Contents

Chapter 9
Revocation and variation of trusts

Extension of trustees’ powers by the High Court

Proposal
P40 The court should have the power to make amendments to the non-distributive administrative provisions of any trust deed where necessary to enable the trustees to efficiently manage trust property. The court should be able to amend a trust deed to enlarge on an ongoing basis the scope of the powers available to the trustees’ for administrating or managing trust property. The court should not, however, be able to alter the beneficial interests under the trust under this provision.
Please give us your views on this proposal.

Current law

9.46Section 64 of the Trustee Act is essentially administrative in nature, empowering the court to sanction specific transactions where they would be in the best interests of beneficiaries and there would otherwise be difficulties in effecting those transactions. The types of transactions listed in the section are sale, lease, mortgage, surrender, release, other disposition, purchase, investment, acquisition, retention or expenditure. These are all transactions concerned with the non-distributive administration of the trust property. The provision does not permit the court to make changes to the beneficial interests under the trust.

9.47Before any transaction can be approved under section 64 the court must be satisfied that it would be inexpedient, difficult or impractical to undertake the transaction without the court’s assistance. The court must also be satisfied that the transaction in question is expedient for the trust as a whole, rather than just expedient for one or more of its beneficiaries. The cases are clear that the court should not sanction a transaction, however expedient it may be for one beneficiary, if it is inexpedient from the point of view of the others.

9.48Section 64 provides that the court may “by order confer upon the trustee, either generally or in any particular instance, the necessary power for the purpose” of undertaking and completing the transaction. On a narrow interpretation, section 64 does not expressly authorise actual variations to the trust deed. However, the courts have used the provision to approve changes to trust deeds. The phrase “by order confer upon the trustee, either generally or in any particular instance, the necessary power” has been interpreted broadly as implying a power to amend the trust deed.

9.49The court’s power to sanction transactions under the section is “subject to any contrary intention expressed in the instrument … creating the trust”. The words contrary intention do not mean unless expressly forbidden. Rather, consideration needs to be given to whether, on a fair reading of the trust deed as a whole, the proposed power would be inconsistent with the purpose of the trust deed. The intent of the settlor cannot be overruled by the court.

9.50The court is able, under section 64, to make an order even where there is objection on the part of anyone who is or may be interested as a beneficiary. There is no requirement that the beneficiaries consent to the variation. The High Court has also used its inherent jurisdiction to effect modifications of an administrative nature, rather than changes to beneficial interests.

Issues

9.51Section 64 makes an unnecessary distinction between the court conferring on the trustees the necessary powers to undertake a class of transaction and simply amending the administrative provisions of a trust deed. The threshold for court intervention is also set high. The court must be satisfied that it would be inexpedient, difficult or impractical to effect the transaction in question without the court’s assistance.

9.52The question is whether the legislation should give the court a more direct power to modify the trustees’ administrative powers under a trust deed to allow them to more effectively manage and administer the trust and its assets, and, if so, whether the threshold for intervention should be lower.

Options for reform

9.53New legislation should more clearly state what types of modifications can be made by the court to the terms of a trust without the agreement of the beneficiaries.

9.54We considered the option of giving the court the power to make amendments to the non-distributive administrative provisions of the trust deed where necessary to enable the trustees to efficiently manage trust property. The court would be able to amend the trust deed to enlarge the scope of the powers available to the trustees for administering or managing trust property but would not be able to alter the beneficial interests under the trust. The option of allowing the court to also amend those trustees’ powers that altered the beneficial interests under the trust was not considered here because powers to approve varying arrangements that affect beneficial interests have already been addressed in the previous section of this chapter.

9.55The alternative of retaining the current approach and confining the court’s power to sanctioning transactions concerned with the non-distributive administration of the trust property was also considered. If the status quo was retained the court’s power would not extend to amending the provisions in the trust deed.

Discussion

9.56Traditionally section 64 has mainly been applied to authorise dealings with trust assets in a way that has not been contemplated or authorised by the trust deed. It can be distinguished from the type of intervention undertaken under section 64A (which allows more substantive amendments to trusts including changes to provisions about beneficiaries). We consider this type of distinction should be retained. However some broadening of the provision to allow the court to make amendments to the non-distributive administrative provisions of the trust deed where this is necessary to enable the trustees to efficiently manage trust property seems appropriate.

9.57In our view the criteria for the court’s intervention should also be modified. The requirement that any proposed change be in the interests of the beneficiaries as a whole should be retained but it seems unnecessary to require the trustees to demonstrate that it is too difficult, impractical, or inexpedient to effect the proposed changes any other way. The provisions in question are the non-distributive administrative provisions of the trust deed. Trustees should simply be required to show that the change is necessary for the efficient management of the trust and its assets.

9.58Submitters favoured an approach that restricted any replacement section 64 to amendments that are for the administration and management of the trust assets rather than more substantive changes. Some thought section 64 should be restricted to individual transactions that the court could approve if it was satisfied that they were expedient for the trust as a whole. A further concern was that the court should continue to be precluded from agreeing to any change, where on a fair reading of the trust deed as a whole, the change would be inconsistent with the trust deed.

9.59These concerns reflect the basic principle that the settlor gives the trust property to the trustees, subject to whatever conditions and restrictions the settlor believes are important and that the law should not lightly override a settlor’s decision to restrict the trustees’ powers and modify the trust deed. If the court is required to sanction specific transactions then a judgement is made on the facts of the specific case that the proposed action is appropriate. It can be argued that this is preferable to changing the trustees’ powers because it ensures greater scrutiny of each individual instance where the trustees’ exercise the power.

9.60However, the counter argument is that it is impractical and costly to require trustees to go to court on every individual transaction that falls outside their administrative powers. It is more efficient to have the court modify the trust deed rather than deal with specific transactions. The current section 64 already allows the court to more generally sanction transactions outside the scope of the trustees’ powers. As a matter of practical reality a general order authorising a type of dealing with trust property that is not authorised by the trust deed effectively amends the trustees’ powers. It would therefore be clearer and simpler for the court to amend the trust deed. The law would also be more transparent if it did this.

9.61Our preferred approach seeks to strike an appropriate balance between administrative expediency and respecting the settlor’s intentions.