Kennon v Spry (2008) 238 CLR 366

In Kennon v Spry (2008) 238 CLR 366, the High Court of Australia applied the Family Law Act 1975 (Com) (“the FLA”) to the provisions of a family trust.

In 1968, a husband created a non-exhaustive, discretionary trust over which he retained a power of variation (“the trust”). Potential beneficiaries were the issue of his father and included himself, his sisters, his and their spouses and their children. The husband married in 1978. He and his wife had four children and were divorced in 2003.

The trust was varied three times. First, in 1983, the husband by deed excluded himself as a potential trust beneficiary and released any beneficial interest he might possess. Then, in 1998, the husband (again) and also the wife excluded themselves as potential trust beneficiaries and released the trustee from liability. This was at a time of matrimonial difficulty. Finally, in May 2002, the husband directed that all the capital and income of the trust be transferred in equal shares to separate trusts which he had established for each of the children — thereby transferring most of his accumulated wealth to the children’s trusts.

The wife made an application for property settlement under s 79 of the FLA. Strickland J in the Family Court at 1st instance found that the variations of the trust should be set aside. His Honour then attributed the husband with a property interest in assets of the trust to facilitate a s 79 order. All members of the Family Court Full Court confirmed the correctness of this approach.

In the High Court of Australia, a majority comprising French CJ, Gummow and Hayne JJ held upheld the order relating to the wife’s s 79 claim and confirmed that assets of the trust constituted “property of the parties to the marriage or either of them”. Kiefel J agreed for separate reasons. Heydon J dissented.

French CJ at [67] held that “coupling” of the husband’s legal title as trustee, his power to appoint the whole fund to the wife and the wife’s equitable right to be considered meant that the trust fund was the husband’s asset

Gummow and Hayne JJ at [130] held that “combination” of the wife’s equitable right of due administration of the trust, the husband’s “fiduciary” duty to consider when and how the power should be exercised, and the fact that the power could have been exercised by appointing all the trust assets to the wife, meant that that the trust fund was the wife’s asset.

The two majority judgements came to different conclusions. One found that the husband had property in the trust assets and the other found that the wife had property in those assets. However, the disjunctive “parties to the marriage or either of them” wording of FLA s 79(1)(a) meant that the wife succeeded on both analyses. A little remarkably, French CJ stated at [83] that he accepted the reasoning of Gummow and Hayne JJ.

REQUIRED:

  1. Summarise the reasoning of French CJ as it bears on the consequences of a trustee controlling a discretionary trust.
  1. Are either (or both) of the majority judgements persuasive? Do not consider the judgement of Kiefel J or other provisions of the FLA in your answer.

 

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