High Court case: Kennon v Spry

High Court case: Kennon v Spry

Late last year, the High Court decided in Kennon v Spry that a husband who tried to exclude his wife from the family trust would have to pay her over $2 million.

Dr Ian Spry is a renowned expert on tax and equity. In 1968 he started a family trust, of whom the beneficiaries were the descendants of his father, together with their spouses.

In 1978 Dr Spry married. Dr Spry and his wife Helen had 4 daughters, who by the time of the court case were all adults.

In 1983, Dr Spry, who was the sole trustee of the trust, excluded himself as trustee and appointed Helen as trustee. Dr Spry remained the person capable of appointing, and sacking, the trustee.

In 1988 when the marriage was in difficulty, Dr Spry varied the trust again to exclude both himself and Helen as capital beneficiaries.

In 2001 the parties separated. Within 3 months Dr Spry divided the property of the trust in four- dividing it equally between the four trusts he had set up for each of their daughters. Both Dr Spry and each daughter respectively were responsible for the appointment and removal of trustees of each trust.

In 2003, the parties divorced. The effect of the divorce was that Mrs Spry was no longer a beneficiary of the trust.

Mrs Spry’s claim

Mrs Spry sought to include the property of each of the trusts as property of the parties, capable of division between the parties. She sought to set aside:

  • the variation of the trust deed that prevented her and Dr Spry being capital beneficiaries, and
  • the transfers from the trust to the daughters’ trusts.

Earlier proceedings

The trial judge upheld Mrs Spry’s claim.

Dr Spry appealed. The Full Court (Bryant CJ and Warnick J; Finn J dissenting) dismissed his appeal.

Dr Spry appealed to the High Court.

High Court dismisses the appeal

The majority: French CJ, Gummow, Hayne and Kiefel JJ; Heydon J dissenting- dismissed the appeal.

Was the right to administer the trust “property”?

The majority: French CJ, Gummow and Hayne JJ; Heydon J dissenting – held that it was.

French CJ held:


Counsel for Mrs Spry submitted that when the primary judge determined
the proceedings the assets of the Trust were the property of a party to the
marriage as Dr Spry was the only person entitled in possession to them. On
that basis the Family Court had the power to make the order it did. No object in
the Trust had any fixed or vested entitlement. Dr Spry was not obliged to
distribute to anyone. The default distribution (cl 7) gave male
beneficiaries other than Dr Spry no more than a contingent remainder. None
had a vested interest subject to divestiture. The application of s 79,
as a matter of construction, to the Trust assets was said to be supported by a
number of considerations. Among these was the “true character” of the Trust as a
vehicle for “Dr and Mrs Spry and their children”.
In response,
counsel for Dr Spry submitted that his legal title, absent any beneficial
interest, did not justify treating the Trust property as his own. A policy
question was said to be raised. It would be “inappropriate” for the Court to
treat the assets of a trust as a trustee’s property where the trustee had no
interest under the trust. The Court was invited to consider the implications of
Mrs Spry’s submissions for the case of a trustee with no personal relationship
to the beneficial objects of the trust. The Family Court, it was said, must take
the property of a party to the marriage as it finds it. It cannot ignore the
interests of third parties nor the existence of conditions or covenants limiting
the rights of the party who owns the property. In this connection reference was
made to Ascot Investments Pty Ltd v Harper[28].
In my opinion the argument advanced on behalf of
Mrs Spry should be accepted save that it is the Trust assets, coupled with
the trustee’s power, prior to the 1998 Instrument, to appoint them to her and
her equitable right to due consideration, that should be regarded as the
relevant property. It should be accepted that, in the unusual circumstances of
this case and but for the 1998 Instrument and the 18 January 2002 Dispositions, s 79
would have had effective application to the Trust assets. Dr Spry was the
sole trustee of a discretionary family trust and the person with the only
interest in those assets as well as the holder of a power, inter alia, to
appoint them entirely to his wife. This is perhaps not quite the same as the
second argument advanced on behalf of Mrs Spry which is accepted by Gummow
and Hayne JJ in their joint judgment. But the distinction may not amount to
a difference. Even on the second argument the power of appointment and the right
to due consideration, absent a legal estate upon which they can operate, are
The terms “dry legal title” or “dry legal estate or interest”
have sometimes been used to describe the legal estate in property held on
trust[29]. The term describes a legal title divorced from any powers
or duties. Under the general law such a title could not be treated as property
of the trustee. But where a statute is involved the matter is one of
interpretation. Even under the general law, where the legal title is associated
with substantial powers or duties, the “dry” metaphor may not be appropriate[30].
The word “property” in s 79
is to be read as part of the collocation “property of the parties to the
marriage”. It is to be read widely and conformably with the purposes of the Family Law
. In the case of a non-exhaustive discretionary trust with an open class
of beneficiaries, there is no obligation to apply the assets or income of the
trust to anyone. Their application may serve a wide range of purposes. In the
present case, prior to the 1998 Instrument those purposes could have included
the maintenance or enrichment of Mrs Spry.
Where property is held under
such a trust by a party to a marriage and the property has been acquired by or
through the efforts of that party or his or her spouse, whether before or during
the marriage, it does not, in my opinion, necessarily lose its character as
“property of the parties to the marriage” because the party has declared a trust
of which he or she is trustee and can, under the terms of that trust, give the
property away to other family or extended family members at his or her
For so long as Dr Spry retained the legal title to the Trust
fund coupled with the power to appoint the whole of the fund to his wife and her
equitable right, it remained, in my opinion, property of the parties to the
marriage for the purposes of the power conferred on the Family Court by s 79.
The assets would have been unarguably property of the marriage absent subjection
to the Trust.
An exercise of the power under s 79
requiring the application of the assets of the Trust in whole or in part in
favour of Mrs Spry would, prior to the 1998 Instrument, have been
consistent with the proper exercise of Dr Spry’s powers as trustee and
would have involved no breach by him of his duty to the other

The … conclusion does not involve some general extension of s 79
which would require that it be hedged about with protective discretions of
uncertain application to prevent its intrusion into trust arrangements affecting
assets foreign or extraneous to those acquired by the parties to the marriage in
their own right. So if the husband were trustee of a charitable trust or
executor of the will of a friend or client the mere legal title to the assets of
such trusts, because of their origins and character, could not be regarded as
part of the husband’s property as a party to the marriage within the meaning of
the Family Law
. Importantly, in such a trust there could be no power of appointment to
his wife and no corresponding equitable right enjoyed by her. The question of a
trust involving a combination of purposes and family and extraneous assets does
not arise.
The characterisation of the assets of the Trust, coupled with
Dr Spry’s power to appoint them to his wife and her equitable right to due
consideration, as property of the parties to the marriage is supported by
particular factors. It is supported by his legal title to the assets, the
origins of their greater part as property acquired during the marriage, the
absence of any equitable interest in them in any other party, the absence of any
obligation on his part to apply all or any of the assets to any beneficiary and
the contingent character of the interests of those who might be entitled to take
upon a default distribution at the distribution date.
I agree with Gummow and
Hayne JJ that the conclusion reached by the primary judge, that
Dr Spry could have applied the whole or part of the Trust assets to or for
his own benefit, was inconclusive of the outcome. It is not necessary for me to
express a view on whether the primary judge’s finding in that respect was
erroneous. The conclusion I have reached is independent of any question whether
Dr Spry could have reinstated himself at any time as a beneficiary of the
I agree also with Gummow and Hayne JJ that the reference in s 79
to “the parties to the marriage or either of them” includes a reference to a
marriage terminated by divorce at a time before the court makes an order under
that section. As their Honours point out, the Family Court, when it is just and
equitable to do so, can make orders in property settlement proceedings as if
changes to property rights otherwise effected by the divorce had not occurred.

Was Mrs Spry’s right to administer the trust “property”?

French CJ, Gummow and Hayne JJ; Heydon J dissenting, held that it was.

French CJ:


The rights to consideration and to due administration are in the nature of
equitable choses in action. There has been considerable judicial discussion
about the nature of a beneficiary’s right to due administration in the case of
the residuary legatee of an unadministered deceased estate and members of
superannuation funds whose benefits have not vested. …

The beneficiary of a non-exhaustive discretionary trust who does not control
the trustee directly or indirectly has a right to due consideration and to due
administration of the trust but it is difficult to value those rights when the
beneficiary has no present entitlement and may never have any entitlement to any
part of the income or capital of the trust.
Gummow and Hayne JJ, in
their joint reasons, characterise Mrs Spry’s right with respect to the due
administration of the Trust as part of her property for the purposes of the Family Law
. I respectfully agree with their Honours that prior to the 1998
Instrument the equitable right to due administration of the Trust fund could be
taken into account as part of the property of Mrs Spry as a party to the
marriage. So too could her equitable entitlement to due consideration in
relation to the application of the income and capital. In so agreeing, however,
I acknowledge, consistently with the observations of the Full Court in Hauff and
Evans, that it is difficult to put a value on either of these rights though a
valuation might not be beyond the actuarial arts in relation to the right to due
Dr Spry’s power as trustee to apply assets or income of
the Trust to Mrs Spry prior to the 1998 Instrument was, as pointed out by
Gummow and Hayne JJ, able to be treated for the purposes of the Family Law
as a species of property held by him as a party to the marriage, albeit
subject to the fiduciary duty to consider all beneficiaries. This is so even
though it may not be property according to the general law. So characterised for
the purposes of the Family Law Act
it had an attribute in common with the legal estate he had in the assets as
trustee. He could not apply them for his own benefit but that did not take them
out of the realm of property of a party to the marriage for the purposes of s 79.
Insofar as Gummow and Hayne JJ rely upon the property comprised by
Dr Spry’s power as trustee and Mrs Spry’s equitable rights prior to
1998, I agree that these property rights were capable of providing a basis for
the orders which Strickland J made. I do so, as already indicated, by
considering that power and the equitable rights, in conjunction with
Dr Spry’s legal title to the Trust assets, without which the power and the
rights were meaningless.
Mrs Spry’s right to due consideration as an
object of the Trust could also be taken into account in determining whether it
was just and equitable to make an order under s 79
on the basis that the assets of the Trust were property of the marriage. As
noted in the preceding section the equitable entitlement of the children and
other existing beneficiaries to due consideration could also be taken into
account in making that judgment. There is no reason to suggest that his Honour
did not do so appropriately.

On this last point, I note that French CJ is giving further meaning to s.79(2) that an order as to property settlement must be “just and equitable”.

Gummow and Hayne JJ held:

And in considering what is the property of the parties to the marriage (as
distinct from what might be identified as the property of the husband) it is
important to recognise not only that the right of the wife was accompanied at
least by the fiduciary duty of the husband to consider whether and in what way
the power should be exercised, but also that, during the marriage, the power
could have been exercised by appointing the whole of the Trust assets to the
wife. Observing that the husband could not have conferred the same benefit on
himself as he could on his wife denies only that he had property in the assets
of the Trust, it does not deny that part of the property of the parties to the
marriage, within the meaning of the Act, was his power to appoint the whole of
the property to his wife and her right to a due administration of the Trust.

Should the dispositions be set aside?

French CJ, Gummow and Hayne JJ held that the dispostions should be set aside under s.106B of the Family Law Act. Kiefel J held that they should be set aside under s.85 of the Family Law Act. Heydon J dissented.

Section 85A

Section 85A of the Family Law Act provides:

(1) The court
may, in proceedings
under this Act,
make such order as the court
considers just and equitable with respect to the application, for the benefit of
all or any of the parties to, and the children
of, the marriage,
of the whole or part of property dealt
by ante‑nuptial or post‑nuptial settlements made
in relation to the marriage.

(2) In considering what order (if any) should be made
under subsection (1), the court
shall take into account the matters referred to in subsection 79(4) so far as
they are relevant.

(3) A court
cannot make an order under this section in respect of matters that are included
in a financial

Unfortunately there was no decisive view held about s.85A. French CJ did not comment, Gummow and Hayne JJ barely commented, Heydon J held that it did nto apply, and Kiefel J held that it did apply.

Gummow and Hayne JJ held:

s 85A should not be read as confining the powers otherwise given by
ss 79 and 80 in any relevant respect. In particular, it should not be
read as confining the power to make an order for payment of a money sum in a way
that would preclude the making of an order that either permits or requires the
application of an element of the property of one or other of the parties to a
marriage in satisfaction of the order for payment.

Heydon J held:


Post-nuptial settlement? The Trust was not created in 1981. As the courts
below found, it was created in 1968, when the husband prepared the document
recording the terms of the Trust which he did not sign until 1981. Since the
husband did not marry until 1978, the Trust was not post-nuptial (contrary to
the wife’s submission). It was made 10 years before the husband married. This
difficulty cannot be overcome by treating each disposition of property to the
trustee of the Trust after the marriage as the creation of a separate trust. To
do so is artificial. And to do so is foreclosed by cl 3 of the Trust, which
defines “the fund” as meaning “the trust fund from time to time in existence.”
There was one “Trust” on which various items of property were held as a mass,
not several “trusts” in identical terms in each of which a series of individual
items of property were held separately.

Further, there is a factual obstacle to accepting the multi-trust theory.
Strickland J’s mind was admittedly not focused on this precise issue because the
parties had not raised it. But the language he used in making findings of fact
is consistent only with the assets being transferred from time to time into one
trust – the Trust – not a series of trusts. Thus he said:
“A trust
vehicle was used in order to accumulate and use the assets and the income, and
… this does not detract from the circumstance that the assets were the assets
of the parties when they went into the Trust. Instead of accumulating those
assets in their own names, a tax effective family trust was used with a view to
benefiting the family.” (emphasis added)
It was not submitted that this
conclusion was wrong.

This point, incidentally, reinforces the view that the principles stated
in Suttor v Gundowda Pty Ltd[147] do not permit s 85A issues to be considered at this stage.
Ultimately the validity of the “multi-trust” theory would depend on the terms
upon which the owners of the assets from time to time transferred them to the
husband. There is a difference between transferring an asset to the husband as
trustee of the Trust, and transferring an asset to the husband as trustee, to be
held on a separate trust having the same terms as the Trust. It would be
necessary to examine what was written and said when the transfers took place. It
has not been shown that the evidence called in that respect is complete.
Made in relation to the marriage? But can the Trust be said to be
ante-nuptial? For a settlement to be an ante-nuptial or post-nuptial settlement,
it must have a nuptial character: it must have been “made in relation to the
marriage”. That is, it must have been made in contemplation of the particular
marriage in relation to which s 85A is invoked[148]. There is nothing in the “recitals or substance”[149] of the Trust to suggest that it was. The fact that there
are persons who are not connected with the marriage to which the settlement is
said to relate who are “substantial potential beneficiaries” prevents it being
ante-nuptial or post-nuptial[150].

At the time of the trial, apart from the four children of the husband and
wife, the beneficiaries included the husband’s sister, her three children, and
the daughter of the husband’s deceased sister. The beneficiaries in future would
include any person who married those five people, together with the issue of
those marriages. In 1968 it was foreseeable that the beneficiaries would in due
course be as numerous as they have turned out to be, and are likely to be in
future. Further, however wide the words “made in relation to the marriage” in
s 85A(1) are, and their breadth can vary from statute to statute, they
cannot be stretched to establish the necessary relationship between the making
of the Trust in 1968 and the marriage in 1978. The relevant settlement must be
made in relation to the marriage, not simply in relation to marriage.

Kiefel J held:


Property which the Court is intended to deal with extends beyond property in
which the parties have a legal interest. By the wide meaning given to the term
“settlement” in this context, it is sought to give the Court power to deal with
all property held for the use and benefit of the parties to the marriage and
which may represent an accumulation of their assets in the course of the
marriage. The purpose of s 85A is to ensure that, since the previous
arrangements for the property cannot continue, the property is applied equitably
to the benefit of the parties, or the children. Whether a disposition or other
settlement qualifies as an ante-nuptial (or post-nuptial) settlement made in
relation to the marriage is informed by these purposes, rather than by reference
to authorities dealing with statutes employing different language and having
purposes which cannot be regarded as wholly the same.

Each of the features necessary to render the property of the Trust
settled property within the purview of s 85A is present in this case. In
reaching this conclusion, one must look to the individual words of the section
in light of their context and purpose. “Settlement” is to be given a broad
meaning consonant with the intention of s 85A to bring discretionary family
trusts within the ambit of the Act. “Property” is to be read as including those
assets to which the parties have contributed throughout the course of their
marriage and which are held for their use and benefit. The Trust assets
constitute property, much of which was obtained by way of the parties’
contributions to the marriage. The assets therefore attract the operation of
s 85A. Further, as shall become clear, on each occasion that property was
transferred to the Trust, the parties “dealt with” their property, and effected
settlements within the meaning of s 85A. The Trust property represents
contributions of the parties and is held on terms of a settlement. It is
“property dealt with by … settlements”.

The settlement in this case may also be regarded as having the requisite
nuptial element. The approach for which the trustees contend, which would deny
the application of the section to the Trust as an ante-nuptial settlement, is
one which has regard to the situation at the time the Trust was made. At that
point it could not have been referable to the marriage. Such an approach is
literal and emphasises the words “ante-nuptial … settlements” and “made
in relation to the marriage”. It may assume importance where the settlor’s
intention is relevant, but no such issue arises here. It could hardly be said
that the settlor’s intentions here were unfulfilled. A preferable approach is
one which gives effect to the purposes of the section. If necessary, particular
words in the section should be adjusted to that end[220].

Section 85A(1) is intended to have a wide operation, to property
held for the benefit of the parties on a settlement and to which they have
contributed. It is intended to apply to settlements whether they occur before or
during marriage. The essential requirement of the section is that there be a
sufficient association between the property the subject of a settlement and the
marriage the subject of proceedings. It does not require that a settlement made
prior to marriage be directed to the particular marriage at the point it is
made. It is sufficient for the purposes of the section that the association of
which it speaks (“made in relation to”) be present when the Court comes to
determine the application of the property settled under s 85A(1). In the
present case the Trust was used to hold property for the benefit of the parties
to the marriage upon the terms of the Trust. It thereby acquired the nuptial
element. Section 85A(1) applies…

In construing s 85A(1) it should be borne in mind that the property
to which it refers will in many cases be property which reflects the
contributions of the parties to the marriage, whether direct or indirect. A
settlement coming within the section may take many forms so long as it has the
essential characteristics earlier spoken of. The words “ante-nuptial or
post-nuptial” should be taken to refer to all settlements made before or after
marriage which have the connection of which the following words speak. The
settlement must be associated with the marriage the subject of the proceedings.
The necessary association will often be provided by the allocation of property
into a trust or other fund and by the provision the settlement makes for the
benefit of the parties to the marriage, or their children.
The trustees also
placed reliance upon the description of the beneficiaries of the Trust, which
extended beyond the husband and wife and the children of the marriage. By this
means it was sought to deny the necessary nuptial element of the Trust. The
husband’s sisters and their issue also fell within the class of beneficiaries.
The question of the impact of any order under s 85A upon those persons may
be put to one side for present purposes. So far as concerns the character of the
Trust, their inclusion does not deny the nuptial element. Regard must be had to
the circumstances pertaining to the Trust, for the purposes of s 85A. The
nuptial element can readily be seen by the contribution made by the parties to
the marriage to the Trust and the holding of that property for their benefit.
The fact that the other beneficiaries may have received some, undisclosed,
distribution from the Trust at some point does not detract from its essential

The question raised by s 85A is whether it is just and equitable for
the Court to apply the settled property for the benefit of the parties to or the
children of the marriage. In doing so the Court is required to take into account
the matters referred to in s 79(4),
so far as they are relevant[228]. In the present case the primary judge had undertaken that
exercise, not only with respect to what might properly be called the property of
the parties to the marriage, but also with respect to the Trust property. It is
difficult to comprehend what further evidence the husband, the trustees and the
children could have put forward in connection with the Trust, its property or
the parties’ contribution to it. The Trust, and the wife’s claim to it, was
central to the parties’ cases.
The primary judge found that the wife should
receive a sum of money, in addition to specific property, representing her
contribution to the pool of assets which had been created by the endeavours of
the husband and wife. The problem that faced his Honour was how the husband
could meet that sum from the assets at his disposal. His Honour’s answer to that
question was that it could, and should, come from the Trust property. His Honour
found that the wife should be paid out of the Trust, but considered that that
result could only be effected by the husband. That was not a correct view,
having regard to s 85A(1). Action, on the part of the husband, was not
necessary to appropriate so much of the Trust property as was necessary to meet
the primary judge’s order. The Court could make an order directly applying that
property to her benefit. It did not need to have regard to the status of either
the wife or the husband as beneficiaries in order to do so.

Section 85A(1) provided the power and the means by which the trial
judge’s findings and intention could be carried into effect. The question sought
to be raised is one which does not depend upon the establishment of further
facts. All that was involved in the exercise of the discretion in s 85A(1)
had been dealt with by the primary judge, who had determined that the settled
property, or part of it, should be applied to the benefit of the wife. The
primary judge had taken into account the interests of the children in connection
with the application of the Trust property, as s 85A(1) requires.

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