Duties and Rights:
Duties and Rights: Duties Upon Commencement: 1. Duty to adhere to trust deed; 2. Duty to ‘get in’ the trust assets; 3. Duty to distribute (in accordance with the trust deed); Opening Line: On commencement, [TRUSTEE] has a duty to adhere to the trust deed (Green) with the prudence of an ordinary prudent man of business (Green; Speight) and ‘get in’ the trust assets (Permanent Trustee) [say which trust assets].
Duty to adhere to trust deed:
Trustees must adhere to the relevant terms of the relevant trust deed (Green per Hasluck J). o Trustee must exercise the sale diligence and prudence as an ordinary prudent man of business would exercise in conducting business as if it were his own (Green per Hasluck J; Speight). What if Trustee deviates from term? o Trustee may be liable if they fail to satisfy the Court that the deviation was necessary or beneficial (Pikos Holdings; Green). o Ignorance of terms, even if honest, is NO DEFENCE (Turner). o Note: If Court would have authorised breach, may not be liable (Kerford v Perpetual).
Duty to ‘get in’ the trust assets:
Trustee must ‘get in’ the trust assets for the purposes of the trust (Permanent Trustee; Field). o New trustee MUST become aware of breaches by previous trustee AND take action against them to recompense trust (Permanent Trustee). o Trustee must get necessary indicum of ownership (Field).
Duty to distribute (in accordance with the trust deed): Mere Power: Discretion to select IF TRUSTEE Need only consider exercising power due to fiduciary capacity. IF NOT TRUSTEE No need to consider, but IF power exercised, must be exercised in good faith.
Trust Power: Duty to distribute, discretion as to whom to select Trustee must periodically consider whether to exercise power (McPhail). Trustee must consider the range of objects and the appropriateness of individual appointments (Re Hay).
If the trustee EXERCISES their discretion: Opening Line: The exercise of a discretion will NOT be examined by the Court, so long as the exercise contained the 3 essential component parts (Karger v Paul). 1. Exercised in Good Faith: Very rare to not reach this; example of bad faith in Klug v Klug. o Klug v Klug: Mother had power of appointment, and refused to accept the daughters request for appointment on the basis that she had married a Frenchman = improper purpose. An exercise in bad faith will often also be an exercise for an improper purpose. 2. On a Real and Genuine Consideration: 1. Simple Q of Fact; 2. Duty to distribute to X. Trustee must form an opinion as to whether they fall into X; 3. Discretion to exercise power. For a Simple Q of Fact, the Trustee has no discretion (Finch). Page 1 of 2
Duty to distribute to X. Trustee must form an opinion as to whether they fall into X (Finch) Test: Trustee must conduct some investigation requiring them to make inquiries (Flegetaub). Where there is a ‘gap in evidence’ the trustee MUST RESOLVE the gap (Flegetaub).
Discretion to exercise power (Karger v Paul) Test: Has the trustee turned their mind to the exercise of the discretion (Karger).
No ‘duty’ to distribute, entirely discretionary, unlike in Finch. Karger was a non-superannuation context, unlike Finch
Undecided if Trustee must disclose opinions if under a fiduciary duty to form an opinion, Callaway JA in Flegtaub made no comment.
3. In accordance with the purpose for which the discretion was conferred (not an improper purpose): Purpose inferred from trust deed (Curwen), and BOP on those alleging an improper purpose (Curwen). The improper need only be AN ‘actuating’ or ‘operating’ purpose (Curwen). More than circumstantial evidence is required to establish an improper purpose (Curwen v Vanbreck). Consequence of an improper exercise:
Void from the outset (Sinclair) Remit decision back to trustees to reconsider their discretion (Finch) Improper Exercise Appoint new trustees to make the decisions (McPhail) For Y/N Q's Court can make deciison themselves (McPhail)
An improper exercise of a trustee’s power is often void from the outset (Sinclair v Moss) Where a new decision needs to be made (example re Q of Fact), the court can remit the decision back to the trustees to reconsider their discretion (Finch v Telstra Super Pty Ltd). Alternatively, the Court could appoint new trustees to make the decision (McPhail v Doulton). If appropriate (simple yes/no Q’s), the Court may make the decision themselves (McPhail v Doulton).
Karger v Paul: Testatrix made husband and solicitor trustee. They were empowered to transfer trust property to husband on his request. Husband made such a request. The niece argued the discretion was exercised because of the husband’s girlfriend. The Court held the trustees had not exercised their discretion improperly in authorizing the transfer of capital to the husband. Curwen v Vanbreck Pty Ltd: The beneficiaries requested trust documents, and shortly after were excluded by the trustees as beneficiaries. There was only circumstantial evidence to support an improper purpose – the proximity and haste between the request and exclusion. This evidence was insufficient, and so the Court did not find the trustees exercised their powers for an improper purpose = circumstantial evidence not enough for improper purpose. Telstra Super Pty Ltd v Flegeltaub: Superannuation fund trustee refused to make payment for total and permanent invalidity benefit on the basis that the beneficiaries refused to submit to treatment. The Court said the beneficiary was entitled to the payment dependent on the finding of fact as to whether they were suffered from total and permanent invalidity. That question of fact had to be investigated by the trustees, and since they had not, accordingly the beneficiary succeeded = no real and genuine consideration on a Q of fact in superannuation context. Finch v Telstra Super Pty Ltd: Similar to Flegeltaub above, except this is a HC case. Dunstone v Irving: Dual trustees of superannuation trust who were also dual beneficiaries. P was leaving, and so both were negotiating how much P was entitled to. Trustee Deed gave trustees power to pay a ‘withdrawal benefit’. After agreement there was a dispute. 1 argument was that because didn’t know the terms of the power they couldn’t have given a real and genuine consideration relying on Turner = Turner distinguished, trustees had a general idea of knowing they had to exercise power. 2 arguments was improper purpose due to breach of profits/conflicts rule = rejected, no dishonesty, hadn’t taken benefit not entitled to + trust couldn’t operate as dual beneficiaries were also dual trustees.
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Duty to adhere to trust deed:
Trustees must adhere to the relevant terms of the relevant trust deed (Green per Hasluck J). o Trustee must exercise the sale diligence and prudence as an ordinary prudent man of business would exercise in conducting business as if it were his own (Green per Hasluck J; Speight). What if Trustee deviates from term? o Trustee may be liable if they fail to satisfy the Court that the deviation was necessary or beneficial (Pikos Holdings; Green). o Ignorance of terms, even if honest, is NO DEFENCE (Turner). o Note: If Court would have authorised breach, may not be liable (Kerford v Perpetual).
Duty to ‘get in’ the trust assets:
Trustee must ‘get in’ the trust assets for the purposes of the trust (Permanent Trustee; Field). o New trustee MUST become aware of breaches by previous trustee AND take action against them to recompense trust (Permanent Trustee). o Trustee must get necessary indicum of ownership (Field).
Duty to distribute (in accordance with the trust deed): Mere Power: Discretion to select IF TRUSTEE Need only consider exercising power due to fiduciary capacity. IF NOT TRUSTEE No need to consider, but IF power exercised, must be exercised in good faith.
Trust Power: Duty to distribute, discretion as to whom to select Trustee must periodically consider whether to exercise power (McPhail). Trustee must consider the range of objects and the appropriateness of individual appointments (Re Hay).
If the trustee EXERCISES their discretion: Opening Line: The exercise of a discretion will NOT be examined by the Court, so long as the exercise contained the 3 essential component parts (Karger v Paul). 1. Exercised in Good Faith: Very rare to not reach this; example of bad faith in Klug v Klug. o Klug v Klug: Mother had power of appointment, and refused to accept the daughters request for appointment on the basis that she had married a Frenchman = improper purpose. An exercise in bad faith will often also be an exercise for an improper purpose. 2. On a Real and Genuine Consideration: 1. Simple Q of Fact; 2. Duty to distribute to X. Trustee must form an opinion as to whether they fall into X; 3. Discretion to exercise power. For a Simple Q of Fact, the Trustee has no discretion (Finch). Page 1 of 2
Duty to distribute to X. Trustee must form an opinion as to whether they fall into X (Finch) Test: Trustee must conduct some investigation requiring them to make inquiries (Flegetaub). Where there is a ‘gap in evidence’ the trustee MUST RESOLVE the gap (Flegetaub).
Discretion to exercise power (Karger v Paul) Test: Has the trustee turned their mind to the exercise of the discretion (Karger).
No ‘duty’ to distribute, entirely discretionary, unlike in Finch. Karger was a non-superannuation context, unlike Finch
Undecided if Trustee must disclose opinions if under a fiduciary duty to form an opinion, Callaway JA in Flegtaub made no comment.
3. In accordance with the purpose for which the discretion was conferred (not an improper purpose): Purpose inferred from trust deed (Curwen), and BOP on those alleging an improper purpose (Curwen). The improper need only be AN ‘actuating’ or ‘operating’ purpose (Curwen). More than circumstantial evidence is required to establish an improper purpose (Curwen v Vanbreck). Consequence of an improper exercise:
Void from the outset (Sinclair) Remit decision back to trustees to reconsider their discretion (Finch) Improper Exercise Appoint new trustees to make the decisions (McPhail) For Y/N Q's Court can make deciison themselves (McPhail)
An improper exercise of a trustee’s power is often void from the outset (Sinclair v Moss) Where a new decision needs to be made (example re Q of Fact), the court can remit the decision back to the trustees to reconsider their discretion (Finch v Telstra Super Pty Ltd). Alternatively, the Court could appoint new trustees to make the decision (McPhail v Doulton). If appropriate (simple yes/no Q’s), the Court may make the decision themselves (McPhail v Doulton).
Karger v Paul: Testatrix made husband and solicitor trustee. They were empowered to transfer trust property to husband on his request. Husband made such a request. The niece argued the discretion was exercised because of the husband’s girlfriend. The Court held the trustees had not exercised their discretion improperly in authorizing the transfer of capital to the husband. Curwen v Vanbreck Pty Ltd: The beneficiaries requested trust documents, and shortly after were excluded by the trustees as beneficiaries. There was only circumstantial evidence to support an improper purpose – the proximity and haste between the request and exclusion. This evidence was insufficient, and so the Court did not find the trustees exercised their powers for an improper purpose = circumstantial evidence not enough for improper purpose. Telstra Super Pty Ltd v Flegeltaub: Superannuation fund trustee refused to make payment for total and permanent invalidity benefit on the basis that the beneficiaries refused to submit to treatment. The Court said the beneficiary was entitled to the payment dependent on the finding of fact as to whether they were suffered from total and permanent invalidity. That question of fact had to be investigated by the trustees, and since they had not, accordingly the beneficiary succeeded = no real and genuine consideration on a Q of fact in superannuation context. Finch v Telstra Super Pty Ltd: Similar to Flegeltaub above, except this is a HC case. Dunstone v Irving: Dual trustees of superannuation trust who were also dual beneficiaries. P was leaving, and so both were negotiating how much P was entitled to. Trustee Deed gave trustees power to pay a ‘withdrawal benefit’. After agreement there was a dispute. 1 argument was that because didn’t know the terms of the power they couldn’t have given a real and genuine consideration relying on Turner = Turner distinguished, trustees had a general idea of knowing they had to exercise power. 2 arguments was improper purpose due to breach of profits/conflicts rule = rejected, no dishonesty, hadn’t taken benefit not entitled to + trust couldn’t operate as dual beneficiaries were also dual trustees.
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