to decide whether or not to exercise the power and, if the power is to be exercised, to do so correctly in accordance with the terms of the trust ... Such a right is an equitable chose in action. Owen J added (at 80) that, in the case of a beneficiary under a discretionary trust, '[t]he exercise of the rights implicit in the chose in action might not result in any financial benefit to the beneficiary concerned". At the level of principle, Anchorage affirms Gartside but, once again, provides limited guidance on the question at hand. 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).