Amending the Trust Deed

Alister Hudson stated on page 432 in “Equity and Trusts” –Fifth Edition – Routeledge – Cavendish:

“When a trust is created, its terms become  binding on the subsequent actions of the trustees in realtion to trust property. That trust, once created, remains set in stone, unless there is some provision in the trust which permits alteration in the manner of its exercise {Paul v Paul (1882) 20 Ch D 742}.”

In Equity and Trusts in Australia, by G.E. Dal Pont and D R Chalmers (4th Ed – Thompson Lawbook Co} it is stated on Page 640:

“Importantly, any power of variation must be exercised properly for the purpose which it is conferred. This is no more than an application of the doctrine of fraud on a power. Persons conferred a broad discretion to vary must therefore form an opinion based upon the correct understanding and construction of the matter to be considered {Wilson v Metro-Goldwyn Mayer (1980) NSWLR 730 at 735-736}”.

On Page 641 it is stated:

“There are further general law restrictions on the scope of even apparently unfettered power to vary. Firstly, a power to vary will not permit a variation removing a restriction on that power, Secondly its exercise cannot affect any vesting that has already taken place. Thirdly, a power to vary a trust deed arguably does not extend to a variation that would alter the substratum of the trust {Lock v Westpac Banking Corp (1991) 25 NSWLR 593 at 602}.

Geraint Thomas in Thomas on Powers {1st Edition} states in Chapter 14 – Power of Amendment at {14-13]:“

“Where the power of amendment is subject to express restrictions, those restrictions must be complied with and cannot themselves be amended, removed or annulled by means of an exercise of the power.”

Geraint Thomas in Thomas on Powers {1st Edition} states in Chapter 14 – Power of Amendment at {14-40]:“

“As we have seen, if a power of amendment is subject to express restrictions or limitations, these must be strictly observed while they remain in existence. Moreover, if those restrictions or limitations are entrenched, the power cannot be exercised so as to remove or annul them, whether they are a traditional trust {Re Brunner’s Declaration of Trust [1941] 2 All ER 745} or in a pension scheme {Re Alfred Herbert Ltd Pension and Life Assurance Scheme’s Trusts [1960] 1 WLR 2711; UEB Industries Ltd v W.S. Brandant and Others [1991] PLR 109 at 116; Ritchie v Blackely [1995] 1 NZLR 630; British Coal Corporation v British Coal Staff Superannuation Scheme Trustees Ltd [1994] OPLR 51}

The power to amend the terms of a trust must be exercised honestly and in good faith and for the benefit of the beneficiaries as a whole {Gra-Ham Australia Pty Ltd v Perpetual Trustees WA Ltd (1989) 1 WAR 65 at 84 per Malcolm CJ, at 92 per Pidgeon J. SC (WA), Full Court; Lock v Westpac Banking Corp (1991) NSWLR 593 at 609; 43 IR 121 per Waddell CJ; Imperial Group Pension Trust Ltd v Imperial Tobacco Ltd [1991] 2 All ER 597 at 607; [1991] WLR 589 per Browne-Wilkinson VC; Bathgate v National Hockey League Pension Society (1994) 110 DLR (4th) 609 at 624-5, CA(Ontario)}

A Power of Amendment may not be used to manifestly alter or defeat the main purpose(s) {sometimes called the “substratum”) of the trust {Re Courage Group’s Pension Schemes; Ryan v Imperial Brewing and Leisure Ltd [1987] 1 All ER 528 at 541-2; [1987] 1 WLR 495 per Millett J; Re UEB Industries Ltd Pension Plan [1992] 1 NZLR 294 at 302 per Cooke P}.

In The Laws of Australia {Thompson Reuters) at [15.14.1450] under the section “It is the trustee’s plainest duty to obey the terms of the trust” the following is stated:

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

A power to vary will be construed according to its natural meaning in such a way as to give it the most ample operation {Jenkins v. Ellett [2007] QSC 154}. This principle applies with especial force in the context of variation or amendment clauses in superannuation trust deeds {Re Courage Group’s Pension Schemes; Ryan v Imperial Brewing and Leisure Ltd [1987] 1 All ER 528 at 537;1987] 1 WLR 495 per Millett J; Hockin v Bank of British Colombia (1990) 71 DLR (4th) 11; Re UEB Industries Ltd Pension Plan [1992] 1 NZLR 294 at 307-8 per Thorp J}.

Douglas J in Jenkins v. Ellett [2007] QSC 154 stated at [15]:

[15] The scope of powers of amendment of a trust deed is discussed in an illuminating fashion in Thomas on Powers (1st ed., 1998) at pp. 585-586, paras 14-31 to 14-32 in these terms:

“In all cases, the scope of the relevant power is determined by the construction of the words in which it is couched, in accordance with the surrounding context and also of such extrinsic evidence (if any) as may be properly admissible. A power of amendment or variation in a trust instrument ought not to be construed in a narrow or unreal way. It will have been created in order to provide flexibility, whether in relation to specific matters or more generally. Such a power ought, therefore, to be construed liberally so as to permit any amendment which is not prohibited by an express direction to the contrary or by some necessary implication, provided always that any such amendment does not derogate from the fundamental purposes for which the power was created. Thus, a power of amendment will undoubtedly be capable of making amendments which are essentially ancillary to, and for the better execution of, such fundamental purposes, e.g. so as to substitute an easier form of communication or service for the one originally stipulated, or so as to make other powers exercisable in writing rather than by deed, or, indeed, introduce other amendments which are not simply administrative or managerial in nature. It does not follow, of course, that the power of amendment itself can be amended in this way. Indeed, it is probably the case that there is an implied (albeit rebuttable) presumption, in the absence of an express direction to that effect, that a power of amendment (like any other kind of power) cannot be used to extend its own scope or amend its own terms. Moreover, a power of amendment is not likely to be held to extend to varying the trust in a way which would destroy its ‘substratum’. The underlying purpose for the furtherance of which the power was initially created or conferred will obviously be paramount.”

Rich J in Metropolitan Gas Company v Federal Commissioner of Taxation [1932] HCA 58; (1932) CLR 621 made the following comment in relation to a Power of Amendment contained in the Trust Deed of a pension fund:

“This view is founded upon an erroneous interpretation of the provision which, in point of law, confers no such power (Hole v. Garnsey (1930) A.C., at p. 500.). It is not the purpose of the provision to enable the destruction of any substantive right to pensions, and an exercise such as is apprehended would be not unlike a fraud on a power (Vatcher v. Paull (1915) A.C. 372, at p. 378.)

Starke J of the High Court also ruled that when administering the taxation of pension funds (superannuation funds),

“The question which the Commissioner has to consider and upon which he must be satisfied, is whether the rights of the employees to receive the benefits, pensions or retiring allowances have been fully secured. It is not whether the stipulated rights have been secured in due legal form, but whether the Commissioner is satisfied that the actual receipt of the individual personal benefits, pensions and retiring allowances from the fund to which an employer has made contributions from his assessable income is fully secured.”

If a superannuation fund claims tax concessions on the basis that it is a bona fida employee benefit fund and the employees benefits are not fully secured this is something that cannot be ignored by the courts or the Australian Tax Office.

The combined effect of FCT v Commercial Nominees of Australia Ltd [2001] HCA 33 and FCT v Clark [2011] FCAFC 5 is clearly that amendments to a trust as originally constituted (including changes to the deed, the trust’s assets and its beneficiaries) do not cause a resettlement, the power of amendment contained in the trust deed remains of utmost importance in determining what, if any, amendments may be made. That is, no amendments may be validly made to a trust deed unless the amendments are made pursuant to an express power to amend and:

  • The procedure prescribed in the trust deed for making amendments to the deed is strictly complied with; and
  • Any limitations on the power of amendment are not breached; and
  • Any condition to which the exercise of the power of amendment is subject are satisfied.

Hillcrest (Ilford) Pty Ltd v Kingsford (Ilford) Pty Ltd (No. 2) [2010] NSWSC 285 reinforces the common law view that the procedure prescribed in a trust deed for a change in trustee  must be strictly complied with. In Hillcrest the Supreme Court of NSW held that the removal of a trustee was of no effect because it was not approved by a resolution of the directors of the directors of the outgoing trustee made in accordance with a specific clause of the trust deed.

Biscoe J at [38} stated:

“The power in cl 7(5) is generally consistent with authority to the effect that the removal and appointment power must be exercised for the benefit of beneficiaries, not for the benefit of the person upon whom the power is conferred: see Mowbray et al, Lewin on Trusts, 18th ed (2008) Law Book Co at 13-44.”

Neuberger J stated in Bestrustees v Stuart [2001] PLR 283, [2001] Pens LR 283, [2001] EWHC 549 (Ch), [2001] OPLR 341:

I bear in mind that a pension scheme is likely to continue for a substantial period of time and that those most affected by them and entitled to protection from the trustees, the employer and indeed the Court, will be people who are comparatively poor, who will not have easy access to expert legal advice, and who will not know what has been going on in relation to the management of the Scheme. In those circumstances, it seems to me that protection of the beneficiaries requires the Court to be very careful before it permits a departure from the plain wording and plain requirements of the trust deed

 

In Lock v Westpac Banking Corporation (1991) 25 NSWLR 593; 43 IR 121, at 605-6, Waddell CJ in Eq quoted with approval the observations of Brown-Wilkinson V-C in Imperial Group Pensions Trust Ltd v Imperial Tobacco Ltd [1991] 1 WLR 589; [1991] 2 All ER 597 at 597 and held that a power of amendment of a superannuation trust deed vested in an employer with the consent of the trustee was subject to an implied obligation of good faith; that is to say, the power was subject to an implied condition that it be exercised honestly and in good faith.

The obligation of good faith by an Employer was first recognised in a  superannuation (pensions)  context in Imperial Group  Pension  Trust Ltd v Imperial Tobacco Ltd { [1991] 2 All ER 597}. In that case, Browne-Wilkinson V-C noted that contracts of employment contain an implied term “that the employers will not, without reasonable and proper cause, conduct themselves in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee” and said (at 597) that that obligation (which Browne-Wilkinson V-C termed “the implied obligation of good faith“): “applies as much to the exercise of his rights and powers under a  Superannuation (pension) scheme  as they do to the other rights and powers of an employer“.

Browne-Wilkinson V-C went on to explain that a claim for breach of the obligation of good faith need not be founded “in contract alone” (597). He said (at 597-598):

Construed against the background of the contract of employment, … the  pension  trust deed and rules themselves are to be taken as being impliedly subject to the limitation that the rights and powers of the company can only be exercised in accordance with the implied obligation of good faith.”

Browne-Wilkinson V-C explained in his judgment that the obligation of good faith requires an employer to “exercise its rights (a) with a view to the efficient running of the  scheme  established by the fund and (b) not for the collateral purpose of forcing the members to give up their accrued rights in the existing fund subject to this  scheme ” (598-599).

The House of Lords in Malik v Credit and Commerce International SA (in Liq) {[1998] AC 20 at 34-35 per Lord Nicholls, at 47 per Lord Steyn}, held that the duty was an objective one; the motives of the employer are irrelevant.  Moreover, the impugned conduct need not be directed specifically at employees to destroy or seriously damage the relationship of trust and confidence., nor is it necessary that the employees be aware of it whilst employees {{[1998] AC 20 at 35 per Lord Nicholls, at 46-47 per Lord Steyn}.

However the High Court of Australia in Commonwealth Bank of Australia v Barker [2014] HCA 32 has confirmed that the implied term of “trust and confidence” is not recognised under Australian law.

The High Court in Finch v Telstra Super Pty Ltd [2010] HCA 36 stated:

“Superannuation is not a matter of mere bounty, or potential enjoyment of another’s benefaction. It is something for which, in large measure, employees have exchanged value – their work and their contributions. It is “deferred pay“”.

The High Court continued:

“Because of the potentially lengthy time periods over which superannuation savings are accumulated, it was natural, and it is now in many instances mandatory, for a trust mechanism to be employed. These funds have increasingly come under detailed statutory regulation. The government considers that the taxation advantages of superannuation should not be enjoyed unless superannuation funds are operating efficiently and lawfully”

 

NSW Masonic Youth Property Trust v Attorney-General [2009] NSWSC 1301

The Court ruled that a valid express trust was created on 2 March 1923 and that purported amendments in 1927 were not effective because they were no within the power to amend since no such power had been provided when the trust was created on 2 March 1923.

Sovereign Trustees Ltd & Anor v Glover & Ors [2007] EWHC 1750 (Ch)

Purported Accumulation sub-plan not established since the Trust Deed was not amended in accordance with the provisions of the amending power in the Trust Deed to establish the proposed Accumulation sub-plan (“money-purchase scheme”)

Walker Morris Trustees Ltd v Masterson & Anor [2009] Pens LR 307; [2009] EWHC 1955 (Ch)

Amending power required the Fund Actuary to provide an “Actuarial Certificate” with any amending Deed confirming that the rights of any Members or of the widow or legal personal representative of a deceased Member would not be substantially prejudiced by the proposed amendment. Such a certificate was obtained with respect to the 1986 Amending Deed,

There were six later purported Amending Deeds however no Actuarial Certificate had been obtained and attached to the Deeds and there was no recital in these purported Amending Deeds that such a certificate had been so obtained.

The Court therefore held that the purported Amending Deeds that had failed to comply with the condition imposed by the amending power were therefore invalid.

Trustee Solutions Ltd v Dubery [2006] EWHC 1426 (Ch); [2007] 1 All ER 308; [2006] Pens LR 177

The principle question of construction turns on the requirement that the document amending the rules must be either a deed (which is not suggested in this case) or “writing effected under hand“.

A memorandum had been circulated to staff advising of purported changes to the rules but there was no document signed under hand by the Trustees and representatives of the Principal Company.

The Court at [36] ruled:

“In my judgement, it was a substantive requirement of a document amending the rules that it was signed by the trustees and by or on behalf of the company. Since, in my judgment, the court has no power to authorise a departure from the rules, or to waive one of their requirements, it follows that the rules have never been validly amended.”

Briggs & Ors v Gleeds (Head Office) & Ors [2014] EWHC 1178 (Ch)

In the Briggs v Gleeds  Case the High Court of England and Wales held that 30 purported amending Deeds were void and ineffective since the signatures of one of the parties to the Deed had not been witnessed in accordance with a statutory requirement that the signatures of parties executing a Deed needed to be witnessed.

 

The High Court of Australia unanimously held that in August v Permanent Trustee Co (Canberra) Ltd [1971] HCA 25 that a trust may be established in one Australian State or territory and specify in its trust deed the law of another Australia state or territory as its governing law.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>