Background - Fischer v Nemeske Pty Ltd (2016)
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.
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
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