Tuesday, April 6, 2021

How soon is now? ** – effective trust disclaimers

The decision in JW Broomhead (Vic) Pty Ltd (in liq) v JW Broomhead Pty Ltd & Anor (1985) 3 ACLC 355, is arguably most well known for the lesson that in relation to unit trusts, beneficiaries (or unit holders) can be personally liable for the debts of the trust. 

In particular the case confirms the general principle that unless specifically excluded by the trust deed, the trustee of a unit trust will have a right of indemnity for the liabilities of the trust against both the trust assets and the unitholders. 

One of our earlier posts explores this aspect of the decision. 

The decision however is also important due to its comments in relation to arguably one of the most critical aspects of disclaimers (following on from recent posts), namely whether they are made ‘within time’. 

Relevantly the case confirms that the test to apply is ‘whether in the circumstances (a beneficiary) has accepted by words or other conduct or has remained silent for so long that the proper inference is that (they have) determined to accept the interest’. 

The other ways in which the court explained this concept included the following statements: 
  1. Acceptance may be presumed unless the donee disclaims the gift.
  2. Knowing of the gift, the donee, unless he disclaims it, is ordinarily treated as tacitly accepting it.
  3. During the period that the donee remains entitled to disclaim, the gift is treated as vested in the donee subject to repudiation.
  4. What is a reasonable time for (a disclaimer) depends on the nature of the property with respect to which it is given and all the circumstances.
  5. By remaining silent beyond the time when he would be expected to decline the gift if not accepting it, the donee has tacitly accepted.
  6. While there is no limit to the acts which may constitute a disclaimer, an effective disclaimer must be intentional and show unequivocally that the beneficiary rejects the beneficial interest.
  7. A disclaimer is to be established by the party alleging it.
  8. The consequence of (a) disclaimer … is that in law (the donee) is treated as retrospectively disentitled to the interest declared for (their) benefit in the trust deed (and thus) … freed from all burdens which would have gone with acceptance of the interest.
  9. (The donee’s interest is) described as a right "defeasible by the beneficiary's own act of disclaimer”.
While ultimately the test is obviously subjective, it also is clearly based on other disclaimer cases that unless a properly crafted disclaimer is signed within weeks of a beneficiary being made aware of their entitlement it will likely be held to have been made out of time. 

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** for the trainspotters, ‘How soon is now?’ is a song by The Smiths. View a more recent version by Morrissey hear (sic):