Remuneration of Trustees

The office of trustee has traditionally been a gratuitous one, however as trusts have become more widely used for commercial endeavours the need has arisen to provide for the remuneration of either natural person Trustees or corporate Trustees.

Historically equity regarded trusteeship as an honorary position and in the absence of any special provision for remuneration the services of the trustee were to be provided gratuitously and Robinson v Pett (1734) 3 P. Wms 249; 24 ER 1049 is generally cited as the authority for this proposition {Re Queensland and Coal and Oil Shale Mining Industry (Superannuation) Ltd (1990) 2 Qd. R. 524}.

In the classic work of “The Duties and Liabilities of Trustees” {Macmillan and Co, 1910}, Augustine Birrell MP on page 66 states:

“The seventh duty of a Trustee is not to make one penny-piece of profit out of the trust business, unless he be a professional man specially authorised by the instrument creating the trust so to do.”

On page 74 Augustine Birrell continues:

“By special provision in the instrument creating the trust, the Trustee being a professional man, may be allowed to make the usual charges; and such a provision is now usually inserted in carefully drawn documents. It runs as follows: “Any Trustee being a solicitor, or other person engaged in any profession or business, shall be entitled to be paid all usual professional charges for business transacted, and acts done by him, or any partner of his in connection with the trusts herefo including acts which a Trustee, not being in any profession or business, could have done personally”

The House of Lords in Guinness plc v Saunders [1990] 2 AC 663 stated at page 692:

“Equity forbids a trustee to make a profit out of his trust.”

The Lord Justices continued on page 701:

“The decision has to be reconciled with the fundamental principal that a trustee is not entitled to remuneration for services rendered by him to the trust except as expressly provided in the trust deed.”

If the Trust Deed that establishes a trust contains a clause that provides for the remuneration of the Trustee or Trustees from the Trust Estate, then the problem of remuneration is resolved.

However if the original Trust Deed did not include a clause that provides for the remuneration of the Trustee then it becomes more problematic to later add a remuneration clause to the terms of the trust.

A Trustee as a fiduciary must not profit from the trustee’s duty as trustee, unless the provision is made in the trust instrument and a fiduciary must not allow a conflict of interest to arise. Therefore if the Trustee or Trustees have been provided with a Power of Amendment or with a Power of Consent to an amendment then the Trustee or Trustees cannot simply amend the terms of the trust so that the Trustee or Trustee can receive a financial benefit from the Trust Estate.

Adding a Remuneration Clause

What is a professional trustee to do if the original Trust Deed creating the trust did not include a remuneration clause and the expectation at the time was that the trustees would act gratuitously?

In AON Pension Trustees Ltd v MCP Pension Trustees Ltd [2010] EWCA Civ 377 the UK Appeal Court stated:

“It is always open to a trustee who is in doubt as to his position to apply to the court for directions”.

The availability of a Trustee to seek directions from the court in part justifies the rule that it is not a defence to an action for Breach of Trust that the Trustee has acted on counsel’s opinion {Re Knights Trusts (1859) 27 Beav 45; 54 E.R. 18; Re Cull’s Trusts (1875) L.R. 20 Eq 561}, as it is if the trustee has acted in accordance with the advice, opinion or directions of the court properly obtained { Harrison, Jones and Devlin Ltd v Union Bank of Australia Ltd (1909) 10 S.R. (N.S.W.) 266 at 280}.

The High Court of Australia has also confirmed that a trustee should seek judicial advice if in doubt as to a proposed course of action in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66 at [70]- [71];

The Court of Appeal in In re Duke of Norfolk’s Settlement Trusts [1979] Ch 37 confirmed that the court is able to authorise remuneration for trustees where it considers such a course as necessary for the proper administration of the trust. Fox LJ in the Court of Appeal stated on page 79:

“I conclude that the court has an inherent jurisdiction to authorise the payment of remuneration of trustees and that jurisdiction extends to increasing the remuneration authorised by the trust instrument. In exercising that jurisdiction the court has to balance two influences which to some extent conflict. The first is that the office of trustee is, as such, gratuitous; the court will accordingly be careful to protect the interests of the beneficiaries against claims by the trustees. The second is that it is of great importance to the beneficiaries that the trust should be well administered.”

The reason that a court will approve the terms of a trust to be amended to allow remuneration of the trustee and that is because “it is of great importance to the beneficiaries that the trust should be well administered.

A recent case where the Trustee of a regulated superannuation fund sought advice and directions from the court in relation to the proposed amendment to the terms of a trust to allow the trustee to be remunerated for its professional services is Re Retail Employees Superannuation Pty Ltd [2013] NSWSC 1681.

In the Supreme Court of New South Wales, Darke J stated at [1]:

“By a Summons filed on 13 November 2013 the plaintiff, which is the trustee of Retail Employees Superannuation Trust (“the Trust”), seeks orders pursuant to the Trustee Act 1925 (“the Act”) so as to facilitate the payment of remuneration to it and its directors for carrying out duties in relation to the Trust. The plaintiff primarily seeks the advice of the Court pursuant to s 63 of the Act, and in the alternative, seeks an order pursuant to s 81 of the Act.”

Darke J continued at [7]:

“The trustee has not, to date, paid any remuneration to its directors. The trustee wishes to avoid any suggestion of acting in a position of conflict (between duties owed by the directors and the personal interests of the directors), and therefore considers it appropriate to seek the direction of the Court in relation to the issue of paying remuneration to the directors.”

The Trustee sought the approval of the Court to add the following clauses to the terms of the trust:

24B.1 The Trustee is entitled to be paid a fee for acting as trustee of the Plan (“Trustee Fee”) and the Trustee may deduct that fee from the Plan at such times and in such manner as it determines. The amount of the fee must be an amount which the Trustee determines is fair and reasonable. 24B.2 The Trustee may apply some or all of the Trustee Fee to provide remuneration to the directors of the Trustee in respect of the performance of their obligations as directors of the Trustee or as members of committees of the Board of the Trustee.

Darke J ruled at [16]:

“In circumstances where the exercise by the trustee of its power of amendment pursuant to clause 19 of the trust deed could give rise to questions of conflict between duties and personal interests, it is also sensible for the trustee to seek the direction of the Court pursuant to s 63 of the Act. The situation is in many respects similar to that which was dealt with by Palmer J in Cuesuper Pty Ltd [2009] NSWSC 981 (see at [12] – [14] and [21] – [22])”.

Darke J then confirmed that it is the usual practice for the costs of seeking judicial advice are not paid out of the trustees own pocket, but are paid out of the Trust Estate at [18]:

“I further order that the plaintiff’s costs of these proceedings be paid out of the trust fund of the Trust on the trustee basis.”

Darke J made reference to the ruling of Palmer J is a similar application for judicial advice in Cuesuper Pty Ltd [2009] NSWSC 981.

Palmer J stated at [16-17]:

“Unlike this case, however, in Queensland Coal and Oil Shale Mining Industry [1999] 2 Qd R 524 the trust deed was silent as to the remuneration of the trustee. Nevertheless, the principle of equity to which I have referred would have prevented the trustee from receiving remuneration unless the trust deed were amended to authorise it. As in the Trust Deed in this case, there was a power of amendment contained in the trust deed. However, Williams J held that the trustee was unable to utilise that power “because of the conflict of interest”: at 525.50.

His Honour went on to hold that payment of remuneration to the trustee could be authorised either under the Queensland equivalent of s 81 of the Trustee Act (NSW) or in exercise of the inherent jurisdiction of a court of equity to authorise payment of remuneration to a trustee when the court considers it necessary for the proper administration of the trust: see e.g. In re Duke of Norfolk’s Settlement Trusts [1982] Ch 61. As his Honour did in Queensland Coal and Oil Shale Mining Industry, I also conclude that payment of remuneration to the trustee in the present case is expedient and it is necessary for the proper administration of Cuesuper. However, by what precise mechanism is authorisation of remuneration to be granted?”

Reference is also made to In the matter of Creditors’ Trust of Jackgreen (International) Pty Ltd [2011] NSWSC 748.

Ward J stated at [26 -28]:

In Application of Macedonian Orthodox Community Church St Petka Inc (No 2) [2005] NSWSC 558; (2005) 63 NSWLR 441 Palmer J said at [23]:

The advisory jurisdiction is an exception to the Court’s ordinary function of deciding disputes between competing litigants. An application for judicial advice, whether under s 63 or under the general jurisdiction of equity, is in nature essentially a request for private advice: see eg Harrison v Mills [1976] 1 NSWLR 42, at 45 per Needham J; Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405, at 440 per Sheller JA. This exceptional jurisdiction, which is derived from the practice of the Court of Chancery under the general law in giving directions to those entrusted with the administration of property under the control of the Court, may now be regarded as affording special assistance to those, such as trustees, liquidators, bankruptcy trustees and Receivers, who have no direct pecuniary interest in a fund but have assumed the onerous obligation of administering it for the benefit of others: see eg Re G.B. Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674, at 677; Gardner v London Chatham & Dover Railway Co (No 1) (1867) LR 2 Ch App 201, at 211.

The proper purpose for seeking judicial advice includes relief aimed at resolving legitimate doubts held by the trustee as to the proper course of action and protecting the trust and those entitled to it ( Macedonian Orthodox Community Church v His Eminence Petar the Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66.) In the present case, the plaintiffs as trustees of the Creditors’ Trust seek assistance in the interpretation of the remuneration provisions of the Trust Deed (noting that issues of construction of a trust deed are a common basis for advice being sought ( Leonard Thomas Hinde [2007] NSWSC 640 per Rein AJ at [30]) and seek the protection that would then follow if they act on that advice (as identified by Austin J in Arakella Pty Ltd at [2]).

As to the relevant principles when interpreting a trust deed, reliance is placed on what was said by Upjohn LJ in Re Gulbenkian’s Settlements [1970] AC 508 at [522]; [1968] UKHL 5; [1968] 3 All ER 785:

“There is no doubt that the first task is to try to ascertain the settlor’s intention, so to speak, without regard to the consequences, and then, having construed the document, apply the test. The court, whose task it is to discover that intention, starts by applying the usual canons of construction; words must be given their usual meaning, the clause should be read literally and in accordance with the ordinary rules of grammar. But very frequently, whether it be in wills, settlements or commercial agreements, the application of such fundamental canons leads nowhere, the draftsman has used words wrongly, his sentences border on the illiterate and his grammar may be appalling. It is then the duty of the court by the exercise of its judicial knowledge and experience in the relevant matter, innate common sense and desire to make sense of the settlor’s or parties’ expressed intentions, however obscure and ambiguous the language that may have been used, to give a reasonable meaning to that language if it can do so without doing complete violence to it. The fact that the court has to see whether the clause is “certain” for a particular purpose does not disentitle the court from doing otherwise than, in the first place, try to make sense of it.”

Ward J stated at [42]:

“The Court’s inherent jurisdiction to allow remuneration of a trustee extends to the approval of remuneration for future work done, as well as past work done in administering the trust ( Nissen v Grunden [1912] HCA 35;(1912) 14 CLR 297 at [307] – [308]; In re Keeler’s Settlement Trusts [1981] Ch 156 at [161] -[162]; Re White; Tweedie v Attorney-General [2003] VSC 433; (2003) 7 VR 219 at [233]) and to authorise payment of remuneration at a higher rate than that originally allowed by the trust instrument ( Duke of Norfolk’s Settlement Trusts ; Parbery and Others (in their capacity as joint and several administrators of Trio Capital Ltd (admins apptd) and Others) v ACT Superannuation Management Pty Ltd and Others [2010] NSWSC 941).”

Ward J continued at [47]:

“As to the construction of the Trust Deed, I accept that this is a proper application for judicial advice.”

facebooktwittergoogle_plusredditpinterestlinkedinmailby feather

This tab updated on 31 May 2015