Owies v JJE Nominees Pty Ltd  VSCA 142 – A Trustee’s Marching Orders (Continued)
As foreshadowed in the Birchstone Brief last week, we now provide a more detailed overview of the decision of the Supreme Court of Victoria Court of Appeal in which the Court scrutinised the exercise of the trustee’s “absolute discretion” and ultimately ordered the removal of the trustee.
This dispute involved the Owies family, being the parents, John and Eva (who had passed away at the time of the proceedings), and their three children, Michael, Deborah and Paul.
The default beneficiaries of the family trust were Michael, Deborah and Paul. The trustee was a corporate trustee, initially controlled by John and Eva, and subsequently Michael. The initial guardian and appointor was John, and subsequently Michael (as a result of variations to the trust deed which were in dispute).
From 2011 to 2018, distributions of income were made in the following proportions: 40% to John, 40% to Michael and 20% to Eva. In 2019, 100% of the income was distributed to John.
Deborah and Paul commenced proceedings against the trustee:
- challenging the variations to the appointor and guardian, which ultimately appointed Michael;
- seeking declarations that there had been no valid distributions of income (based on the available records) and, if the distributions of income were valid, that the trustee had failed to give real and genuine consideration to the beneficiaries such that the distributions were made in breach of trust; and
- seeking the removal of the trustee.
At first instance, it was held that:
- the variations to the appointor and guardian were beyond the scope of the amendment power and consequently invalid;
- the distributions of income were valid, however, the trustee failed to give proper consideration to Paul and Deborah in 2015 and 2016, and Deborah in 2018 (an important factor resulting in the finding of a breach of trust for some years but not others was the lack of opportunity for the trustee to obtain information about Paul and Deborah); and
- the trustee should not be removed.
On appeal, the Court of Appeal held that the trial judge took an unduly narrow view of the evidence and structure of the deed which led him into error for the 2017 and 2019 income years (in which a breach was not found). In assessing whether the trustee genuinely discharged its duty, the Court held that, “as the trustee did not make enquiry of either Paul or Deborah… the inescapable inference is that the trustee was not informed to an extent that enabled it to make a genuine decision”. The Court accordingly found a beach of trust in relation to the 2017 and 2019 distributions as well.
The breach of trust rendered the distributions voidable (rather than void), which means that a beneficiary could apply to the Court for an order of the Court could be made to set the distributions aside. However, in this case, that order had not been sought at trial.
The Court also ordered the removal of the trustee, finding that the trustee failed to act impartially and failed to give real and genuine consideration to two of the primary beneficiaries. The Court also noted that the relations between the beneficiaries were irreconcilably damaged such that it was not in the best interests of the beneficiaries for the trustee to continue in office.
This case is a confronting reminder of the complexities associated with the conduct and management of family trusts and brings to the forefront the question of the measures that trustees ought to be taking to fulfil their trustee duties.
YDXM v FCT  AATA 2382 – AAT finds army officer could not claim law units as self-education expenses
The AAT has held that a taxpayer who was a member of the Australian Army since 2008 could not claim costs incurred on units in a postgraduate law degree as work-related self-education expenses on the basis that there was not a sufficient connection between the taxpayer’s role as a General Services Officer and the expenses incurred.
The AAT did not accept the taxpayer’s argument that their completion of the law degree led to a promotion from Captain to Major and an increase in taxable income. Instead, the Tribunal held that the course of study and units undertaken were general in nature and did not make up a substantial part of the taxpayer’s role as a General Services Officer. The AAT did not deny that the law units (and the degree itself) were a factor that may have led to the promotion, however, there was no correlation sufficiently strong enough to warrant their status as a work-related self-education expense.
Appeal News – JMC Pty Ltd v FCT – Higher education provider appeals Federal Court finding lecturer was engaged as employee
The applicant company has appealed to the Full Federal Court against the Federal Court’s decision in JMC Pty Ltd v FCT  FCA 750 (first covered in the Birchstone Brief for the week ended 1 July 2022).