LSS Trusts Revision Seminar

1

• LSS Trusts Revision Seminar
• Jules Marshall

2

• Express Trust
• By Declaration or By Transfer
• Private or Public (charitable)
• Fixed or Discretionary

3
Creating a Valid Trust

• Requirements
• 1. The three certainties
• Certainty of intention (to create the trust by
  the settlor)
• Certainty of subject matter (must be trust
  property)
• Certainty of objects (must be identifiable
  beneficiaries or a valid purpose)
• 2. Statutory formalities
• 3. No illegality (not covered in this course)

4
Creating a Valid Trust Certainty of Intention

• Importance of Intention (Mallot v Wilson)
• Whether 'in the circumstances of the case and on
  the true construction of what was said and
  written, a sufficient intention to create a true
  trust has been manifested' Megarry VC in Tito v
  Waddell (No 2)

5
Creating a valid trust Certainty of Intention

• Subjective or Objective Intention?
• Subjective intention (HC majority in Joliffe)
• Isaacs J in dissent concerned about parol
  evidence rule.
• Joliffe followed countless times (Star v Star)
• Not restricted to bank accounts (Hyhonie
  Holdings)

6
Creating a valid trust certainty of intention

• Onus of Proof
• Ultimate burden on person asserting the trust
• Where trust involves a contractual or bilateral
  arrangement an objective test will be applied
  (What did both parties think was happening?) -
  (per Shortall v White)

7
Creating a valid trust - certainty of intention

• Intention must be immediate (where no
  consideration) per Harpur v Levy

8
Creating a valid trust certainty of intention

• No particular words needed (Re Armstrong, Paul v
  Constance)
• Factors indicating intention
• Bank accounts in a third parties name Re
  Armstrong
• Communications of intention with third party Re
  Armstrong
• Subsequent Conduct 'It's as much yours as it is
  mine' depositing shared income etc Paul v
  Constance (bearing in mind his unsophistication)
• Clear words declaring trust Hyhonie, Owens v
  Lofthouse
• Factors against intention
• Conduct treating property as one's own
  Hyhonie
• Listing property as income for tax purposes
  Hyhonie
• Other considerations
• Compare clause to others in the instrument
  context of the whole instrument

9
Certainty of intention testamentary trusts

• The clause should be constructed having regard to
  the words used, the entire document and
  surrounding circumstances (per Dixon J in
  Countess)
• Two step process (Dixon J in Countess)
• Did the testator intend the donee to be under any
  obligation to confer a benefit on a third party?
• If so, did they intend a trust obligation or some
  other form of obligation?

10
Certainty of intention testamentary trusts

• Did the testator intend the donee to be under any
  obligation to confer a benefit on a third party?
• 1. Look at words used (strong words or precatory
  words?)
• 2. Compare words used in different clauses within
  the will (Re Williams)
• 3. Look at outcome (did testatory truly intend
  that outcome)
• 4. Look at contextual factors
• Conclude does the clause contain an obligation
  (ie, more than just an expression of wishes? If
  yes, next question)

11
Certainty of Intention Testamentary Trusts

• If so, did they intend a trust obligation or some
  other form of obligation?
• Possibilities
• 1. Gift subject to a condition (Gill v Gill/Re
  Gardener)
• 2. Gift subject to a charge
• 3. A trust (Chang v Tijong)

12
Creating a Valid Trust Certainty of Subject
Matter

• There must be trust property (cannot have a trust
  over nothing)
• Trust will fail if property is
• future property
• uncertain property (unascertainable)
• or there has been a failed transfer by the
  settlor to the trustee (constitution)

13
Certainty of Subject Matter

• Problem with Future prop/mere expectancy or
  inalienable rights
• Mere expectancies - examples A person named in a
  will of a person who has not yet died or an
  interest in an object of a discretionary trust
  before a decision is made to distribute to that
  person (Kennon v Spry, Howard-Smith)
• Future property cf. Underlying to future
  property (revise Equity)
• Inalienable rights

14
Certainty of Subject Matter

• Problem with Ascertainability
• It may be argued that the property is not
  ascertainable as
• 1. Amount of the interest held on behalf of each
  B is unable to be specified (fixed interest
  trust)
• 2. Vague 'Bulk of my estate', 'my favourite
  books'
• 3. Instrument allows T to determine the trust
  property (Musoorie)
• Shares cases Hunter v Moss and Shortall v White

15
Certainty of Subject matter Situations

• Problem with Constitution
• No issues will arise with trusts by declaration
• If the trust is a trust by transfer this
  requirement means that at minimum the equitable
  interest in the subject property must be properly
  assigned to the trustee. REVISE EQUITY
• Consideration?
• Legal property transfer rules Corin v Patton
  (Mason CJ McHugh J cf. Deane J)
• Equitable property (or partial chose) Manifest
  an intention to immediately and irrevocable pass
  the interest
• NB Ttrust may still fail due to the operation of
  S 53 PLA

16
Certainty of Object

• A trust must have certainty of object by being in
  favour of one or more identifiable beneficiaries
  or for a valid purpose (such as a Charitable
  purpose) (per Morice v Bishop of Durham, Re Shaw)
• Why do we need certainty of object?

17
Certainty of Object Determining trust structure

• Tests for certainty of object are different
  depending on what trust structure was intended by
  the settlor
• Two step test to determine trust structure
• 1. Obligation to distribute the trust fund?
• Compare clauses
• Strong language similar to law under 'certainty
  of intention'
• Time limit to appoint (not conclusive) (Re Hay's)
• Gift over in default indicates a mere power (Re
  Hay's)
• Absence of gift over (not conclusive)
• If no obligation mere power
• If obligation then fixed interest trust or
  discretionary trust

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Certainty of Object Determining Trust Structure

• 2. If obligation Is there any discretion as to
  who to distribute to?
• If yes discretionary trust
• If no fixed interest trust

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Certainty of Object Fixed Interest Trust

• List Certainty
• Trustee must be able to make a list of all the
  beneficiaries and their entitlements
• If no specification as to proportions assume
  they take in equal shares (Paul v Constance)

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Certainty of Object Powers of appointment

• A power to appoint property
• Used in discretionary trust
• Mere Power v Trust Power
• A mere power (bare power, power collateral) is
  power withough an obligation whereas a trust
  power (power coupled with a duty) gives the donee
  a power with an obligation
• Classes of Powers of Appointment
• General
• Hybrid
• Special

21
Certainty of Object Discretionary Trusts Mere
Powers

• Criterion Certainty Re Gulbenkian
• 1. Semantic/Linguistic certainty
• 2. Evidential certainty

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Certainty of Object Semantic Certainty

• Uncertain
• Any class that is inherently subjective ie, the
  best news reporter
• Future employees Broadyway Cottages
• To improve quality of life Re Blyth (Qld) per
  Thomas J
• Deserving members unless do indicates how to
  distinguish deserving
• My old friends (unless instructions) Lord
  Upjohn in Re Gulbenkian
• Any person engaged in to what extent must you
  be engaged?
• Certain
• Anything that can be objectively determined
• Relatives McPhail Near relatives Griffiths
  (LJ Stamp means nearest blood relations Aus
  positioN)
• Employers Gulbenkian
• Employee, officer, former employee or officer
  Gulbenkian Working to alleviate war Re Blythe
• Dependents McPhail Inhabitants of an area
  District Auditor
• Residents - Gulbenkian

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Certainty of Object Evidential Certainty

• Evidential Certainty
• Evidential certainty can be resolved by seeking a
  court order.

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Certainty of Object Additional requirements

• Discretionary Trusts Administrative workability
  
• McPhail v Doulton, Lord Wilberforce - new
  requirement
• Rationale if not administratively workable then
  court could not establish who had standing and
  the donee could not undertake an adquate survey
  of the class.
• Applied in R v District Auditor
  administratively unworkable.

25
Certainty of Object Administrative Workability
Classes of Powers

• A general trust power or a hybrd trust power is
  invalid as fails the administrative workability
  requirement of criterion certainty. The reason
  it fails this requirement is that the class is so
  hopelessly wide that the court could not
  determine who had standing and the trustee could
  not undertake an adequate survey of the class
  (the whole world/the whole world bar one
  person/one group) in order to properly exercise
  the power (McPhail v Doulton per Lord Wilberforce
  and R v District Auditor)
• Therefore, a discretionary trust power can only
  be a SPECIAL trust power

26
Certainty of Object Additional Requirements

• Mere power Capriciousness
• Administrative unworkability does not invalidate
  a mere power (Re Hay's)
• Re Manisty and capriciousness

27
Creating a Valid Trust Statutory Formalities

• S 53 (1) PLA
• Situations Solutions
• 1. CREATION of interest IN LAND (legal or
  equitable NOT by trust gt s 53(1)(a) creation
  of the interest must be in writing by the
  transferor or agent
• 2. DISPOSITION of LEGAL interest in LAND eg legal
  mortgage/lease gt s53(1)(a)

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Creating a Valid Trust Statutory Formalities

• 3. DISPOSITION of SUBSISTING EQUITABLE INTEREST
  IN LAND
• a) by assignment or by final direction
  (Howard-Smith) gt must comply with s 53(1)(a) AND
  (c) but they have the same requirements
• Final Direction cf. Revocable mandate (Dixon J in
  Howard Smith)

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Creating a Valid Trust Statutory Formalities

• 3. DISPOSITION of SUBSISTING EQUITABLE INTEREST
  IN LAND
• b) by declaration of sub-trust
• Two possible approaches as to which subsection
  will apply
• Conduit v Active sub-trustee

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Creating a Valid Trust Statutory Formalities

• 4. DECLARATION OF A TRUST OVER LAND
• - Lee J in DSS v James interpreted ss(b) as an
  exception to the general rule in ss (a)
  followed in Hagan v Waterhouse
• Consequences trust is unenforceable until
  manifested and proved in writing by some person
  able to declare such a trust (ie, formalities in
  ss(b) only evidentiary function)
• No provision for agent
• Trustee in argument against T and B (Hagan)

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Statutory Formalities

• 5. NOT LAND
• SS (a) and (b) won't apply
• Is it subsisting equitable interest? If yes gt s
  53(1)(c)
• NOTE CONSIDERATION

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Quistclose Trusts

• Specifc purpose/obligation
• Usually imposed on debtor creditor relationship
• Factors towards specific purpose
• - Conditions in K such as 'exclusively' or 'only'
  per Gummow J in AETT cf. Precatory words
• - Paid into a seperate account Quistclose,
  Salvo cf. AETT
• - X would not have transferred if they knew it
  would be applied for a different purpose (cf.
  AETT)

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QC Express or Resulting Trust?

• Express Trust or Resulting Trust
• Intent Dal Pont
• Quistclose and Salvo per Spigelman CJ Young J-
  Two limbed express trust
• Gummow in AETT unremarkable express trust
  intention
• Twinsectra v Yardley Lord Millet resulting
  trust
• Salvo v New Tel majority two limbed express
  trust but on facts neither classification would
  result in different outcome
• No HC decision -

34
Quistclose Third Party

• THIRD PARTY HOLDING PROPERTY
• Although the lendor appears to have a beneficial
  interest in property due to the operation of
  the QC trust, they will only be able to enforce
  that interest against third party if the third
  party can be shown to have taken the property
  with notice of the lendors interest (per Lord
  Wilberforce in Quistclose).

35
Charitable Trusts

• A trust for a valid charitable purpose is one of
  the exceptions to the rule that a trust for a
  purpose rather than a person will fail (Latimer v
  Inland Revenue)
• AG will have standing to enforce charitable
  trusts
• Certainty of Intention Certainty of Subject
  Matter/Constitution still require but Certainty
  of Object does not apply charitable trust will
  depend on the purpose of the trust and whether or
  not it is for public benefit

36
Charitable Trusts

• Requirements
• 1. Valid Charitable Purpose
• 2. Public Benefit
• - Public Benefit
• - Section of the Public
• Note Not covering trusts for political purposes
  or Aid watch case in this seminar

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Charitable Trusts Valid Charitable Purpose

• Valid Charitable Purpose
• - 'spirit and intendment' of the preamble to the
  Statute of Elizabeth
• - Pemsel's case
• 1. Relief of Povery
• 2. Advancement of Education
• 3. Advancement of Religion
• 4. Other purposes beneficial to the community

38
Charitable Trusts Public Benefit

• 1. Public Benefit
• Assumed for trusts for relief of poverty (Dingle)
  
• Presumed (able to be rebutted) for advancement of
  education and religion
• - Education see Re Shaw and Re Pinion
• - Religion Benefit presumed to be positive
  influence on human conduct
• Must be positively demonstrated for fourth head

39
Charitable Trusts Public Benefit

• 2. Section of the public
• Question of fact (must be reasonable section of
  public)
• Poverty an exception unless Saunders rule
  applies
• membership/bars
• The people who will benefit from the trust cannot
  be connected to one or a few named people (Re
  Compton) - The point of distinction between
  those who will benefit and those who won't cannot
  be their relationship (nexus) to a particular
  individual or company even if large no. (11,000)
  Oppenheim

40
Charitable Trusts Severance

• At equity, if one purpose was invalid the whole
  trust would fail despite there being other valid
  charitable purposes (McGovern)
• S 7M of the Charities Act operates to save some
  trusts
• Three different ways it operates per Leahy

41
Charitable Trusts Cy Pres

• Trust fails initially S 2 Charities Act -
  charitable intention (Re Lysaght)
• Trust failes after a period of time because
  purpose no longer exists/illegal etc (Re Anzac
  Cottages)

42
Duties relating to mere powers

• Holder of a mere power has no obligation to
  exercise the power at all - court will not
  intervene to force exercise
• Non Fiduciary Donee No obligation to consider
  exercise of discretion. If there is exercise
  then appointment must be within limits, in good
  faith and for proper purpose (Megarry VC in Re
  Hay's)
• Fiduciary Donee Broader range of
  responsibilities than non-fiduciary cannot
  simply ignore
• Object of mere power request court intervention
  to require T to consider exercise (Re Hay's)
• Court will require (per Megarry VC in Re Hay's)
  that the T
• 1. consider periodically whether or not to
  exercise the power (Turner v Turner)
• 2. consider range of objects
• 3. consider appropriateness of particular
  appointments

43
Duties relating to trust powers

• The trustee is under a duty to exercise their
  discretion and must appoint the property to a
  person
• WHERE THERE HAS BEEN EXERCISE
• The power to review the exercise of discretion is
  limited to examining whether or not it was
  exercised in good faith, on real and genuine
  consideration and in accordance with the purpose
  for which the discretion was conferred except
  where the trustee has given reasons for the
  exercise of their discretion. (Karger v Paul,
  per McGarvie J)

44
Duties relating to trust powers

• WHERE THE FIDUCIARY HAS NOT YET EXERCISED POWER
• Objects of a trust power have standing to force
  the consideration of exercise (McPhail) however
  they have no proprietary right to the property
  (Kennon).

45
Trustees Duties

• Trustees under valid express trusts and
  charitable trusts have same duties
• There are three sources of trust duties
• The terms and conditions of the trust instrument
  itself
• Equitable principles
• Statute

46
Supremacy of Trust Deed

• Is there a trust deed?
• Can alter equitable and statutory duties
• S 2 (3) Trustee Act
• Must be familiar with terms of trust deed

47
General Summary of Duties per Green v Wilden

• 1. Adhere to the terms of the trust deed
• 2. Act fairly by beneficiaries and keep proper
  accounts
• 3. Exercise prudence in conducting affairs of the
  trust
• 4. Adhere to the profits and conflicts rules
• 5. Disclose information to the beneficiaries.

48
Valid Departures from Trust Deed

• Where Trustee is permitted or required (by
  Statute or by order of the Court) to depart from
  the trust deed
• Court may require/permit departure where
• - Circumstances require a departure in B's
  interests
• - Terms of deed unable to be carried out
• - Under s 63 of Trustee Act (power to authorise
  dealings with trust property)
• All sui juris beneficiaries were absolutely
  entitled to the fund and agreed unanimously to
  ratify a departure

49
Duties

• 1. Duty to 'GET IN' the trust property
• Consider who has title and control of property??
• Not just an initial duty (Caffrey)
• Recovery from previous trustee? Duty to inquire
  as to breaches (Permanent v Perpetual)
• 2. Duty to PROTECT Trust Assets
• Power under s 23 of the Act to insure the
  property
• No obligation
• Common sense

50
Trust Management Investment Duties

• A trustee may only invest trust property in
  investments authorised by the trust deed,
  legislation or the Court.
• S 5 of the Act (inserted in 1995) allows the
  trustee to invest in anything unless expressly
  prohibited by the Actor the trust deed
• Is there a restriction on investment power
  contained in the trust deed? If yes must adhere
  to that restriction as part of duty to adhere to
  trust deed.

51
Trust Management Investment Duties

• S 5 of the Act qualified by ss 6 8 (further
  restrictions)
• DUTY OF PRUDENCE (S 6)
• Statutory standard of prudence to be exercised
  when investing
• - Bifurcated standard professionals held to
  higher standard of care than non-professionals
• Professional Trustee s 6(1)(a)
• Does the trustee's profession, business or
  employment include acting as trustee or investing
  on behalf of others
• Standard Care, diligence and skill a prudent
  person engaged in that profession would exercise
  in managing the affairs of others

52
Trust Management Investment Duties

• Non-Professional Trustee s 6(1)(b)
• Standard care, diligence and skill that a
  prudent person would exercise in managing the
  affairs of others (cf. Morally obliged prudent
  business person req. in Bartlett)

53
Trust Management Investment Duties

• Modern Portfolio Theory
• Line by Line Assessment v MPT
• Before Act Line by Line
• - each investment individually assessed for
  prudence
• - trusts were conservative, highly risk averse
  low rate of return and opportunity for decline in
  real value of the fund (Nestle v Nat West)
• MPT max growth/min risk through
  diversification range of investment to reflect
  market
• Does Act reflect adoption of theory? Several
  sections suggest yes - S 8, s 6(3), s 12C and
  12D
• Case HLB v Trust Co Ltd
• Debeljak article

54
Trust Management Investment Duties

• Factors to Consider in Assessing Breach of
  Investment Duties
• 1. ANNUAL REVIEW per s 6(3)
• individually and as a whole
• Minimum standard
• Also when new investment is made per 8(1)(o)
• 2. SPECULATIVE INVESTMENTS per s 7(2)
• Might be too speculative even considering MPT
• Bartlett

55
Trust Management Investment Duties

• 3. DUTY TO TAKE ADVICE per s 7(2)
• Supported by ss 7(4) and (8)(2) can recover
  costs of advice
• 4. SECTION 8 MATTERS
• Make a list
• 5. Other enumerated duties in s 7(2) Duty to act
  in best interests of B's and Duty to act
  impartially between B's/classes of B's (discussed
  later)

56
Trust Management Investment Duties - Defences

• - not strictly defences
• S 12 C Court can relieve T of liability
  (partially or in full)
• Court must consider 4 factors
• 1. T invested according to an investment
  strategy (sound strategy)
• 2. Whether they had regard to ths s 8 factors
• 3. Whether they considered the nature purpose
  of the trust
• 4. Whether they acted on independent advice (was
  it needed?)

57
Trust Management Investment Duties - Defences

• Set Off
• Under s 12D the court has discretion to allow
  set off of liability in relation to profit made
  through investment. There must be some
  correlation with the gains and losses (ie, part
  of an investment strategy eg Bartlett).

58
Trust Management Equitable Duties

• S 7 of the Act preserves all the equitable duties
  that existed before the Act (except to extent
  they are inconsistent with Act/trust instrument)
• Standard of prudence The statutory standard only
  applies to investment must use equitable
  standard for duties NOT related to investment

59
Trust Management Equitable Duties

• Equitable Standard of Prudence
• Bifurcated
• Professional
• T will be held to the higher standard of care
  than a non-professional trustee as they are
  holding themselves out as havng more skills than
  an ordinary trustee and are usually paid for
  their services (Bartlett ASC v AS Nominees)
• Non-Professional
• T, in relation to management of trust, will be
  held to the standard of care that an ordinary
  prudent businessman would use in conducing his
  own affairs (per Speight v Gaunt)

60
Trust Management Equitable Duties

• Trustee fiduciary subject to conflicts and
  profits rules
• Conflicts
• Duty v Duty (per Farrington)
• Duty v Interest (per Boardman)
• - Particular applications
• 1. Self Dealing Rule applies where there is
  sale of trust property to trustee himself sale
  automatically void (Clay v Clay) Note also
  applies to loans
• 2. Fair Dealing Rule B's might want to deal
  with beneficial interest want to sell to
  trustee sale not automatically void voidable
  unless trustee shows no advantage taken and full
  disclosure and fair and honest

61
Trust Management Equitable Duties

• 3. Duty not to mix assets (must keep trust assets
  separate) (ASC v AS Nominees)
• - important for avoiding risk of fraud and
  allowing proper accounting
• Profits Rule
• Duty to Act Gratuitously unless provision made
  in trust instrument
• Has there been profit? Williams v Barton
• Was there authorisation?
• - trust instrument (contra proferentum)
• - Trustee Act recovery of out of pocket
  expenses
• - Application to court under s 77

62
Trust Management Equitable Duties

• DUTY TO ACT PERSONALLY
• Issues
• Agents Delegation Following Advice Co-T's
• General Rule Trustee must act personally, and
  cannot delegate powers/discretions without
  express authority in trust instrument.

63
Trust Management Equitable Duties

• Delegation v Agency
• 1. Is there express authority to delegate in
  trust deed? If no,
• 2. Was T absent from state s 30 of the Act? If
  no, then cannot delegate
• 3. Was it delegation or
• a) appointing an agent under s 28 of the Act or
  
• b) taking advice under s 7(2)(d) of the Act
• If AGENT was appropriate level of care in
  selection of agent taken? If yes, not liable for
  default of agent (note Speigh v Gaunt Standard)

64
Trust Management Equitable Duties

• If ADVICE was appropriate standard of care
  exercised (Speigh v Gaunt)?
• For both AGENT and ADVICE consider did the acts
  occur as a result of T's own wilful default (s
  36(1))
• Was T ACTING UNDER DICTATION or FETTERING his
  discretion?
• - Not personally exercising own discretion
  (Turner)
• - Includes B telling T what to do (Brockbank)
• - Includes Co-T telling T what to do (Mulligan)
• - Co-T must actu unanimously (Cowan)

65
Trust Management Equitable Duties

• Duty to act in best interests of the B's
• T must act solely in best interests of B's
• S 7 modification 'future and present B's
• Best Interests? Best Financial interests subject
  to prudence (Cowan) Other considerations may be
  relevant if all B's shared those views and
  thought pursuit of them was in best interests of
  B's (Cowan)

66
Trust Management Equitable Duties

• Duty to Act Impartially
• 1. Not acting impartially between individual B's
  (Mortacye v Mortacye) OR 2. Not acting fairly
  between different classes of B's (Re Mulligan)
• - Life tenant/remainderman
• - Nestle v Nat West
• Requirements of a fair decision VBN v ARPA

67
Trust Management Equitable Duties

• Duty to keep accounts/inform B's
• Must account for trust property and have accounts
  prepared at time they are called for otherwise
  preparation costs from own pocket
• Further discussed under Right of B's to Trust
  Docs
• Duties upon Termination
• - Discharge ROI
• - Pay Creditors
• - Distribute to B's
• - May request release
• - Re Lost B's seek direction from court/lost B's
  insurance

68
Defences Breach of Trust

• Breach of trust made out? T's jointly and
  severably liable
• Does a limitation clause in trust instrument or
  statutory or equitable defence apply to reduce
  liability?

69
Defences Exclusion clause in Trust Instrument

• Note Was there loss/damage or profit??
• Did breaches fall within the exclusion clause?
• Irreducible core of trustees duties (Millet LJ in
  Armitage)
• Clause construed contra preferentum/ T bears
  burden of proof (Hasluck J in Green)
• Actual Fraud
• Fraudulence
• What do these terms cover?

70
Statutory Defences

• Re Investments (disussed earlier)
• S 67 Court has discretion to relieve T of
  liability where
• - T has acted honestly and reasonably and
• - ought fairly to be excused for the breach AND
  for omitting to obtain directions of the Court
• HC in Macedonian trustee is meant to seek
  directions from court FIRST
• Applies only to trustees

71
Defences Equitable Defences

• Usual equitable defences (revise Equity)
• Consent obtained before the breach
  Acquiescence beneficiary going along with the
  breach
• Ratification more formal step which occurs after
  a breach
• Beneficiaries must be sui juris.
• Beneficiaries must be fully informed as to the
  facts of the matter and legal consequences of
  consent/release/acquiescence etc.
• Beneficiary need not benefit from giving consent.
  
• Consent may not be a complete defence only a
  prima facie defence per Sepllson v George.

72
RIGHTS OF TRUSTEES

• Right to contribution from co-trustees
• Right of Indemnity (ROI)
• Equity
• S 36(2)
• Has the ROI been excluded on the facts?
• In Vic ROI can be altered by trust deed due to
  operation of s 2(3) per Brooking J in RWG (cf.
  NSW position Jonco)
• Exclusion requires clear language (Lindley J in
  Hardoon)
• What will T attempt to claim?

73
Rights of Trustees

• ROI cont...
• ROI extends only to properly incurred expenses
• Onus on B to show expenses were not properly
  incurred (Nolan v Ollie)
• The court will assess whether or not the expense
  was properly incurred by reference to the duty
  that the trustee was attempting to exercise
  (Ormiston J in Nolan v Collie) CF. NSWCA approach
  under which any expense incurred in carrying out
  trust may be properly incurred as long as it is
  not fraudulently incurred (ie, very little risk
  of losing ROI) per Gatsios NSWCA.

74
Rights of Trustees

• CORPORATE TRUSTEE
• S 197(1) of Corps Act might be applied to allow
  the company to recover from the director if the
  trustee company has not and cannot discarge it's
  liability to its creditors (ss (a)) and the
  trustee company has no ROI due to either
• (b)(i) breach of trust by the company
• (b)(ii) the company acted outside the scope of
  its powers as trustee
• (b)(iii) a term of the trust denies/limits the
  trustee company's ROI

75
Rights of Trustees

• ROI qualified by breach of T? Brooking J in RWG

76
Rights of Trustees

• ROI operates as charge over assets preference
  over B's interests
• Charge can pass to T's trustee in bankruptcy
• Trust creditor right to subrogation unclear
  whether this applies to general creditor (Re
  Enhill (Vic) cf Byrne NSW)

77
Rights of Trustees

• ROI lt Trust Fund T can recover directly from
  fund
• ROI gt Trust Fund Recover directly from fund and
  pursue rights gurther against the B's personally
  for remaining amount (Hardoon JW Broomhead)
• B's must be sui juris and absolutely entitled to
  the fund (Hardoon)

78
Rights of Trustees

• Right to Approach the Court Order 54 of Supreme
  Court Rules
• Cannot be limited by trust instrument

79
Beneficiaries' Rights Generally

• Beneficiaries can enforce all duties owed by the
  trustee.
• Right to possession of trust property
• Right to compel performance of the trust
• To restrain a breach of trust
• To approach the court
• To extinguish the trust

80
Right to Inspect Trust Documents

• Held to be Trust documents
• Documents touching on legal status or trust - Re
  Londonderry, Rouse
• Documents containing terms of trust deed (cf.
  Memo of wishes but note Kirby J in Hartigan)
• Documents showing past distibution to B's (cf.
  Future) Re Londonderry per LJ Harmon
• Held not to be trust documents
• Internal deliberative documents (per LJ Harmon
  in Londonderry)
• Documents which are held by the trustee not as a
  trustee but for their own purposes (per LJ Salmon
  in Londonderry) Cf LJ Harmon's decision which
  reflects the view that trust documents are
  documents that go towards the establishment of
  the trust and not documents that are only
  relevant to the ongoing decision making of the
  trust.
• Importance of confidentiality (Hartigan
  Nominees)
• Memo of wishes normally attracts confidentiality
  w/o the need for express words (cf. Kirby in
  Hartigan)

81
Right to Inspect Trust Docs

• Different approaches/interpretations to right to
  inspect
• 1. Right to inspect lined to proprietary interest
  CO in Londonderry Mahoney J in Hartigan
• 2. Two judges (Kirby J Sheller JA) of the COA
  in Hartigan noted that the proprietary analysis
  applies easily to fixed interest trusts but
  issues arise when applying the rationale to
  objects of a mere power/discretionary trust.
  Noted certain LIMITATIONS which appear to have
  been adopted by Doyle CJ in Rouse who suggested
  test should be whether or not an old trustee
  would be required to pass on documents on to a
  new trustee if replaced and also explained that
  the right to inspect trust documents is a
  qualified right. Trustee may be able to refuse
  inspection of trust documents (per Dolye CJ in
  Rouse) if
• it is necessary to maintain confidentiality of
  the reasons for exercise of a discretion where
  B's have no right to access the reasons
• if the documents were received in confidentiality
  
• if it is not in the interests of the
  beneficiaries as a whole

82
Right to inspect trust docs

• 3. The UK different approach in Schmidt and in
  Breakspear B's do not have a right to inspect
  but court may use their inherent jurisdiction to
  supervise administration of a trust to allow
  inspection. In deciding this, considerations in
  Rouse and Hartigan to be given attention
• Position unclear
• HC Dicta
• Attitude in Macedonian

83
Rights of B's

• Rights to seek property and wind up trust
• Rule in Saunders Vautier must be sui juris
  and have asbolute, vested and indefeasible title
• Limitations
• - Outstanding ROI
• - Trust created by court order
• Settlor can avoid rule see methods in Laycock v
  Ingram
• One B entitled others are not?

84
Rights of B's

• To seek removal of the trustee
• - provision in trust instrument?
• - trustee is dead, out of state or wants to be
  discharged or is unfit to act per s 41 then
  continuing trustee can appoint new trustee
• - it is expedient to appoint new trustee in terms
  of administration of the trust s 48
• - exercise of court's inherent jurisdiction
• Discretionary power

85
Remedies

• Revise Equity
• Situations
• Where there has been a profit
• Where there has been loss to trust fund
• - misappropriation/misapplication by T
• - Conflict of interest/negligence/breach of
  investment provisions
• Where there has been loss and profit
• Proprietary remedies tracing rules