Continuance of previous post.Five main matters may be...

Continuance of previous post.


Five main matters may be noted

Construction of the clause First, cl 13.1 does not expressly confer a power on the appellant to make in specie and pro-rata distributions of scheme property to unit holders. Nor do the terms of cl13.1 confer such a power by necessary implication. The first limb of cl 13.1 seeks to confer upon the appellant all the powers in respect of the Fund that are legally possible for a natural person or corporation to have. However, a "natural person" does not, by reason of that status, have power to make in specie distributions of property to beneficiaries of a trust. The same position pertains to a corporation: it does not, by reason of its registration as a company. thereby enjoy a power to make in specie distributions to beneficiaries of a trust. The first limb of cl 13.1 does not speak to the powers that a trustee, whether in the form of a natural person or corporation, enjoys vis-a-vis the trustee's beneficiaries. This construction is reinforced by the second limb of cl 13.1, which treats the appellant as though it were the absolute owner of the scheme property and acting in its personal capacity. The second limb cannot be read with the extreme literalism commended by the appellant. To do so would destroy the trust relationship mandated by s 601 FC(2) of the Act by excluding the equitable interest which unit holders enjoy in the assets of the Fund as a whole.34 Rather, the limb informs, and confines, the nature of the powers conferred by cl 13.1 to those that may be exercised by an entity that is not in a trustee/beneficiary relationship with unit holders. Put another way, cl 13.1, for purposes elucidated further below, proceeds on the counterfactual basis that the unit holders do not have any beneficial interest in scheme property and the appellant does not hold scheme property on trust for unit holders. The clause is simply not concerned with the circumstances in which the appellant is permitted to distribute trust assets to its own beneficiaries. (2) Consistency with trust law principles 38. 35 Secondly, the construction just posited rE:1flects orthodox principles of trust law which underpin the relationship regulated by the Fund Constitution. The circumstances in which a trustee may distribute trust property to beneficiaries have been jealously guarded and regulated by Equity. This concern stems from the basal duty of a trustee -"perhaps the most important duty''35 -to adhere rigidly to the terms of the trust, which terms necessarily require the trustee to hold the trust property for the benefit of the trust's beneficiaries. The concern also reflects the fact that the distribution of trust assets is sui generis to the trustee/beneficiary relationship and has special and unique features. A distribution is not a mere transfer of property for consideration. A distribution depletes the net assets of the trust and terminates the obligations of the trustee in respect of the property distributed. Depending upon the terms of the applicable trust deed, a distribution may also divest fellow unit holders of their equitable interest in that property. 39. 40. These matters have led Equity to hold that it is not possible for a trustee to distribute trust property to beneficiaries except via one of three mechanisms: (a) under a specific power contained in the trust deed or other constituent document; (b) via a statutory power conferred on the trustee, if available; or (c) under the 'rule' in Saunders v Vautier ( 1841) 4 Beav 115 ( 49 ER 282). Neither the second or third of these mechanisms is available, or relied upon, in the present case. So far as the second mechanism is concerned, no power under the Trusts Act 1973 (Qid) or any other legislation authorized the in specie distribution in the present case. While a distribution in specie may, in some contexts, constitute an appropriation of trust assets under s 33(1 )(I) of the Trusts Act, an appropriation under that power can only be made where the recipient beneficiary is "entitled" to a particular share of the trust property and notice of the intended appropriation has been given to all other beneficiaries.36 Neither requirement was satisfied here: no unit holder was entitled to a share of the trust propertl7 and no notice of the intended appropriation was given to unit holders. So far as the third mechanism is concerned, the rule in Saunders v Vautier is only applicable where all beneficiaries together have an absolute, vested and indefeasible interest in the capital and income of the propertya8 Even if those requirements were satisfied in the present case (a question that is not without doubt having regard to ell 2.2, 21.5, 21.6, 26.4 and 26.6 of the Fund Constitution39), the rule was not sought to be exercised by unit holders. Given that the requirements of neither mechanism have been satisfied, it is unnecessary for the Court to consider the extent to which either mechanism was applicable, in any event, to an MIS registered under Ch 5C of the Act.40
41. Absent an available statutory or general law mechanism, trust law requires the applicable trust instrument to contain a specific power to make distributions in specie.41 Having regard to the matters at [38] above, one would expect that power to be expressly and clearly identified such that both the trustee and beneficiaries would be certain as to its availability and content. One would not normally read general language in cl 13 of the Fund Constitution as being intended to authorise distributions, let alone distributions in specie, of trust property. Rather, its subject matter is concerned with empowering the trustee to manage the trust property effectively on an ongoing basis for the benefit of unit holders. In addition, where there are specific provisions authorising the distribution of trust property to unit holders ( eg ell 16 and 26 of the Fund Constitution, as to which see below), one would not readily infer that the general language of cl 13 was intended to provide an additional, unconfined power dealing with the same subject-matter. (3) Context in the Fund Constitution-especially clauses 16 and 26 42. 43. Thirdly, the appellant's construction of cl 13.1 sits uneasily with the description of the Fund as an Income Fund and the existence in the Fund Constitution of two detailed regimes for the distributions of trust property to unit holders. The efficacy and utility of those regimes would be frustrated if the appellant were permitted, pursuant to clause 13.1, to make distributions in specie of trust property equivalent to more than 40% of the value of the scheme property only highlights the difficulty. The first regime is provided for in cl 16. Under that regime, the appellant is required to calculate an individual "Distribution Entitlement" for each unit holder, as at the Distribution Calculation Date.42 That calculation is made after: (a) a determination of the income of the Fund in the applicable period; (b) a determination of any additional amount (including capital, previous reserves and previous provisions) to be distributed and (c) the calculation of an aggregate "Distributable Amount" from which Distribution Entitlements are to be made.43 The amount to which each Unit Holder is entitled after these calculations are made is to be deposited into a bank account of the unit holder's choosing or is to be reinvested in the Fund or otherwise as directed by the unit holder. 44.
The second regime is provided for in cl 26. Under that regime, the appellant may provide unit holders with a final distribution from the net realised proceeds of the Fund upon the Fund's winding up. 45. So drafted, each regime is predicated on cash only distributions 46.That both the appellant and unit holders would wish to make specific, and detailed, provision for the making of distributions is unsurprising. Not only does a distribution give rise to the legal consequences identified at [38] above, but it also gives rise to sometimes difficult questions of revenue law. The resolution of those questions will often require close attention to the relevant constituent document and the precise manner in which distributions are to be made to beneficiaries.44 47. 48. It is also unsurprising that neither ell 16 nor 26 makes provision for in specie distributions.45 There are many reasons why the beneficiaries of a trust may not wish to give the trustee in advance an ability to force upon them in specie distributions. While some categories of trust property will be fungible and easily distributable in specie, the distribution of other categories (eg land, chattels) raise difficult questions of valuation and of equality of treatment in the context of multi-beneficiary trusts. In addition, the very assets themselves may be unattractive to beneficiaries. For example, the distribution of partly paid shares to a beneficiary may result in the beneficiary having a significant personal liability to make future payments. A distribution of property in the form of debentures or charged assets may make it very difficult for the unit holders to know the true value of what they are getting and subject them to uncertain legal relationships of which they have no real control nor means of escaping. The inclusion of specific clauses concerning distribution in the Fund Constitution, and the absence in those clauses of provision for in specie distribution, suggests that the inability of the appellant to make in specie distributions was deliberate.46 The appellant's construction of cl 13.1 pays no regard to ell 16 and 26. According to the appellant, cl13.1 necessarily operates as an independent and freestanding power to make distributions of trust property, whether in specie or otherwise. However, to proceed in that fashion would render ell 16 and 26 otiose; the existence of cl 13.1 would mean that a failure by the appellant to comply with ell 16 and 26 would give rise to neither a breach of trust nor noncompliance with the Fund Constitution. In addition, the operation of relevant revenue laws47 in respect of distributions made under cl 13.1, rather than ell 16 and 26, would be unclear, both as to the whether the distribution was of capital or income, and as to whether unit holders were presently entitled to the distributions so made. These would be outcomes so undesirable as to confirm the unacceptability of the posited construction.
(4) Mischief or object 49. 5 10 Fourthly, ASIC's construction is consistent with the evident mischief or object to which cl 13.1 is directed. In the absence of cl 13.1, third-parties may lack confidence that acts taken by the appellant with respect to the Fund are within power and authorised by the Fund Constitution.48 That mischief is alleviated by deeming the appellant not to be a trustee in its dealings with scheme property. But that deeming must be confined to conduct by the appellant with nonbeneficiaries because to do otherwise would collapse the trustee/beneficiary relationship into nothing. A construction that has that result will not be adopted where, as here, an alternative construction is available that preserves and enhances the trust relationship and the obligations of the RE to its beneficiaries. (5) Section 601 GC 50. 51. 52. Fifthly, contrary to AS [42], it does not follow that the appellant could only deal with illiquid assets by winding up the Fund or retiring as RE. Section 601GC of the Act contains two mechanisms by which a scheme constitution can be modified. In the present case, a modification to permit the appellant to make in specie distributions could be authorised by special resolution of unit holders under s 601 GC(1 )(a).49 In addition, the Act expressly regulates the ability of members to withdraw from non-liquid schemes. 5° Indeed, s 601 GC illustrates the real vice of the Appellant's construction. The point is not whether the appellant breached one of its s 601 FC duties by entering the transaction and engaging in the in specie distribution ( cf AS [15], [67] and [68]). These duties control actions taken by the appellant where the subject matter is within power. Where what the appellant wishes to do is to depart from the carefully crafted provisions in the Fund Constitution for distributions to unit holders, it needs to amend the Constitution first. Unless it can lawfully form the opinion ins 601GC(1)(b), it needs a special resolution. An enhanced majority of unit holders can then bind the minority. But absent such a change, the appellant was acting beyond power. Finally, and for the point of completeness,51 s124(1)(d) of the Act does not support the appellant's construction. That sub-section is concerned with distributions by a company of company property amongst its members, in kind or otherwise. It is a specific statutory power provided to companies, not trustees, and falls within the description of the powers of a body corporate. The relationship between a company and its members cannot be equated to the relationship between a trustee and beneficiaries, not least because members of a company enjoy no equitable interest in the assets of the company, whether individually or as a whole. Clause 13.2.5 53. 54. 55. 56. 57. Four matters may be noted. First, cl 13.2.5 does not expressly confer a power to distribute trust property to unit holders, whether in specie or otherwise. Given the number of different types of transaction identified in cl13.2.5 (and in cl 13.2 as a whole), that omission is significant. Nor do the terms of cl 13.2.5 confer such a power by necessary implication. The expression "acquire, dispose of, exchange, mortgage, sub-mortgage, lease, sub-lease, let, grant, release or vary any right or easement" is redolent of steps taken by a trustee in the ordinary course of its management of trust property, rather than of distributions of trust property to unit holders. The expression "otherwise deal with Scheme Property" should be read in light of, and informed by, the preceding language. As the Full Court observed, the clause as a whole is inapt to capture an in specie distribution to unit holders. 52 Secondly, cl 13.2.5, like cl 13.1, is directed to a different context than that existing between the appellant, as trustee, and unit holders, as beneficiaries. Clause 13.2.5 repeats the conceit that the appellant is the absolute and beneficial owner of the scheme property. That state of affairs is necessarily inconsistent with the existence of a trust. This circumstance suggests that the clause is concerned with circumstances in which the existence of a trust relationship is not relevant -namely, the interaction between the appellant and third-parties to whom it does not owe obligations as a trustee: see further at [36] -[37] above. Thirdly, to the extent that the powers delineated in cl 13.2.5 are expressed not to be limited by, or to be construed so as to limit or be limited by the powers, authorities and discretions otherwise vested in the appellant pursuant to the Fund Constitution or by the Act, the clause is capable of two meanings. One meaning is lawful -namely that the clause does not purport to provide the appellant with powers contrary to, or inconsistent with, the duties and responsibilities stipulated in the Act and the other provisions of the Fund Constitution. The other meaning -propounded by the appellant -is inconsistent with the legislative regime because it seeks to deny the trustee/beneficiary relationship imposed by s 601 FC(2). On established principles of construction, the former construction should be preferred.53 Fourthly, the difficulties with the appellant's construction of cl 13.1 identified at [38] -[52] above apply equally to its construction of cl 13.2.5. For the reasons there set out, cl 13.2.5 should not be construed as permitting an in specie distribution of scheme property to unit holders a company enjoy no equitable interest in the assets of the company, whether individually or as a whole. Clause 13.2.5 53.54. 55. 56. 57. Four matters may be noted. First, cl 13.2.5 does not expressly confer a power to distribute trust property to unit holders, whether in specie or otherwise. Given the number of different types of transaction identified in cl13.2.5 (and in cl 13.2 as a whole), that omission is significant. Nor do the terms of cl 13.2.5 confer such a power by necessary implication. The expression "acquire, dispose of, exchange, mortgage, sub-mortgage, lease, sub-lease, let, grant, release or vary any right or easement" is redolent of steps taken by a trustee in the ordinary course of its management of trust property, rather than of distributions of trust property to unit holders. The expression "otherwise deal with Scheme Property" should be read in light of, and informed by, the preceding language. As the Full Court observed, the clause as a whole is inapt to capture an in specie distribution to unit holders. 52 Secondly, cl 13.2.5, like cl 13.1, is directed to a different context than that existing between the appellant, as trustee, and unit holders, as beneficiaries. Clause 13.2.5 repeats the conceit that the appellant is the absolute and beneficial owner of the scheme property. That state of affairs is necessarily inconsistent with the existence of a trust. This circumstance suggests that the clause is concerned with circumstances in which the existence of a trust relationship is not relevant -namely, the interaction between the appellant and third-parties to whom it does not owe obligations as a trustee: see further at [36] -[37] above. Thirdly, to the extent that the powers delineated in cl 13.2.5 are expressed not to be limited by, or to be construed so as to limit or be limited by the powers, authorities and discretions otherwise vested in the appellant pursuant to the Fund Constitution or by the Act, the clause is capable of two meanings. One meaning is lawful -namely that the clause does not purport to provide the appellant with powers contrary to, or inconsistent with, the duties and responsibilities stipulated in the Act and the other provisions of the Fund Constitution. The other meaning -propounded by the appellant -is inconsistent with the legislative regime because it seeks to deny the trustee/beneficiary relationship imposed by s 601 FC(2). On established principles of construction, the former construction should be preferred.53 Fourthly, the difficulties with the appellant's construction of cl 13.1 identified at [38] -[52] above apply equally to its construction of cl 13.2.5. For the reasons there set out, cl 13.2.5 should not be construed as permitting an in specie distribution of scheme property to unit holders.