Tuesday, October 10, 2017

Leading case about fettering of a trustee’s discretion


Last week’s post considered the issues of a trustee fettering its discretion in the context of an insurance funded buy sell arrangement, see – Fettering (and flies) of a trustee’s discretion **

The principle in relation to the prohibition on a trustee fettering its discretion is arguably best captured in the decision of Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liquidation) [2001] FCA 1628. As usual, if you would like a copy of the decision please contact me.

In this case the key concepts concerning fettering were summarised as follows –

‘… a trustee is not entitled to fetter the exercise of a discretionary power (for example a power to sale) in advance: Thacker v Key (1869) LR 8 Eq 408; In re Vestey’s Settlement [1951] Ch D 209.

If the trustee makes a resolution to that effect, it will be unenforceable, and if the trustee enters into an agreement to that effect, the agreement will not be enforced (Moore v Clench (1875) 1 Ch D 447), though the trustee may be liable in damages for breach of contract …’

Next week's post will consider one of the leading cases where an arrangement that would have been a breach of the fettering of the trustee’s discretion was in fact enforced.

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