Background - Fischer v Nemeske Pty Ltd (2016) HCA 11

The Fishers and the Nemes were beneficiaries of the Nemes Family Discretionary Trust (the Trust), of which Nemeske Pty Ltd was trustee (the Trustee). The Trust's principal assets were shares in a company. The value of the shares was recorded in an 'asset revaluation reserve' in the amount of $3,904,300. The Trustee passed a resolution pursuant to the powers given in the trust deed to pay or credit the asset revaluation reserve in its entirety to Mr and Mrs Nemes as joint tenants. The Trustee executed a deed charging the shares in the company in Mr and Mrs Nemes' favour (the Deed of Charge). The Deed of Charge stated that the Trustee was indebted to Mr and Mrs Nemes in the sum of $3,904,300 and would pay the amount of the debt upon their demand. The Deed of Charge was made pursuant to clause 4(b) of the trust deed that allowed the Trustee to '... advance or raise any part or parts of the whole of the capital... of the Trust Funds and to pay or to apply the same... for the advancement in life of any of the Specified Beneficiaries'. Mr and Mrs Nemes passed away before a demand was made. All of the shares in the company and in the Trustee were bequeathed to the Fischers. The residue of the estate was bequeathed to others.

The Fischers sought declarations that the distribution of the asset revaluation reserve and the creation of the loan account were void and of no effect.

Decision

The Court dismissed the appeal 3:2 (French CJ, Bell J and Gageler J, with Kiefel J and Gordon J dissenting), holding that the resolution was effective.

French CJ and Bell J held that depending upon the scope of the power conferred by a trust deed or statute, there are numerous ways of achieving an advancement for the benefit of beneficiaries. In the current proceedings the creation of a debt in the trust accounts was acceptable under clause 4(b) of the Deed. The resolution passed by the Trustee disclosed a clear intention to create a debt in favour of Mr and Mrs Nemes. The majority also approved Chianti Pty Ltd v Leume Pty Ltd (2007) 35 WAR 488, finding that subsequent entries in the accounts amounted to an admission of an obligation to pay money owed on demand.

Gageler J restated two critical steps in the reasoning of the Court of Appeal. Firstly, his Honour acknowledged that the resolution was a proper exercise of the power conferred by the Deed to advance and apply funds. This gave rise to an 'immediate unconditional equitable obligation' on the part of the Trustee to Mr and Mrs Nemes. Secondly, Mr and Mrs Nemes were held to have a cause of action at common law against the Trustee due to the liability recorded in the balance sheet.

Gageler J acknowledged that a Trustee may allocate trust property unconditionally and irrevocably to the benefit of a beneficiary. For this reason, his Honour rejected the Appellants' argument that the allocation must alter the beneficial ownership of a trust asset.

Although novel on its facts, the decision is interesting for its discussion of equitable and common law actions arising against a trustee and its discussion of the meaning of 'advance' and 'advancement' in the context of clause 4(b) of the deed.

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