The Power of Amendment

There is no implied or inherent trust law or statutory power vested in the trustee to amend the trust deed in the absence of an expressed power in the trust deed {R Meagher & W Gummow, Jacobs’Law of Trusts in Australia (6th ed 1997)[1704]}.

The New South Wales Court of Appeal in Re Dion Investments Pty Ltd [2014] NSWCA 367 making reference to the ruling of the trial judge stated at [30]:

“He said that 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 unalterable [sic; scil: alterable]”. Reference was made to Re Crawshay (1888) 60 LT 357, Re Walker [1901] 1 Ch 879 and Re Downshire Settled Estates [1953] Ch 218 (which was affirmed by the House of Lords: Chapman v Chapman [1954] UKHL 1; [1954] AC 429).”

The Court of Appeal then 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the trust and defining its terms, has specified that those terms are not immutable and that the original terms will be superseded by varied terms if the specified process of variation (entailing, in concept, a power of appointment or a power of revocation or both) is undertaken.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.

Global Custodians Ltd v Mesh [2002] NSWSC 283 at [18]:

Thomas on Powers (Sweet & Maxwell, London, 1998) Chapter 13. As the learned author points out in para 13-11 at p 563, every such power reserved in a deed will be construed strictly. Authority such as Hele v Bond (1717) Precedents in Chancery 474; 24 ER 213, and Evans v Saunders [1855] EngR 273; (1855) 6 De GM & G 654 at 671; [1855] EngR 273; 43 ER 1387 at 1394 bear this out.

If the original Trust Deed that establishes a trust does not provide a power to amend the terms of the trust referred to as a Power of Amendment, then the terms of the trust cannot be readily amended. Only a Court Order or an Act of Parliament can be used to amend the terms of the trust.

The scope of the powers of a Court to amend the terms of a trust are covered in more detail here.

An example of the implications of a lack of a Power of Amendment arose in: NSW Masonic Youth Property Trust v Attorney-General [2009] NSWSC 1301

The Court ruled that a valid express trust was created on 2 March 1923 and that purported amendments in 1927 were not effective because they were no within the power to amend since no such power had been provided when the trust was created on 2 March 1923.

This case is discussed further here.

ATT #1

An Act of Parliament is required to add a Power of Amendment to terms of a trust is one was omitted due to a drafting error.

An example of this requirement relates to a provident fund established by AMP. AMP established the “Officers’ Provident Fund” by a Deed of Settlement dated 7 May 1889 as confirmed by the “Australian Mutual Provident Society’s Officers Provident Fund Trustees Act 1890.

Doubts were raised as to the construction of the Deed of Settlement with regard to the power of the trustees of the fund to add to or alter the terms of the trust.  It was therefore necessary to have the terms of the trust amended by the “Australian Mutual Provident Society’s Officers’ Provident Fund Trustees Enabling Act 1912” to provide such a Power of Amendment.

The enactment provided a Power of Amendment to a majority of the trustees, acting in accordance with “a minute of the board of directors of the said society”./p>

Where the original Trust Deed does provide a Power of Amendment, a properly drafted Deed of Variation or Amending Deed should recite the Power of Amendment in the Recitals in the Deed of Variation so as to ensure that the Deed of Variation complies with any conditions and restrictions imposed by the Power of Amendment.

ATT #2  

In the case of employer sponsored superannuation funds the Power of Amendment can be provided to:

  • The Board of Directors of the Company {ie natural persons}
  • The Company (ie a legal person}
  • The Trustee, if a corporate trustee (ie a legal person} or the Trustees {if natural persons};
  • The Members of the fund; or
  • A combination of the above  {ie where different Regulations are subject to different amending powers or when the Power of Amendment is jointly held}

Further more the Power of Amendment may be subject to the consent of another party.

Geraint Thomas in Thomas on Powers (1st Edition at [14-11] provides and example of a typical Power of Amendment that might be found in a Trust Deed for a pension scheme:

“The Trustees may at any time by deed with the consent of the Principal Company amend extend modify revoke or replace all or any of the trust powers and provisions of this Deed or the Rules with effect from such dated as is specified in that deed to the effect that any such amendment extension modification revocation or replacement may be retrospective or retroactive in effect.”

In this example the Power of Amendment has been provided to the natural person Trustees subject to the consent of a legal person, the Principal Company that sponsors the scheme.

A similar Power of Amendment was central in Betafence Ltd v Veys [2006] EWHC 999 (Ch).

This case concerned a Power of Amendment (in rule 23) which, so far as relevant, was in these terms:

“The [Trustees] may, with the consent of the Principal Employer, from time to time amend all or any of the provisions of the Rules…. The Administrator shall notify in writing each Member of any amendment which affects the benefit entitlement in respect of him under the Scheme.”

The the case of  The Provident Fund (aka Elders IXL Superannuation Fund), the Power of Amendment {Regulation 50} is as follows:

“But subject to this provision (ie the authorised purpose) the Board by a majority of all the Directors for the time being testified by their executing the Deed hereinafter mentioned may from time to time at any time  by deed with the assent in writing of the majority of the Trustees alter all or any of the provisions of this Deed…..”

It is important to note that the Power of Amendment was not provided to the legal person of the company, but to natural persons being the Directors of the Company.

The way a natural person executes a Deed is different to how a body corporate executes a Deed.

Geraint Thomas in Thomas on Powers {2nd Edition} states at [16.07]:

“An exercise of a Power of Amendment is subject to the same rules and controls as other powers. For example, it can be exercised only for the purpose or purposes for which it was conferred1; and it may not be exercised beyond the reasonable contemplation of the parties. Thus, ‘if the purpose of a superannuation scheme was recognised as being to provide pensions or other benefits for “members and pensioners” it would be wholly inconsistent with that purpose to suggest that the expression did not include ex-employees’2

(1) Re Courage Group’s Pension Schemes [1987] 1 WLR 495, 505-6; Society of Lloyd’s v Morris [1993] 2 Re LR 217;

(2) Re Ball’s Settlement Trusts [1968] 1 WLR 899; Kearns v Hill (1990) 21 NSWLR 107; Re Internine Trust [2010] WTLR 443 (RC Jersey).

(2) Bank of New Zealand v Bank of New Zealand Officers Provident Association Management Board [2003] UKPC 58; UEB Industries Ltd v WS Brabant and Others [1992] 1 NZLR 294.

Thomas continues:

“There may be difficulties in ascertaining the true purpose of a particular arrangement and therefore the power of amendment contained within it. Nevertheless, whatever difficulties, the basic principle remains and the underlying purpose must be ascertained and adhered to. A failure to do so would be an excessive or even fraudulent exercise of the power.”

Byrne J in the Victorian Supreme Court in Invesys Australia Superannuation Fund Pty Ltd v Austrac Investments Ltd3 in relation to a superannuation trust where the trustee held the power of amendment stated at [62]:

“It is well established that a power such as the power under cl 20 to amend the deed of trust is subject to general restrictions imposed by law. An example is the trustee should exercise the power in good faith4 and that the trustee should act in a way which appears to be equitable under the circumstances5 and in accordance with the purpose for which the power was conferred6.

(3) Invesys Australia Superannuation Fund Pty Ltd v Austrac Investments Ltd [2006] VSC 112; (2006) 15 VR 87

(4) Air Jamaica Ltd V Charlton [1999] 1 WLR 1399 at 1411

(5) Edge v Pensions Ombudsman [2000] Ch 602 at 626

(6) Asea Brown Boveri Superannuation Fund No.1 Pty Ltd v Asia Brown Boveri Pty Ltd [1999] 1 VR 144 at 157 per Beach J following Karger v Paul [1984] VR 161 at 164 per McGarvie J.

The following is stated in Halsbury’s Laws of Australia at [430-340]:

“The purported exercise by the trustee or other party of a power of variation conferred by the trust instrument will be ineffective unless there has been strict compliance with any limitation on the scope of that power,and with any requirements as to the basis on which, or the circumstances in which it may be exercised7, and is in any case exercised bona fide for he benefit of the beneficiaries as a whole8.”

(7) Eagle Star Trustees Ltd v Heine Management Ltd (1990) 3 ACSR 232.

(8) Gra-Ham Australia Pty Ltd v Perpetual Trustees WA Ltd (1989) 1 WAR 65, SC(WA), Full Court.

The Power of Amendment cannot be used for the purpose of defeating the objects or substratum of the trust 9.

(9) Re Dyer (1935) VLR 273 at 290; [1935] ALR 384 per Martin J; Re Ball’s Settlement [1968] 2 All ER 438; 1 WLR 899 per Megarry J; Re Courage Group’s Pension Schemes: Ryan V Imperial Brewing & Leisure Ltd [1987] 1 All ER 538 at 541-2; [1987] 1 WLR 495 per Millet J; Barckleys Bank lc v Holmes [2000] PLR 339 at [115] per Nueberger J;Lock v Westpac Banking Corp (1991) 25 NSWLR 593 at 601-2 per Waddell CJ; Re UEB Industries Ltd Pension Plan [1992] 1 NZLR 294 at 308-9 per Thorpe J; Cachia v Westpac Financial Services Ltd (2000) 170 ALR 65 at 82; 33 ACSR 572; [2000] FCA 161 per Hely J.

The Four Heads of Impugning a purported Amending Instrument

There are four heads of impugning a purported Amending Instrument:

  1. the purported Amending Instrument is not of the prescribed type or has not been validly executed
  2. the conditions and restrictions imposed by the Power of Amendment have not been complied with that is, an “excessive exercise” of a power, or
  3. the amending power has not been exercised to promote the purpose of the trust but has been used for an improper purpose or for an ulterior motive { an “improper exercise” of a power, which is more commonly referred to as a “Fraud on a Power
  4. the trustee or trustees who execute the purported Amending Instrument are in fact Trustees de son tort.
 

An Invalid Execution of the Amending Instrument

An important factor in a recent case before the High Court of England and Wales {Briggs v Gleed (Head Office) [2014] EWCH 1178 (Ch)} where the Court ruled that some 30 Amending Deeds executed since 1990 were void and ineffective since they had not been properly executed by natural persons who had been jointly provided with the Power of Amendment. Further details of this case can be found here.

 

An “Excessive Exercise” of the Power of Amendment

Apart from the need to comply with any statutory requirements an amending instrument must comply with any conditions or restrictions imposed by the Power of Amendment.

In The Laws of Australia {Thompson Reuters) at [15.14.1450] under the section “It is the trustee’s plainest duty to obey the terms of the trust” the following is stated:

“Where the trust instrument confers a power of amendment, the conditions and restrictions imposed on its exercise must themselves be strictly observed.”

 A [25.20] under Power of variation in the trust instrument, in Equity and Trusts in Australia (4th Edition) , GE Dal Pont and DRC Chalmers state:

“There are further general law restrictions on the scope of an even apparent unfettered power to vary, Firstly, a power to vary will not permit a variation removing a restriction of that power, secondly, its exercise cannot affect any vesting that has already taken place…..Thirdly, a power to vary a trust deed arguably does not extend to a variation that would alter the substratum of the trust {Lock v Westpac Banking Corp (1991) 25 NSWLR 593 at 602}

Geraint Thomas in Thomas on Powers {1st Edition} states in Chapter 14 – Power of Amendment at {14-13]:

“Where the power of amendment is subject to express restrictions, those restrictions must be complied with and cannot themselves be amended, removed or annulled by means of an exercise of the power.”

In The Laws of Australia {Thompson Reuters) at [15.14.1450] under the section “It is the trustee’s plainest duty to obey the terms of the trust” the following is stated:

“Where the trust instrument confers a power of amendment, the conditions and restrictions imposed on its exercise must themselves be strictly observed.”

In Thomas on Powers , making reference to the doctrine of an “excessive exercise” of a power contained in a Trust Deed, Geraint Thomas at [8.02] states:

“Any exercise of a power which fails to comply with the express terms of the power is clearly excessive.”

At [25.20] under Power of Variation in the trust instrument, in Equity and Trusts in Australia (4th Edition) , GE Dal Pont and DRC Chalmers state:

“There are further general law restrictions on the scope of an even apparent unfettered power to vary, Firstly, a power to vary will not permit a variation removing a restriction of that power, secondly, its exercise cannot affect any vesting that has already taken place…..Thirdly, a power to vary a trust deed arguably does not extend to a variation that would alter the substratum of the trust {Lock v Westpac Banking Corp (1991) 25 NSWLR 593 at 602}

If the Power of Amendment could be used to materially alter the Power of Amendment, then an unauthorised amendment could be accomplished in two steps when it could not be accomplished in one step { Air Jamaica Ltd v Charlton [1999] 1 WLR 1399}.

The following cases are further examples where these principles have been applied by the Courts:

  Sovereign Trustees Ltd & Anor v Glover & Ors [2007] EWHC 1750 (Ch)

Purported Accumulation sub-plan not established since the Trust Deed was not amended in accordance with the provisions of the amending power in the Trust Deed to establish the proposed Accumulation sub-plan (“money-purchase scheme”)

More details on this case can be found here.

Walker Morris Trustees Ltd.v Masterson & Anor [2009] Pens LR 307, [2009] EWHC 1955 (Ch)

Amending power required the Fund Actuary to provide an “Actuarial Certificate” with any amending Deed confirming that the rights of any Members or of the widow or legal personal representative of a deceased Member would not be substantially prejudiced by the proposed amendment. Such a certificate was obtained with respect to the 1986 Amending Deed.

There were six later purported Amending Deeds however no Actuarial Certificate had been obtained and attached to the Deeds and there was no recital in these purported Amending Deeds that such a certificate had been so obtained.

The Court therefore held that the purported Amending Deeds that had failed to comply with the condition imposed by the amending power were therefore invalid.

The terms of the trust remained as they stood before the invalid amending Deeds were executed.

The Court made reference at [49] to what Lewison J had ruled at [20] in in Trustee Solutions v Dubery [2006] 36 P.L.R [2006] EWHC 1426 (Ch):-

“….the need to protect beneficiaries may well be powerful factors in choosing between rival constructions; but once the requirements of a valid means of alteration of the rules has been determined as a matter of construction, either a document satisfies those requirements or it does not”

More information on this case can be found here.

Trustee Solutions Ltd & Ors v Dubery & Anor [2006] EWHC 1426 (Ch), [2007] 1 All ER 308, [2006] Pens LR 177, [2007] ICR 412, [2006] PLR 177

Rule 38 of the Colour Processing Pension Scheme, contains the power of amendment, as follows:

“… the Trustees may from time to time and at any time with the consent of the Principal Company by way of formal variation of these Rules adopted by any deed or deeds executed by the Trustees and the Principal Company or by any writing effected under hand by the Trustees and the Principal Company alter or modify all or any provisions of the Scheme Provided that no such alteration or modification as aforesaid shall be made which would have the effect of varying or affecting any benefits … applicable to Pensionable Service completed before the alteration or modification …without the consent of any Member affected thereby and Provided further that no such alteration or modification as aforesaid shall be permissible if it would result in any payment refund or transfer to the Employers or any of them.

Notice in writing of any such alteration or modification as aforesaid shall before the same takes effect be given to every Member who will be affected thereby.”

The principle question of construction turns on the requirement that the document amending the rules must be either a deed (which is not suggested in this case) or “writing effected under hand“.

A memorandum had been circulated to staff advising of purported changes to the rules but there was no document signed under hand by the Trustees and representatives of the Principal Company.

The Court at [36] ruled:

“In my judgement, it was a substantive requirement of a document amending the rules that it was signed by the trustees and by or on behalf of the company. Since, in my judgement, the court has no power to authorise a departure from the rules, or to waive one of their requirements, it follows that the rules have never been validly amended.”

More information on this case can be found here.

 

Fraud on a Power (or an “Improper Exercise” of a Power)

Even if an amending instrument complies with statutory provisions and the conditions and restrictions imposed by the Power of Amendment, the purported amending instrument may still be held to be void under the doctrine of a “Fraud on a Power“.

The doctrine of a “Fraud on a Power” is discussed further here.

Trustee or Trustees are Trustees de son tort

A trustee or trustees may be provided with the Power of Amendment or with a power of consent to an amendment, however if a person intermeddles with the affairs of a trust, but who has not been lawfully appointed to the office of trustee in accordance with the terms of the trust or the general law, then that person is known as a Trustee de son tort (a trustee of his own wrong).

A Trustee de son tort retains the liabilities of a lawfully appointed trustee but is unable to exercise the powers of a lawfully appointed trustee, including the power to exercise a Power of Amendment or the power to consent to an amendment.

More details on a Trustee de son tort can be found here .

 

The four requirements for a valid Deed of Variation (amending Deed) can be summarised as follows.

Requirements for a valid Deed of Variation

More authorities on the power to amend the provisions of pension schemes can be found here.

amendment-powers-two-myths-updated-text-from-a-brewers-hall-seminar


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This tab updated on 21 July 2015