Power of a Court to Amend the Terms of a Trust

The Courts have an inherent jurisdiction in the administration of trusts and statutory provision allow the Courts to amend the terms of a trust in certain circumstances.

The News South Wales Court of Appeal considered the scope of this power in Re Dion Investments Pty Ltd [2014] NSWCA 367

.

The Trial judge Young JA stated at [8]:

“It is clear that the proper law of the trust is ascertained at the time the trust is set up and is not affected by subsequent changes in trustee or the situation of assets: M Davies, A S Bell, P L G Brereton, Nygh’s Conflict of Laws in Australia (LexisNexis, 9th edn, 2013) at [34.9].”

Young JA continued at [8]:

“A beneficiary can usually only enforce the trust by suing the trustees. This is an in personam action and any equity court where the trustee is resident will have jurisdiction. An order made against the trustee in the jurisdiction where he or she resides will be binding. Conversely, if the trustee is not resident in the country that is the proper law of the trust then the courts of that jurisdiction may have difficulty in pursuing the trustee though the court may appoint a new trustee in his or her stead.”

Young JA continued at [49]:

“There are a number of quotable quotes about the inability of the court to change the trust which the settlor or testator has set up. The basal understanding is that once a person has given his or her property on trust then that trust is unalterable save and except insofar as the trust deed itself makes it alterable and originally that was reinforced by the technical rules as to conveyances under the Statute of Uses.”

The Court of Appeal noted at [44-45]:

“It is, of course, commonplace to speak of the variation of a trust instrument as such when referring to what is, in truth, variation of the terms upon which trust property is held under the trusts created or evidenced by the instrument. A provision of a trust instrument that lays down procedures by which it may be varied is, of its nature, concerned with variation of the terms of the trust, not variation of the content of the instrument, although the fact that it is the instrument that sets out the terms of the trust does, in an imprecise way, make it sensible to speak of amendment of the instrument when the reference is in truth to amendment of the terms of the trust.

Where the trust instrument contains a provision allowing variation by a particular process, the situation is one in which the settlor, in declaring the trust and defining its terms, has specified that those terms are not immutable and that the original terms will be superseded by varied terms if the specified process of variation (entailing, in concept, a power of appointment or a power of revocation or both) is undertaken. The varied terms are in that way traceable to the settlor’s intention as communicated to the original trustee.

The Court of Appeal also noted at [48]:

“Whether one is dealing with exercise of a power of variation or amendment conferred by the settlor and stated in the trust instrument, the species of consensual variation based on the Saunders v Vautier principle or the court’s response to some emergency, the situation is never one in which the provisions of the trust instrument made between settlor and trustee are altered. Rather, there is a variation or supplementation of the terms of the trust derived from that instrument or the powers of the trustee conferred by that instrument. Shorthand references to amendment of a trust deed must be understood accordingly.”

The Court of Appeal also stated at [94]:

“Variation of the terms of a trust (including by way of conferral of some new power on the trustee) is not something within the ordinary and natural province of a trustee. It is not something that it is “expedient” that a trustee should do; nor, fundamentally, is it something that is done “in the management or administration of” trust property. A trustee’s function is to take the trusts as it finds them and to administer them as they stand. The trustee is not concerned to question the terms of the trust or seek to improve them. I venture to say that, even where the trust instrument itself gives the trustee a power of variation, exercise of that power is not something that occurs “in the management or administration of” trust property. It occurs in order that the scheme of fiduciary administration of the property may somehow be reshaped.

The Court of Appeal ruled at [94]:

“If the power to be given to the trustee is not a specific power with respect to a particular dealing (or dealings of a particular kind) but, rather, a wide discretionary power to alter the terms of the trust as the trustee thinks fit, the case is not with s 81(1). The reason was explained in Re Downshire Settled Estates [1953] Ch 218 (at 247-248).”

A copy of the transcript of the trial case can be can be found here.

A copy of the transcript of the Appeal Court can be found here.

The Supreme Court of South Australia has much wider statutory powers to vary the terms of a trust than does the Supreme Court of New South Wales pursuant Section 59 of the Trustee Act 1936 (SA).

Perry J in Salkeld v Salkeld [2000] SASC 296 when considering the proper law of a trust established in New South Wales stated at [26]:

“Although the parties agree that the proper law of the trusts is the law of New South Wales in the sense that New South Wales law must be taken to govern the construction of the deeds of trust and substantive questions to do with their administration, it does not follow that s 59C of the Trustee Act 1936 may not be invoked, in proceedings in this Court. It is accepted that there is no statutory analogue of s 59C applicable in New South Wales. But it was decided in Re Ker’s Settlement Trusts [1963] 1 Ch 553 that the power conferred by s 1 of the Variation of Trusts Act 1958 (UK) permitted the Chancery Division of the High Court of England to vary a settlement the proper law of which was Northern Ireland.

As I pointed out in the Reasons for Decision delivered by me with respect to the cross-vesting application, that decision has been followed in this country in the context of cases concerning local statutory provisions similar to the Variation of Trusts Act 1958 (UK) applicable in a jurisdiction other than that of the proper law of the trust.}See Faye and Ors v Faye and Ors [1973] WAR 66 and the discussion by King CJ In re Webb (1992) 57 SASR 193 at 196. See also In re Paget’s Settlement (1965) 1 WLR 1046.} In the circumstances I see no reason why I should refrain from exercising the jurisdiction conferred by s 59C in this case if it otherwise seemed appropriate to do so.”

A copy of the transcript of the trial case can be can be found here.

Section 50 of the Trustee Act 1936 (SA) can be found here.

Slattery J at [67] stated in Vidyagauri Hiralal v Nitin Hiralal & Ors [2013] NSWSC 984 that:

An Australian Court can exercise in personam jurisdiction over a person only if either, (1) that person was validly served with the originating process, or (2) the person submitted to the jurisdiction of the Court: Laurie v Carroll [1958] HCA 4; (1958) 98 CLR 310. The defendants contest the plaintiff’s argument that she has passed these gateways to jurisdiction.

Slattery J at [170] stated:

“This Court has in personam jurisdiction over the defendants; and as a result it has jurisdiction over the exercise of their functions as trustees. An Australian court has jurisdiction under the general law in respect of the administration of a trust and its assets, if it has jurisdiction in personam over the trustees: Chellaram v Chellaram [1985] Ch 409; Webb (decd), In the Estate of; Webb v Rogers (1992) 57 SASR 193 ; Constantinou at [13]. This rule applies to express and constructive trusts: Nudd v Taylor [2000] QSC 344 at [28]; Webb v Webb [1992] 1 All ER 17 at 26. And this jurisdiction is not affected by the fact that the proper law of the trust is the law of another country, or that all assets of the trust are located abroad.”

Slattery J at [191] notes:

Finally the authors of Jacob’s Law of Trusts suggest that the following choice of law rules may be appropriate for constructive trusts arising from other relationships between the parties [at 2822]:

Many constructive trusts will arise from abuse of an express trust; examples are the third party who acquires trust property not as a bona fide purchaser, and the trustee who uses his or her position to make a secret profit.


facebooktwittergoogle_plusredditpinterestlinkedinmailby feather