The High Court

  • High Court #4
  • High Court #8
  • High Court #1
  • High Court #5
  • High Court #2
  • High Court #6
  • full screen slider
  • High Court #7
image carousel by WOWSlider.com v7.4
 

The High Court has ruled on a number of cases of significance to this fraud.

Duty to Obey the Terms of the Trust

It is the Trustee’s plainest duty to obey the terms of the trust {A-G (UK) v Downing (1767) Wilm 1 [97] ER 1] Wilmot LCJ at 23; Davey v Thorton (1851) 9 Hare 222 [68 ER 483].

This strict duty affirmed and described in the High Court of Australia in {Youyang Pty Ltd v Minter Ellision Morris and Fletcher [2003] HCA 15; (2003) 212 CLR at 498 as the duty:

“to adhere to the terms of the trust in all things great and small, important, and seemingly unimportant”
 

The High Court quoted Augustine Birrell QC in The Duties and Liabilities of Trustees, 1896, p22. A copy of this classic authority can be found here.

In the case of a superannuation trust where the original Trust Deed will be subjected to amendments from time to time, the terms of the trust are construed from the original Trust Deed as lawfully amended.

Amending the Terms of a Trust

A notable case had (Sir) Robert Menzies appearing before the Court when he was the Attorney-General for Victoria.

Gas Case

The High Court re-affirmed the legal principle that the power provided in the original Trust Deed had to be used to promote the purpose of the trust and could not be used to abrogate the substantive rights of the beneficiaries. Any attempt to do so would be void under the doctrine of a “Fraud on a Power“.

Rich J stated in Metropolitan Gas Co v FCT [1932] HCA 58; 47 CLR 621 at 635:

“It is not the purpose of the provision to enable the destruction of any substantive right to pensions, and an exercise such is apprehended would be not unlike a fraud on a power”

The Hight Court cited the ruling of Lord Parker in the Privy Council case of Vatcher v Paull (1915) A.C. 372 at 378.

In Lord Parker’s much cited words:

“The term fraud in connection with frauds on a power does not necessarily denote any conduct on the part of the appointor amounting to fraud in the common law meaning of the term, or any conduct which could properly be called dishonest or immoral. It merely means that the power has been exercised for a purpose, or with an intention, beyond the scope of, or not justified by, the instrument creating the power”

For other examples of judicial statements on the exercise of powers, including the Power of Amendment, click on the following link.

 

The Trustee as a “Fiduciary”

The High Court in Maguire v Makaronis [1997] HCA 23; 188 CLR 449; 144 ALR 729 reaffirmed that the trustee is the ‘archetype‘ fiduciary citing Gibbs CJ in Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 at [68].

Maguire v Makaronis was cited by the Western Autralan Court of Appeal  in Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146

“The trustee is the ‘archetype’ fiduciary: Maguire v Makaronis [1997] HCA 23(1997) 188 CLR 449, 473. The office exists for the benefit of the beneficiaries: Letterstedt v Broers (1884) 9 App Cas 371, 386. It is an essential element of the trust that the trustee is under a personal obligation to deal with the trust property for the benefit of the beneficiaries, an obligation giving correlative rights to the beneficiaries. There is an irreducible core of obligations owed by the trustees to the beneficiaries and enforceable by the beneficiaries which is fundamental to the concept of a trust: Heydon JD and Leeming LJ, Jacobs’ Law of Trusts in Australia (7th ed, 2006) [110], [1620]. If these do not exist, or if the beneficiaries have no rights to enforce them, there is no trust. The minimum duty is the duty to perform the trust honestly and in good faith, for the benefit of the beneficiaries. See Armitage v Nurse [1998] Ch 241, 253 – 254.”

The central fiduciary duty, and what distinguishes it from other legal duties, is a duty of loyalty “unequalled elsewhere in the law”{Moffat v Wetstien (1996) 135 DLR (4th) 298 at 315 per Granger J}.

The definition of a “fiduciary” by Lord Justice Millett can be found here.

 

Duty to Seek Judicial Advice

 

The importance of seeking judicial advice by a trustee as a prerequisite to relief under the State Trustee Acts was emphasised on the High Court of Australia in Macedonian Orthodox Community Church Saint Petka Incorporated v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand & Anor[2008] HCA 42; (2008) 237 CLR 66.

This case involved a trust where the “proper law” was that of New South Wales, however similar provisions exist in other state and in South Australia s 56 of the Trustee Act 1936 (SA) is equivalent to  s85 of the Trustee Act 1925 (NSW) and s 91  of the Trustee Act 1936 (SA) s equivalent to s63 of the Trustee Act 1925 (NSW).

The High Court stated at [36}:

“The legislative scheme, then, is that it is desirable that trustees in doubt as to a course of action should not proceed with it and seek relief under s 85 afterwards, but rather seek s 63 advice first. That is because one of the things which a trustee invoking s 85 requires to be excused from is failure to seek s 63 advice.”

The High Court observed at [56]: referring to the Trustee Act 1925 (NSW):

“There is nothing in s 63 which limits its application to “non-adversarial” proceedings, or proceedings other than those in which the trustee is being sued for breach of trust, or proceedings other than those in which one remedy sought is the removal of the trustee from office.”

The High Court emphasised at [58]:

“Only one jurisdictional bar to s 63 exists: the applicant must point to the existence of a question respecting the management or administration of the trust property or a question respecting the interpretation of the trust instrument.”

The High Court added at [74]:

“A necessary consequence of the provisions of s63 of the Act is that a trustee who is sued should take no step in defence of the suit without first obtaining judicial advice about whether it is proper to defend the proceedings. In deciding that question a judge must determine whether, on the material available, it would be proper for the trustee to defend the proceedings.”

 

The Right to Due Administration of the Trust

The High Court also affirmed the right of a beneficiary to enforce the trust according to its terms.

The High Court of Australia in Kennon v Spry [2008] HCA 56 at [125] confirmed the right of a beneficiary to the due administration of a trust citing the judgement of French J below. The High Court described the right to the due administration of a trust as an “equitable chose in action” at [75].

French J stated in Australian Securities and Investments Commission In the Matter of Richstar Enterprises Pty Ltd (ACN 099 071 968) v Carey (No 6) [2006] FCA 814 at [30]:

“I accept that there are some rights enjoyed, even by the beneficiaries of a non-exhaustive discretionary trust with an open class of beneficiaries. They include the right to inspect the trust documents – Re Londonderry’s Settlement [1965] Ch 918 and the right to require the trustee to provide information about management of the trust fund – Spellson v George (1987) 11 NSWLR 300Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405. There is also a right to enforce the proper management of the trust by the trustee – Commissioner of Stamp Duties (Qld) v Livingston [1964] UKPC 2[1965] AC 694Re Atkinson [1971] VR 613.

Ford and Lee in The Law of Trusts state at [1.8510]:

“The creation of an express private trust gives every person who is an object of the trust a personal equitable right of due administration of the trust. That is a right to force the trustee to perform the trust, to have a non-performing trustee removed and to have a new trustee appointed where the trustee has been removed or, or any other reason, the office of trustee is vacant.”

Superannuation is “Deferred Pay”

The High Court has also confirmed that superannuation is not a “gift” or a “discretionary benefit“, but that a superannuation entitlement is “deferred pay” for which the beneficiary has given valuable consideration in the form of services rendered and contributions made to the fund.

The High Court of Australia in Finch v Telstra Super Pty Ltd [2010] HCA 36 confirmed at [61] that superannuation trusts are strict trusts and not discretionary trusts.

The High Court in Finch stated at [35]:

“The government considers that the taxation advantages of superannuation should not be enjoyed unless superannuation funds are operating efficiently and lawfully.”

The High Court stated at [33]:

“Employer superannuation is part of the remuneration of employees. …….Superannuation is not a matter of mere bounty, or potential enjoyment of another’s benefaction. It is something for which, in large measure, employees have exchanged value – their work and their contributions. It is “deferred pay. {Air {Jamaica Ltd v Charlton [1999] 1 WLR 1399 at 1407}”.

Removal of Trustees from Office

Starke J in the High Court in Miller v Cameron (1936) 54 CLR 572 affirmed that the welfare of the beneficiaries is the court’s dominant consideration in appointing and removing trustees, citing Letterstedt v Broers (1884) 9 App Cas 371 at 38 per Lord Blackburn).

Section 36(1)(b) of the Trustee Act 1936 (SA) gives a statutory power to remove a trustee from office of a trust established in South Australia without the need to find fault in the conduct of the  trustee.

“There is no need for the Court to find any fault or inadequacy on the part of the existing trustees before making an order under this section.”

Liability of Strangers to the Trust

There are two leading cases in the High Court that deal with the liability of strangers who either receive trust property in Breach of Trust knowing it to be trust property or assist with knowledge in a “dishonest and fraudulent design on the part of the Trustee or Trustees“.

The cases are Consul Developments v DPC Estates [1975] HCA 8; 132 CLR 373; 5 ALR 231 and Farah Constructions v Say-Dee [2007] HCA 22; 230 CLR 89; 263 ALR 209.

More information on the liability of strangers to the trust can be found here.


facebooktwittergoogle_plusredditpinterestlinkedinmailby feather

This tab updated on 18 March 2015