Topic 6: Rights of Trustees Flashcards
What are the limits of an express power under the trust instrument to vary the trustee’s power?
- Good faith; and
2. For the benefit of the beneficiaries as a whole: Kearns v Hill
How can a trustee vary their powers?
- An express power in the trust instrument conferring the power on Trustee or someone else
- By Court order under s94 Trust Act
What are the facts of Kearns v Hill?
- It was an attempt to add a potential new class of beneficiaries to a discretionary trust, so they could choose from that class.
Court held:
- Permissible because it was consistent with the benefit that a settlor intended to confer.
- It is consistent to replenish the class of objects from time to time.
- The class that was purported to be added fell within the scope of benefit intended to be conferred by the settlor.
- The variation can’t be based on any one beneficiaries interests because they are often conflicting.
What is the position where a condition is required to be fulfilled before the powers can be varied?
- The person exercising the power must act upon the correct interpretation of that condition and must form the right opinion before exercising the variation - Wilson v Metro Goldwyn
What are the facts of Wilson v Metro Goldwyn?
- Deed of superannuation for MG
- The condition was that the trustee had to be satisfied that it would not prejudice beneficiaries
- In the event of surplus of funds, the trustees wanted to change the winding up provisions, to go to MG rather than to distribute it among the members at the time
Court held:
- The trustee had to be satisfied that the power of variation wouldn’t prejudice the rights of the beneficiaries.
- The court held that the variation proposed to take away the benefit of the members, therefore it was clearly prejudice, so variation not allowed.
What must the court ask itself in granting an order under s94 Trust Act to vary the powers of the trustee?
s94 allows the court to enlarge the powers of a trustee in a variety of situations.
The questions the court must ask: s94(1) TA
1. Is it expedient in the management or administration of any property vested in trustee; or
Bee in the best interests of persons or majority of them.
Do the trustees have a right to get directions from the court?
Under s96, the court has an inherent power to give directions to trustees as to how they should perform it’s powers and duties.
What is the purpose of getting a direction from the court?
- The trustee will not be liable for any breach of trust acting upon the directions of the court, even where the directions of the court are later found to be incorrect - s97 Trust Act
- Unless the court direction is obtained by fraud, misrepresentation or wilful concealment - s97(2) TA.
Does the trustee have a right to indemnity?
Yes. Trust deeds will inevitably incur out of court expenses in the course of administration such as legal fees or debts.
The trustees incur those debts in their personal capacity because the trust is not a legal entity and it can’t incur costs
The trustee has a right to indemnity in relation to those expenses
From where can the trustee indemnify itself?
- Indemnity from the trust estate/trust property; or
2. Indemnity from the beneficiaries who pay using their own money.
When can a trustee claim indemnity from the trust estate?
S72 TA: When the trustee has incurred expenses REASONABLY INCURRED in the expedition of trust and powers
Can the right to indemnity be overridden?
No, it is in Part 6, which indicates that it overrides the trust instrument, unless the provision itself indicates otherwise.
When are expenses ‘REASONABLY INCURRED’?
- At a minimum, it is where the expenditure does not amount to a breach of trust;
- Is not so extravagant that it would not be reasonable;
- Where it is in pursuance of the ‘needs and circumstances’ of the trust which will vary from case to case - such as large superannuation company would require an office, but a small trust estate would not
- s57: Expenses in operating a business obtained in the trust property
- Any civil liability that arises in operating the business so long as the business is conducted in a reasonable way: Vacuum Oil v Wiltshire
What does the right to indemnity in the trust estate mean for the trustee?
Octavo Investments v Knight: The trustee has a charge or lien over the trust property.
Therefore payments to the trustee take priority over claims of beneficiaries of the trust.
This is also in s72 TA
What option does a third party have when suing a trustee?
They can satisfy the judgment debt by claiming the trustee’s right to indemnity by way of subrogation.
Subrogation is where there is two back to back causes of action: Where the third party creditor has right of action against trustee, then trustee claims from trust property.
It’s faster if the third party can just claim the trustee’s right to indemnity.
