“Trust Deed and Rules”

The term “Trust Deed and Rules” is often used in relation to superannuation schemes.

A superannuation or pension scheme can be consider to be a collection of legal obligations and an associated collection of assets that are held on trust for the members and beneficiaries of the scheme.

The legal obligations are in the forms of:

  • “trusts”; and
  • “powers”.

  • A trust imposes an obligation, or creates a duty; a power confers an option. A trust is imperative, whereas a power is discretionary.

    The Court will compel the execution of a trust, but cannot compel the exercise of a power1.

    As an administrative convenience different amending powers are sometime applied to beneficial interests contained in the “trusts” and discretionary powers compared to those that are applied to the administrative “Rules”

    The administrative “Rules” if properly drafted are included in the Trust Deed as a schedule of “Rules”, before the Testimonium.

    The Trust Deed establishes the superannuation scheme and defines who are the objects of the trust (beneficiaries) and defines what is the subject matter of the trust (the fund).

    That is the “three certainties” should be confirmed in the Trust Deed:

  • – Certainty of intention
  • – Certainty of subject matter,and
  • – Certainity of objects.

  • However as Geraint Thomas notes in Thomas on Powers {2nd Edition} at [16.24] if the “Trust Deed and Rules” are poorly drafted, a power to amend the “rules” of a superannuation scheme may not be wide enough to permit an amendment of the Trust Deed which governs the scheme and visa versa.{Aitken v Christy Hunt plc [1991] PLR 1}.

    A power to amend the “rules” would not generally be wide enough to revoke the scheme as a whole and a separate provision to wind up the scheme would normally be required.

    For Example

    A power to revoke the scheme and a whole and all associates trusts and to wind-up the fund, might require a unanimous resolution in writing of the Directors of the sponsoring Employer as well as the consent in writing of all of the Trustees.

    A power to amend the Trust Deed and the beneficial interests of the members and beneficiaries might require a Deed executed by a majority of the Directors of the sponsoring Employer as well as being executed by a majority of the Trustees.

    A power to amend the administrative powers of the Trustees might only require an agreement in writing between a majority of the Directors of the sponsoring Employer as well as a majority of the Trustees.

    The Trust Deed and Rules would need to be well drafted so as to be clear how these powers are to be exercised and amended.

    As Geraint Thomas notes in Thomas on Powers {2nd Edition} at [16.24] considerable uncertainty may arise where the power of amendment is express to apply ( as is often the case) simply to “the provisions hereof”, without identifying whether it is the scheme as a whole or simply the particular instrument into which the power has been incorporated that is intended.

    The Trust Deed in Aitken v Christy Hunt plc [1991] PLR 1} conferred a Power of Amendment on the company in these terms:

    “The company may from time to time, by instrument in writing under its common seal, vary all or any of the trusts, powers and provisions contained in the schedule and may declare new trusts to the exclusion of or in addition to all or any of the trusts powers and provisions herein contained, and may provide for the amalgamation of the pension fund with any other fund approved as an exempt approved scheme….provided that no such variation shall be made so as to make the main purpose for which the pension fund is to be applied other than the provision of pensions for employees or their dependants, nor so as to enable any part of the pension fund to be paid to employees or their dependants, nor so as to enable any part of the pension fund to be paid to the company. Neither shall any such variation be effective unless the trustees shall be parties to the said instrument in writing and shall certify that having regard to all the circumstances they are satisfied that the proposed variation is for the benefit of the employees as a whole…”

    Here the Trust Deed prescribed that an instrument in writing could be used as the amending instrument (as opposed to a Deed). The amending power was provided to the legal person (the company) and not to the natural person Directors and the consent in writing of the trustees was also required.

    It was argued that this provision actually conferred three separate powers, namely:

  • (1) a power to vary all or any of the existing trusts, powers and provisions;
  • (2) a power to declare new trusts to the exclusion of, or in addition to, existing ones; and
  • (3) a power to amalgamate the fund with any similar fund.

  • Ferris J concluded that, as as a matter of construction, there was in reality but one power, albeit expressed to have three parts (and not three separate powers), and the proviso requiring the trustees’s concurrence therefore applied to all three parts of it. The power could not therefore be exercised by the company without the concurrence of the trustees.

    In this case a separate Power of Amendment was also provided to the trustees to make, rescind, alter and add to “the pension regulations” (ie “Rules”), associated with the particular pension trust, known as the Pensions Fund.

    “The trustees may from time to time by resolution make, rescind, alter and add to the pension regulations in such a manner as they shall in their absolute and uncontrolled discretion think fit and, in particular and without prejudice to the generality of the foregoing, may from time to time make, rescind and alter the provisions therein as regard to the classes of employees who are eligible for pensions and the ages at which the terms upon which the pensions are to be payable… providing that no such alteration or addition shall be made so as the main purpose for which the Pensions Fund is to be applied other than the provision of pensions to employees or their dependants, nor so as to enable any part of the pension fund to be payable to the company.”

    The trustees did not have any power to amend the Trust Deed and the trusts and powers contained therein.That power was conferred on the company.

    The Provident Fund

    The original Trust Deed for The Provident Fund did not provide different amending powers or provide for an attached schedule of “Rules”. All the provisions in the Trust Deed were subject to the same Power of Amendment, which was conferred on the Directors of the sponsoring Employer subject to the consent of the Trustees. The amending instrument was prescribed to be a Deed and not an instrument in writing as was the case in Aitken v Christy Hunt plc.

    It is also important to note that the original Trust Deed of The Provident Fund did not contain a power to amalgamate the fund with a similar fund, and in fact fetters associated with the Power of Amendment would prevent the amalgamation of the fund, without an Act of the Parliament of South Australia to over-ride these fetters.


    Notes

    (1) Re Gulbenkain’s Settlements [1970] AC 508,518,525; McPhail v Doulton [1971] AC 424, 4001-1,444,449; Gisborne v Gisborne (1877) 2 App Cas 300; Tempest v Lord Camus (1882) 21 Ch D 571; Wilson v Turner (1883) 22 Ch D 521; Re Gadd (1883) 23 Ch D 134; Re Courier (1886) 34 CH D 136; Re Bryant [1894] 1 Ch 324; Re Charteris [1917] (1847) 6 Hare 410; Re Beloved Wilkes’ Charity (1851) 3 Mac & G 440; Lord v Bunn (1843) 2 Y & C Ch Case 98; Talbot v Marshfield (1868) 3 Ch App 622; Margquis of Camden v Murray (1880) 16 Ch D 161.

    The format of the original Trust Deed made on the 23 December 1913 has the following format.

    Trust Deed and Rules #1

    The following format was not adopted in the original Trust Deed.

    Trust Deed and Rules #2

    If a later consolidation Deed of Variation sought to reformat the provisions into the “Trust Deed and Rules” format, then then same amending power would been to apply to both the trust and powers as well as to the administrative provisions in the “Rules”, since the one amending power was provided by the Trust Deed that established the trust.


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