s

Jacky Campbell, June 2015

Does a trustee owe a duty of notification to a discretionary beneficiary?

In Segelov v Ernst & Young Services Pty Ltd [2015] NSWCA 156, the New South Wales Court of Appeal considered the question of whether a trustee owed a duty of notification to a beneficiary of a discretionary trust. The beneficiary did not know that she was a beneficiary of the trust or that she received distributions from the trust. The issue arose after the beneficiary separated from her husband who was a partner of a large accounting firm. The outcome was primarily determined by the wording of the trust deed, but the Court of Appeal also made statements of more general application. The decision serves as a reminder to family lawyers of the importance of obtaining full disclosure of the interests or possible interests of the parties in trusts.

Ms Segelov’s claims

On 1 July 2006, Ms Segelov was nominated as a beneficiary of the Ernst & Young Services Trust by her husband, Mr Joseph, shortly prior to him becoming a partner of Ernst & Young. The trustee, Ernst & Young Services Pty Ltd, exercised its discretion and made distributions of over $460,000 over a 6 year period into accounts in the joint names of Ms Segelov and her husband. They separated in November 2011 and Ms Segelov discovered that she had received the distributions when her new accountant obtained copies of her tax returns from her previous accountant. She had not previously seen them and had not signed them.

Ms Segelov said that she, at all relevant times, did not know that:

1.            She was a beneficiary of the trust;

2.            Distributions from the trust were made to her;

3.            The payments into the joint bank accounts.

She claimed that she derived no use or benefit from the payments.

She claimed that the trustee owed her a duty as a beneficiary of the trust, to inform her that she was a beneficiary and when she became entitled to a distribution. She also alleged that the trustee owed her a duty to ensure that she received the benefit of distributions to her. She alleged that the trustee breached these duties by failing to notify her of her entitlements under the trust when they were determined by the trustee in late June of each year. She claimed equitable compensation of $468,995.39.

Ms Segelov also claimed that the payments, which had been made into the joint bank accounts prior to 30 June each year, were not payments of income of the trust (as defined in the trust deed) and accordingly the trustee was not entitled to the benefit of the discharge provided by the receipts clause in the trust deed. She characterised these payments as advances of expected income but not income. She said she received no benefit from any of the payments into the joint bank accounts because her former husband used them for his own purposes.

Outcome of trial

At trial, Nicholas AJ rejected Ms Segelov’s claim that the trustee owed her duties in the terms she alleged. He held that the distributions paid into the joint bank accounts prior to 30 June each year were payments of income of the trust which attracted the benefit of the discharge under the trust deed. He dismissed her claim with costs.

The appeal

Ms Segelov appealed to the Court of Appeal of the Supreme Court of New South Wales. Her primary contention was that the trial Judge erred in holding that the trustee did not owe her a duty to inform (also referred to as a duty of notification). Her other contentions included that the trial Judge erred in finding that the trust deed was ineffective in giving the trustee a valid discharge in respect of the payments into the joint bank accounts prior to 30 June each year.

Gleeson JA, with whom Meagher and Leeming JJA agreed, dismissed Ms Segelov’s appeal.

In relation to the interim distributions, Gleeson JA relied upon the trust deed. He interpreted the relevant clauses to find that the interim distributions were not advances but were income and the trustee was provided a full discharge. There was no requirement that income be held until the end of the financial year before the trustee exercised its power. The trustee was also not restricted to exercising its power to apply income towards a beneficiary on only one occasion in any financial year or at any particular time.

The source of the trustee’s duty was a matter in dispute although ultimately Ms Segelov’s Counsel accepted in oral argument the correctness of the approach of Campbell JA in SAS Trustee Corporation v Cox [2011] NSWCA 408; 285 ALR 623. Campbell JA explained that, to the extent that the duties of trustees are not expressly stated in the trust instrument, a trustee’s duties are arrived at by implication from the nature of their office. On this approach, the duty of any particular trustee depends on what is involved in faithfully carrying out the office of being trustee of that particular trust.

The trial judge concluded that there was no duty of notification of the kind asserted, expressed or implied by the terms of the trust deed. The Court of Appeal agreed with this and said that the trial judge was correct to observe that Ms Segelov was asserting that the trustee should have undertaken an additional duty, which was not required under the trust deed. Furthermore, it was not necessary for the trustee to seek or obtain any acknowledgment of payment. This was inconsistent with Ms Segelov’s contention that for the payment to be effectual, the beneficiary needed to be aware that he or she had an entitlement under the trust. Once payment was made by the trustee into the joint bank accounts, Ms Segelov was taken to have received the distributions for the purpose of the trust deed. As a result, the duties of the trustee to Ms Segelov were discharged.

Counsel for Ms Segelov contended that for the payments to be effectual, direct notification to the beneficiary was required and without such notification, the beneficiary may not obtain the “practical” benefit of the distribution.

Gleeson JA said (at para 118) that the use to which the monies in the joint bank accounts were put after the payment of the distributions, did “not inform, let alone provide a foundation for the asserted duty of notification at an earlier point in time.”

Gleeson JA distinguished the facts from Hawkesley v May (1956) 1QB 304 and Hawkins v Clayton [1988] HCA 15; 164 CLR 539. Hawkesley v May involved a deed of settlement which benefited an identified brother and sister. The trustee was held to be under a duty to inform the brother that he had an interest in the capital and income of the trust funds when he turned 21 and his interests under the trust accrued. Havers J distinguished earlier authorities which held that there was no legal duty on an executor to give notice of the terms of a legacy to the legatee on the grounds that a Will was a publicly available document at the probate office, whereas a trust deed was private document. Brennan J in Hawkins v Clayton relied on Hawkesley v May to support his conclusion that the custodian of a Will after the death of the testator owed a duty of care in tort to disclose the existence of the Will to the nominated executor and beneficiary including taking steps to locate that person to discharge that duty.

Gleeson JA distinguished these cases and said (at para 130):

“It is however, a much larger step to suggest that in all trusts a beneficiary’s right to inspect the trust documents, including the trust deed, gives rise to a corresponding duty of disclosure owed by the trustee to the beneficiary to have his or her rights explained to them, including in the case of potential objects of a discretionary trust their entitlement to an interest in the trust fund once determined by the trustee. Implicit in Ms Segelov’s reliance on Hawkesley was that it established a principle of general application. This contention should be rejected. To accept such a proposition would be to impose a duty on trustees without regard to the nature and the terms of the relevant trust and the social or business environment in which the trust operates, contrary to the approach explained in SAS Trustee Corporation v Cox.”

Gleeson JA held that the particular features of the trust deed and the effect of payment into the joint bank accounts were inconsistent with there being a duty of notification to Ms Segelov.

Gleeson JA referred to Jacobs’ Law of Trust in Australia (7th Ed 2006, Lexis Nexis Butterworths) where it was stated [at 1715] that “There is no general duty on trustees to volunteer documents or information to beneficiaries or possible beneficiaries”. However, it also stated that a “trustee is bound to inform a beneficiary, who on attaining majority is entitled to a share in a trust fund, of that interest”. Other texts making similar propositions were also cited, but Gleeson JA concluded (at para 135):

“On a close reading, nothing in the generalised statements in the identified passages in those texts, specifically addresses the foundation for the asserted duty of notification in the present, that is having regard to the terms of the particular trust here under consideration. I do not consider that assistance is to be gained from these sources.”

Gleeson JA concluded (at para 136) that “the faithful performance of [the trustee’s] duties as trustee did not require [the trustee] to take the additional step of notifying Ms Segelov of its decision to make a distribution in her favour, in circumstances where the terms of the trust deed afforded [the trustee] a full and final discharge upon payment of the distributions to a joint bank account in the name of the beneficiary without the necessity of any receipt executed by or on behalf of the beneficiary.”

Gleeson JA also looked at the practicalities of imposing a duty on the trustee to notify beneficiaries. It was relevant that the trustee was not in possession of contact details of the nominated beneficiaries. The trustee only had bank account details (or in this case, joint bank accounts) for each beneficiary. The practical difficulties of the trustee obtaining the contact details of the beneficiaries, maintaining an up-to-date register of beneficiary contact details and how often it was required to actively seek out information, reinforced that the terms of the trust deed were inconsistent with the asserted duty of notification to the beneficiary.

Implications for family lawyers

This case is a reminder of the importance of obtaining trust deeds for any trust of which one of the parties to a marriage, or a de facto relationship, is a beneficiary, to allow a check to be done as to whether the other party is a potential beneficiary. If so, the financial statements and tax returns of the trust should be obtained.

By failing to do so, the party may be unaware of loan accounts, income which should be declared to the Australian Taxation Office, tax liabilities and potential tax liabilities. In addition, the party may fail to disclose a property interest, being a right to due administration of a trust, which may be a property right to be adjusted under s 79 Family Law Act 1975 as in Kennon v Spry [2008] HCA 56.

Jacky Campbell

Partner

University qualifications

Master of Laws, Monash University

Bachelor of Laws, Monash University

Bachelor of Arts, Monash University

Graduate Diploma of Professional Writing, Deakin University

Other qualifications
Accredited Family Law Specialist,
Law Institute of Victoria

Email Jacky Campbell
jcampbell@fortefamilylawyers.com.au

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Publications
To read Jacky Campbell’s articles and papers click here.

In 2020, Jacky was recognised as a leading family lawyer in Melbourne by Doyle’s Guide to the Australian Legal Market as well as one of Melbourne’s leading family lawyers in High-value and Complex Property matters, and a recommended lawyer in parenting matters. Jacky was also a recommended lawyer in the Doyle’s leading family and divorce lawyers in Australia. Jacky writes extensively on complex aspects of family law and her up-to-date knowledge means that she is able to provide accurate information about the law. She combines this with offering strategic advice to clients and guidance as to the best approach to take in their particular circumstances.

Jacky wrote her Masters thesis on the relationship of bankruptcy and family law. She continues to have a special interest in matters involving bankruptcy, insolvency, liquidation and receivership.

Jacky received the Law Institute of Victoria Rogers Legal Writing Award 2004—for the article “Splitting the Super…and Selling the Home”. She is experienced with complex superannuation interests such as defined benefit funds and self managed superannuation funds.

Jacky is the consultant editor of Wolters Kluwer/CCH Australian Family Law and Practice and contributing author to Wolters Kluwer/CCH Australian Family Law and Practice to the Property, Spousal Maintenance, Financial Agreements, Maintenance Agreements, Procedure and Precedents tabs. She writes several chapters of the Wolters/Kluwer CCH Australian Master Family Law Guide, and is the author of the family law chapters in the Thomson-Reuters Australian Financial Planning Handbook and in the CCH Australian Master Superannuation Guide.

Jacky is a Fellow of the International Academy of Family Lawyers, a board member of the Asia Pacific Chapter of that Academy, and an Associate of the American Bar Association. She acts for many clients who are overseas or where there is an international element such as overseas assets and international child abduction under the Hague Convention. She is also experienced in Australian and overseas surrogacy arrangements and in disputes about the role of a sperm donor. She is a member of the Maintenance and Property Committee of the Family Law Section of the Law Institute of Victoria, the Family Law Section of the Law Council of Australia and Victorian Women Lawyers.

Jacky is keen to assist clients to resolve matters before trial through alternative dispute resolution processes including mediation. She is a trained arbitrator and is an arbitrator with The Alternative Courtroom.

Wendy Kayler-Thomson

PARTNER

University qualifications

Master of Laws, Monash University

Bachelor of Laws, University of Melbourne

Bachelor of Commerce, University of Melbourne

Other qualifications
Accredited Family Law Specialist, Law Institute of Victoria

Email Wendy Kayler-Thomson
wkaylerthomson@fortefamilylawyers.com.au

Connect on LinkedIn

Wendy Kayler-Thomson is a partner of Forte Family Lawyers and has practised as a lawyer specialising in family law for more than 25 years. Wendy is recognised as one of Melbourne’s leading family lawyers in Doyle’s 2020 Guide to the Australian Legal Market.

Wendy is the Immediate Past Chair of the Family Law Section of the Law Council of Australia, the peak body for Australian family lawyers, and has been a member of the Executive of the Family Law Section for more than 10 years. The Family Law Section is regularly consulted by the Federal government and the Courts about changes to family law and court procedures. As a result, Wendy is able to offer her clients the most up to date advice on family law and strategies to take advantage of future changes.

Wendy’s time as Chair of the Family Law Section (from 2016 to 2018) coincided with a period of great controversy and unprecedented attention on the reform of family law and the family law system. This included the Victorian Royal Commission into family violence, the Federal Parliamentary enquiry into the family law system and family violence, the Australian Law Reform Commission’s Family Law Review and the Federal Government’s proposal to restructure the Family Court and Federal Circuit Court.

Wendy was a member of the Advisory Committee to the Australian Law Reform Commission’s Family Law Review, the most comprehensive review of family law and the family law sector in 40 years.

Wendy was also a member of the Advisory Committee to the Law Council of Australia’s 2018 Justice Project, chaired by former High Court of Australia Chief Justice, the Hon. Robert French. The Justice Project is one of the most comprehensive, national reviews into the state of access to justice in Australia in the past 40 years.

Wendy develops close and trusted relationships with her clients and the wide network of professionals that refer her work. Wendy’s approach is tailored to each individual client’s needs, recognising that for most people, the breakdown of a relationship is one of their most stressful and challenging experiences. Wendy brings a high attention to detail, strategic advice and a depth of expert knowledge about family law. Wendy has a commercial background and has acted for many clients with complex financial arrangements. She works closely with her clients’ accountants and other professional advisors to ensure that all the complexities of those arrangements, including tax impacts and restructuring, are dealt with as part of any settlement.

Wendy has undertaken extensive training in a wide range of social sciences that impact on families and their children, including family and domestic violence, parental alienation, personality disorders, drug and alcohol addiction and high conflict. Wendy’s clients benefit from her knowledge of the most up to date approaches by child psychologists and other experts to managing the post-separation care arrangements of children. Wendy has particular expertise in cases where one parent wants to relocate with the children interstate or overseas.

Wendy is also a member of the Executive Committee of the Family Law Section of the Law Institute of Victoria, the Family Law Section of the Law Council of Australia, the Association of Family and Conciliation Courts, the Australian Institute of Family Law Arbitrators and Mediators and Victorian Women Lawyers.

Jemma Mackenzie

Senior Associate

University qualifications

Bachelor of Laws (Hons) Monash University
Bachelor of Arts (Hons) Monash University

Email Jemma Mackenzie
jmackenzie@fortefamilylawyers.com.au

Other qualifications
Accredited Family Law Specialist,
Law Institute of Victoria

Connect on LinkedIn

Jemma is a Senior Associate at Forte Family Lawyers. She has worked predominantly in family law since being admitted to legal practice in December 2009.

Jemma obtained Specialist Accreditation as a Family Lawyer from the Law Institute of Victoria in 2015. Accreditation recognises the high level of knowledge and practical skills Jemma brings to each family law matter.

Jemma is mindful that the breakdown of a marriage or de facto relationship can be a stressful and often overwhelming experience for clients. She works with her clients to identify appropriate pathways for resolving both parenting and property matters.

Jemma prides herself on her ability to effectively communicate what can be complex legal principles and to provide realistic, up to date and accurate legal advice at each stage of a matter.

Jemma has experience in a wide variety of family law matters including division of property, maintenance (including urgent applications), Financial Agreements (including Agreements made prior to marriage), care and living arrangements for children, child support and family violence – including Intervention Order proceedings.

Prior to joining Forte Family Lawyers, Jemma worked in a Bayside family law firm and a boutique firm in Melbourne’s eastern suburbs. She has conducted litigation in both the Family Court of Australia and Federal Circuit Court in Melbourne and interstate.

In addition to her daily work with clients, Jemma has made presentations to financial advisors and medico-legal professionals about the family law system in Australia and what clients should know about family law prior to separating.

Jemma is a member of Victorian Women Lawyers, the Family Law Section of the Law Council of Australia and the Family Law Section of the Law Institute of Victoria.

Kristy Haranas

Senior Associate

University qualifications

Bachelor of Laws, James Cook University

Email Kristy Haranas
kharanas@fortefamilylawyers.com.au

Other qualifications
Accredited Family Law Specialist,
Law Institute of Victoria

Connect on LinkedIn

Kristy is a Senior Associate at Forte Family Lawyers. Kristy is an Accredited Family Law Specialist as recognised by the Law Institute of Victoria. Accredited Specialists are required to maintain a high degree of continuing professional development to ensure their advice is based on the most current legal principles and to the highest possible standard. Kristy was recognised in the 2020 edition of Doyles Guide as a Family Law Rising Star.

Kristy has undertaken further tertiary study in the area of family law and has a Masters of Applied Law (Family Law) from the College of Law.

Prior to joining the firm, Kristy worked in a range of practice areas including several years in family law in Queensland. Kristy also worked a lawyer for the Australian Securities and Investments Commission on large-scale financial investigations. During her time at AISC Kristy gained valuable commercial experience and developed a high level of attention to detail which she now applies to her work in family law financial cases.

Kristy has a wide range of experience in different areas of family law including parenting issues, property settlements (including complex matters with multifaceted trust/corporate structures), financial agreements, child support and family violence cases.

Kristy prides herself on building strong relationships with clients from the outset. Kristy recognises that for most people, the breakdown of a relationship can result in stress, conflict and confusion. As a result, Kristy ensures that clients receive not only strategic and commercially focused legal advice, but empathy and compassion. Kristy has strong communication skills which she uses to confidently guide clients through what can sometimes feel like a complicated legal system.

Kristy is a member of the Courts Practice Committee of the Family Law Section of the Law Institute of Victoria which provides her with valuable insight into recent developments in the Family Law Courts. Kristy is also a member of the Family Law Section of the Law Council of Australia and Victorian Women Lawyers.

Matthew Beckmans

Senior Associate

University qualifications

Bachelor of Laws, University of Western Sydney

Email Matthew Beckmans
mbeckmans@fortefamilylawyers.com.au

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Matthew commenced his legal career practising in a medium-sized rural law firm. Matthew is able to draw on his broad experiences over a number of practice areas, prior to practising exclusively in family law, to offer clients a well-rounded approach to tactically resolve complex legal issues.

Matthew has developed a special interest in complex disputes involving companies and trusts, insolvency and bankruptcy, taxation, and international/domestic relocation.  He also has a particular expertise in child support.

Matthew is aware and mindful of the financial challenges and restraints when attempting to resolve family law disputes, and sets out to achieve negotiated and cost effective outcomes which avoid court where possible. Matthew recognises the emotional issues attached to the breakdown of a relationship, and draws on his strong communication skills in demystifying the family law process, and to identify and explain possible options for resolution in a concise manner.

Matthew was a member of the steering committee of the Riverina Family Law Pathways Network, secretary of the South West Slopes Law Society, and a mock trial magistrate for the Law Society of New South Wales.

Prior to practising law, Matthew was rookie listed by the Sydney Swans, where he enjoyed a brief career.  He now plays for the Monash Blues in the VAFA.

Matthew is a member of the Family Law Sections of the Law Council of Australia and the Law Institute of Victoria.  He is on the Court Practice Committee of the Family Law Section of the Law Institute of Victoria.

Vinh Nguyen

Associate

University qualifications

Bachelor of Laws, Deakin University

Bachelor of Commerce, Deakin University

Email Vinh Nguyen
vnguyen@fortefamilylawyers.com.au

Connect on LinkedIn

Vinh first worked at Forte Family Lawyers as part of his Graduate Diploma in Legal Practice at the Leo Cussen Institute for Law in 2017. He joined Forte Family Lawyers as a lawyer after his admission into legal practice in October 2017 and has, since then, worked solely in family law.

Prior to his admission as a lawyer, Vinh worked as a paralegal in a community legal centre and in a property and commercial law firm, where he gained valuable experience in property transactions.

Vinh is a member of the Family Law Section of the Law Council of Australia, the Law Institute of Victoria and the Asian Australian Lawyers’ Association. Vinh also volunteers at the Darebin Community Legal Centre.

Vinh is fluent in Vietnamese.

 

 

 

Natasha Mastroianni

Associate

University Qualifications

Bachelor of Laws (Hons), Latrobe University

Bachelor of Arts, Latrobe University

Masters of Applied Law (Family Law), College of Law

Email Natasha Mastroianni

nmastroianni@fortefamilylawyers.com.au

 

 

Connect on LinkedIn

Natasha Mastroianni has experience in a range of family law matters, including property settlements, financial agreements, parenting matters (including interstate and overseas relocation issues), child support and intervention order proceedings.

Natasha was admitted to practice in August 2014 and commenced her career in a generalist practice where she gained experience in family law, property law, wills and estates. Natasha worked in a boutique family law practice prior to commencing at Forte in February 2020.

Natasha has a Masters of Applied Law (Family Law) from the College of Law and speaks conversational Italian.

Having practical experience in other areas of law assists Natasha to understand the interrelated issues involved in her clients’ family law matters. She regularly appears on behalf of clients at Duty List Hearings and other Court events in the Federal Circuit Court, Family Court of Australia and the Magistrates’ Court of Victoria. Natasha also appears as a solicitor agent for interstate or rural practitioners when required.

Natasha prides herself on being able to understand and manage her clients’ expectations whilst providing realistic and practical advice. She acts with empathy and compassion when striving to achieve the best possible results for her clients.

Natasha is a volunteer lawyer with the Women’s Legal Service and is the Vice President of the Northern Suburbs Law Association. She is also a member of the Courts Practice Committee of the Family Law Section of the Law Institute of Victoria, the Family Law Section of the Law Council of Australia and Victorian Women Lawyers.

Mark Di Donato

Lawyer

University Qualifications

Bachelor of Criminology and Justice, Navitas College of Public Safety

Juris Doctor, Monash University

Email Mark Di Donato

mdidonato@fortefamilylawyers.com.au

Connect on LinkedIn

Mark started work at Forte Family Lawyers as part of his Graduate Diploma in Legal Practice at the Leo Cussen Institute for Law in 2019. Mark was later admitted into the legal practice in September 2019 and transitioned into a lawyer role with Forte Family Lawyers in February 2020.

Prior to his admission as a lawyer, Mark volunteered as a paralegal at Darebin Community Legal Centre and interned at a commercial law firm, where he gained valuable experience in property transactions and in intellectual property. Mark also completed a Professional Placement whilst completing his law degree where he provided legal advice on various family law matters through the Monash Law Clinic.

Mark is a member of the Family Law Section of the Law Council of Australia, and the Law Institute of Victoria. Mark volunteers at the Darebin Community Legal Centre and has provided advice on a range of issues including family law.