Effects Of Exercising Powers Flashcards
Q1. (Midland Bank Trustee Case)
When trustees properly exercise a power – for example, selling one asset and buying another – how does this affect the beneficiaries’ interest, as discussed in Midland Bank Trustee Co Ltd v Federated Pension Services?
A1. The beneficiaries’ interest shifts to the new asset. They lose any claim on the sold asset, provided the sale was authorized and the trustees acted within their lawful powers.
Q2. (General Principle)
What if trustees lack a power to sell a trust asset and do so anyway – do beneficiaries still have rights in the original asset?
A2. Yes. If there was no valid power, beneficiaries’ rights continue in the original asset until it’s acquired by a bona fide purchaser for value without notice of the breach.
Q3. (Turner v Turner)
In Turner v Turner, what did the court emphasize about how trustees must exercise a discretionary power?
A3. Trustees must use their independent judgment. If they merely follow instructions from someone else (like the settlor) without thought, they fail to exercise the discretion personally.
Q4. (Article 24(2) Reference)
Even if trustees hold a valid power under Article 24(2), why might they be criticized for using it in a particular situation?
A4. Because they must use it for the trust’s purposes and the beneficiaries’ benefit. Exercising a power inappropriately can be as problematic as having no power at all (i.e., a breach of duty).
Q5. (General Principle)
Why can’t trustees pledge or bind themselves in advance on how they’ll exercise a future discretion?
A5. They must not fetter their discretion. Each decision must be evaluated at the time, ensuring it serves the best interests of the trust.
Q6. (Vatcher v Paull)
Does “fraud on a power,” first seen in a Jersey-related case (Vatcher v Paull, though applying English law), imply criminal fraud?
A6. No. “Fraud on a power” means using the power for an improper purpose, not necessarily involving deceit. Modernly it’s called the “proper purpose rule.”
Q7. (Re X Trust)
In Re X Trust, why was distributing property to help a beneficiary meet a divorce obligation not a fraud on the power?
A7. Because the trustee’s main purpose was still to benefit the beneficiary (enabling him to fulfill a legal obligation). That purpose aligned with the trust’s intention, so it was not improper.
Q8. (Jasmine Trustees)
What four fiduciary obligations did In the matter of Jasmine Trustees Ltd. state apply to the holder of a fiduciary power?
A8. They must:
Act in good faith for beneficiaries,
Reach a reasonable decision (akin to Wednesbury reasonableness),
Consider only relevant matters,
Not act for any ulterior or improper purpose.
Q9. (Wednesbury Unreasonableness Reference)
Why did Jasmine Trustees say a trustee’s power might be set aside for “irrationality”?
A9. Because a decision “no reasonable trustee could have arrived at” fails the Wednesbury standard; the court, in its supervisory role, can intervene to protect beneficiaries.
Grand View Private Trust Co Ltd v Wong [2022] UKPC 47
Q10. (Grand View)
Name the three questions identified in Grand View Private Trust Co Ltd v Wong that determine a valid exercise of a fiduciary power.
A10.
Scope: Did it exceed the power’s terms?
Deliberation: Was the exercise made with proper thought?
Purpose: Did they use it for a proper (not ulterior) purpose?
Q11. (Proper Purpose)
Why did the Privy Council prefer to call it the “proper purpose” rule instead of “fraud on a power” in Grand View?
A11. Because it doesn’t necessarily involve fraudulent or dishonest conduct. The key is whether the trustee used the power for the purpose intended by the trust’s creator.
Q12. (Purpose of the Power)
How does Grand View say we figure out the purpose of a trustee power if the trust deed is unclear?
A12. By objective interpretation of the deed’s language and admissible background context. One discerns the settlor’s intention at the trust’s creation, not later or personal wishes unless they’re part of the original factual matrix.
Q13. (Grand View “Substratum” Point)
Did Grand View endorse searching for a “substratum” or “fundamental purpose” that overrides other trust provisions?
A13. No. The Privy Council rejected the idea of an overriding “substratum.” One must instead read all terms (including powers) in context to see what the true purpose is.
Q14. (General)
What if a trustee’s exercise of power is facially valid (the beneficiary is in the class) but in reality benefits a non-object indirectly?
A14. That’s considered a fraud on a power or improper purpose. Even though it looks correct “on paper,” it violates the trust’s real intention by benefiting someone outside the class.
Q15. (Key Takeaway)
Summarize why the proper purpose rule is critical in evaluating a trustee’s exercise of powers.
A15. Even if the trustee is within the formal scope of their power, they must still act only for the trust’s intended purpose(s). If they secretly or indirectly benefit non-intended persons or aims, it’s a breach and can be set aside.
