Tuesday, March 19, 2024

When you dream** of a better trust deed; however the court refuses to assist

View Legal blog - When you dream** of a better trust deed; however the court refuses to assist by Matthew Burgess

Last week's post considered the issues about varying a trust that has no power to vary, under the regime in New South Wales.

While in other states, for example Queensland, it is generally accepted there is a relatively wide power available to the courts to assist with amending trust deeds that do not have robust provisions, the rules in New South Wales are far more restrictive.

One further example in this regard is the decision in Application of Country Road Services Pty Ltd (In the matter of the Browne Family Trust) [2019] NSWSC 779.

In this case a desired amendment to a trust deed to appoint a related trust (that had losses) to allow distributions to it was rejected as not being 'expedient' (as required by the legislation in New South Wales).

The court confirmed that:
  1. The variation of the terms of a trust (including by way of conferral of some new power on the trustee) is not something within the ordinary and natural province of a trustee’s powers (unless the trust deed otherwise grants the relevant power).
  2. It is neither something that is ‘expedient’ that a trustee should do nor, fundamentally, something that is done ‘in management or administration of’ trust property.
  3. Rather, a trustee’s function is to take the trusts as it finds them and to administer them as they stand.
  4. A trustee should not be concerned to question the terms of the trust or seek to improve them.
  5. Thus, even where the trust instrument itself gives the trustee a power of variation, exercise of that power is not something that occurs “in the management or administration of” trust property. It occurs in order that the scheme of fiduciary administration of the property may somehow be reshaped.
  6. Ultimately, the Court’s power to amend a trust deed in New South Wales cannot be used to subvert the beneficial disposition in the trust instrument.
Similarly therefore, a request to amend a trust deed to extend the perpetuity period was held to be another example of the kind of order not authorised by legislation in New South Wales (see Cisera v Cisera Holdings Pty Ltd [2018] NSWCA 286), even though the trust was due to vest in around 7 years and would likely trigger significant capital gains tax costs at that point.

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** For the trainspotters, the title of today's post is riffed from the Simple Minds song ‘New Gold Dream’.

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