Duty to Obey the Terms of the Trust

A Trustee must first become thoroughly acquainted with the terms of the trust and all documents and deeds relating to or affecting the trust property {Hallows v Lloyd (1888) 39 Ch D 686, 691}

It is the Trustee’s plainest duty to obey the terms of the trust {A-G (UK) v Downing (1767) Wilm 1 [97] ER 1] Wilmot LCJ at 23; Davey v Thorton (1851) 9 Hare 222 [68 ER 483].

A Trustee must strictly adhere to and carry out the terms of the trust {Mendelssohn v Centrepoint Community Growth Trust [1999] 2 NZLR 88, 95.}

This strict duty was described in the High Court of Australia as the duty “to adhere to the terms of the trust in all things great and small, important, and seemingly unimportant” {Youyang Pty Ltd v Minter Ellision Morris and Fletcher [2003] HCA 15; (2003) 212 CLR at 498, quoting Augustine Birrell QC in The Duties and Liabilities of Trustees, 1896, p22}.

A Trustee has a duty to obey directions in the settlement (Trust instrument) unless the deviation is sanctioned by the court (see Harrison v Randall (1851) 9 Hare 397, 407 and Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, 390a-b).

The trust instrument is the Trustee’s charter to which the Trustee must constantly refer and have regard.

Where the trust instrument confers a power of amendment, the conditions and restrictions imoseded on its exercise must themselves be strictly observed.

The High Court of Australia noted that whilst the rights of the Appellant crystalised on 24 September 1993, decisions such as that by Street J in Re Dawson (deceased) ; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd  [1966] 2 NSWR 211, indicate that the appropriate remedy, and, in particular, the quantum of pecuniary remedy, falls for determination at a later stage. In Target Holdings Ltd v Redferns [1995] UKHL 10, Lord Browne-Wilkinson, with reference to Re Dawson and the judgment of McLachlin J in Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534. , said:

“A trustee who wrongly pays away trust money, like a trustee who makes an unauthorised investment, commits a breach of trust and comes under an immediate duty to remedy such breach. If immediate proceedings are brought, the court will make an immediate order requiring restoration to the trust fund of the assets wrongly distributed or, in the case of an unauthorised investment, will order the sale of the unauthorised investment and the payment of compensation for any loss suffered. But the fact that there is an accrued cause of action as soon as the breach is committed does not in my judgment mean that the quantum of the compensation payable is ultimately fixed as at the date when the breach occurred.”

In Canson, McLachlin J, after putting to one side considerations that arise in tort and contract law, said that in equity “the losses are to be assessed as at the time of trial, using the full benefit of hindsight.”

McLachlin J in Canson [1991] 3 SCR 534 at 543. {See also McLachlin J’s further remarks in Norberg v Wynrib [1992] 2 SCR 226 at 272, quoted by McHugh, Gummow, Hayne and Callinan JJ in Pilmer v Duke Group Ltd (In liq) [2001] HCA 31; (2001) 207 CLR 165 at 196-197}:

“The basis of the fiduciary obligation and the rationale for equitable compensation are distinct from the tort of negligence and contract. In negligence and contract the parties are taken to be independent and equal actors, concerned primarily with their own self-interest. Consequently the law seeks a balance between enforcing obligations by awarding compensation and preserving optimum freedom for those involved in the relationship in question, communal or otherwise. The essence of a fiduciary relationship, by contrast, is that one party pledges itself to act in the best interest of the other. The fiduciary relationship has trust, not self-interest, at its core, and when breach occurs, the balance favours the person wronged.”

 

Callinan JJ in Pilmer v Duke Group Ltd (In liq) [2001] HCA 31 stated:

“The rule governing the calculation of equitable compensation is that stated by McLachlin J in Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534:

“The basis of the fiduciary obligation and the rationale for equitable compensation are distinct from the tort of negligence and contract. In negligence and contract the parties are taken to be independent and equal actors, concerned primarily with their own self-interest. Consequently the law seeks a balance between enforcing obligations by awarding compensation and preserving optimum freedom for those involved in the relationship in question, communal or otherwise. The essence of a fiduciary relationship, by contrast, is that one party pledges itself to act in the best interest of the other. The fiduciary relationship has trust, not self-interest, at its core, and when breach occurs, the balance favours the person wronged … In short, equity is concerned, not only to compensate the plaintiff, but to enforce the trust which is at its heart.”

McLachlin J’s exposition has been cited in the High Court {Maguire & Tansey v Makaronis [1997] HCA 23; (1997) 188 CLR 449 at 492-493}, in the United Kingdom Target Holdings Ltd v Redferns [1995] UKHL 10; [1996] AC 421 at 438-439. and in other decisions  {Permanent Building Society (In Liq) v Wheeler (1994) 11 WAR 187 at 248; Bailey v Namol Pty Ltd  [1994] FCA 1401; 1994) 53 FCR 102 at 109} and texts {See generally Gummow, “Compensation for Breach of Fiduciary Duty” in Youdan (ed), Equity, Fiduciaries and Trusts (1989) 57; Tilbury, “Equitable Compensation” in Parkinson (ed), The Principles of Equity (1996) at 789-790 [2208]; Glover, Commercial Equity: Fiduciary Relationships (1995) at 271 [6.129]; Davies, “Equitable Compensation: ‘Causation, Foreseeability and Remoteness'” in Waters (ed), Equity, Fiduciaries and Trusts 1993 (1993) 297 at 305-307}.

The Interpretation of the Trust Instrument (The Trust Deed and Rules)

In Fell v Fell {(1922) [1922] HCA 55; 31 CLR 268 at 272-3} Issacs J stated:

“In the judicial construction of instruments, whether wills or deed or statutes, Courts are not to approach the matter from the standpoint of the hypothetical personage sometimes alluded to as “the man in the street“.

In Re Gulbenkian’s Settlement Trusts [1970] AC 508;[1968] 3 All ER 785 Lord Upjohn stated:

“The courts, whose task it is to discover that intention, starts by applying the usual canons of construction; words must be given their usual meaning, the clause should be read literally in accordance with the ordinary rules of grammar. But very frequently, whether it be in wills, settlements or commercial agreements, the application of such fundamental canons leads nowhere, the draftsman has used words wrongly, his sentences border on the illiterate and his grammar may be appalling. It is then the duty of the court by the exercise of its judicial knowledge and experience in the relevant matter, innate common sense and desire to make sense of the settlor’s and parties expressed intentions, however obscure and ambiguous the language that may have been used to give a reasonable meaning to the language if it can do so without doing complete violence to it.”

Lord Browne-Wilkinson in Imperial Group Pensions Trust Ltd v Imperial Tobacco Ltd [1991] 2 All ER 597 stated:

Pensions benefits are part of the consideration which an employee receives in return for the rendering of his services. In many cases, including the present, membership of the pension scheme is a requirement of employment. In contributory schemes, such as this, the employee, is bound to pay his or her contributions. Beneficiaries of the scheme, the members, far from being volunteers have given valuable consideration. The company employer is not conferring a bounty. In my judgement, the scheme is established against the background of such employment and falls to be interpreted against that background

The High Court of Australia in Royal Botanic Gardens and Domain Trust v South Sydney Council [2002] HCA 5; 186 ALR 289 at [39] has rejected any suggestions that a broader approach to the admissible “background“, as may be found in the House of Lords of this period, is applicable in Australia.

It is a well accepted principle of construction that a court may insert,delete,alter and amend words in an instrument in order to correct obvious mistakes and absurdity.

Both courts of law and of equity may correct an obvious mistake on the face of an instrument without the slightest difficulty” Per Lord St Leonards in Wilson v Wilson [1984] EngR 513; (1854) 5 HLC 40 at 66.

Even in legislation the court can in a proper case correct an obvious misprint and the authority for that proposition goes back even further { R v Wilcock [1845] EngR 820; (1845) 7 QB 317}.

A more modern exposition of the principle is stated by Dixon, CJ and Fullagar, J in Fitzgerald v Masters [1956] HCA 53; 95 CLR 420 at 426-7.

 

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