A “power” is an individual personal capacity of the donee of the power to do something. {Re Armstrong (1886) 17 Q.B.D. 521 at 531, per Fry L.J.}

A “trust” imposes an obligation, or crates a duty: a “power” confers an option.

A trust is imperative, whereas a power is discretionary.The Court will compel the execution of a trust, but it cannot compel the exercise of a power {Re Gulbenkian’s Settlements [1970] A.C. 50 at 518; McPhail v Doulton [1971] A.C. 424 at 440-441, 444, 449}.

The Western Australian Court of Appeal in Elovalis v Elovalis [2008] WASCA 141stated at [63]:

Where a trust instrument confers on the trustee discretionary powers which are described as ‘absolute‘ or ‘uncontrolled‘, that description does not authorise the trustee to ‘do what he likes‘ with the trust fund. Where the trust instrument confers on the trustee an ‘absolute and uncontrolled’ discretion in relation to the exercise of a power, the court will not compel the trustee to exercise it, but if the trustee proposes to exercise it, the court will ensure that it is not exercised improperly or unreasonably. Further, where the power is combined with a trust or duty, the court will enforce the proper and timely exercise of the power, but will not interfere with the trustee’s discretion as to the particular time or manner of his or her bona fide exercise of it. See Gisborne v Gisborne (1877) 2 App Cas 300, 305 – 307 (Lord Cairns), 309 – 310 (Lord Penzance); Tempest v Lord Camoys (1882) 21 Ch D 571, 578 (Jessel MR), 579 (Brett LJ), 580 (Cotton LJ).

Fiduciary and Non-fiduciary Powers

Where a power is held by a person who is not a fiduciary (eh an employer) , he owes no duty to anyone to consider the exercise of that power indeed he may ignore the power entitle; and he is at liberty to declare that he will never exercise it. In the event that he does exercise the power, he must do so honestly and properly; he cannot for example exercise it excessively or fraudulently. Nevertheless in broad terms, he remains free from most of the obligations and restrictions (such as the rule against conflicts of interest) which fall on a trustee or other donee of a fiduciary power {Thomas on Powers at [6-187].

Statutory Provisions

Various statutory provisions require certain formalities to be observed in the execution of a power in specified circumstances, such as a power of amendment. An instrument exercising a power must be executed and construed according to the rules for the time being applicable to instruments o fthat kind, although the power may have been created before, but exercised after, an alteration in the law as to the construction and mode of execution of such instruments {Freme v Clement (1881) 18 Ch D 449; Briggs v Gleeds (Head Office) [2014] EWCH 1178 (Ch)}

Where a deed has been prescribed as the required instrument the formalities for the correct execution of the deed must be observed in the relevant jurisdiction as might vary from time to time.

Requirements specified by the donor of the power

{Thomas on Powers (1st Edition) at 5-126}

Subject to the aforesaid statutory provisions, the donor of a power may specify whatever requirements he chooses for the exercise of a power, provided he does not transgress any rules of law or equity, and those requirements must be strictly observed {Rutland v Doe d. Wythe (1843) 10 Cl & Fin 419; Frazer v Riversdale [1913] 1 I.R. 539}.

“Whatever arbitrary terms the grantor of the power may impose upon the party executing it, or however absurd and unreasonable they may seem to be, they must be fulfilled; as if it were required that the instrument executing the power be witnessed by persons of a particular stature, or written on paper of a particular colour” {{Rutland v Doe d. Wythe (1843) 10 Cl & Fin 419 at 425}.

Thu many and varying conditions, stipulations or perquisites can occur. The most common requirements are, in fact, rather more prosaic, and would seem to be those which stipulate that:

  • The power is exercisable only by means of some particular instrument(s): or
  • The consent of some person other than the donee of the power must be obtained before exercise; or
  • Some express reference must be made to the power upon exercise.

Exercise by specific instrument(s)

The donor of the power may specify that a power must or may be exercised by such instruments as he pleases {Croker v Quayle (1830) 1 Russ & M. 535}.

If he does so, that power can be validly executed only by those instruments (or one of them) {MacAdam v Logan (1791) 3 Bro. C.C. 310; Dormer v Thurland (1728) 2 P. Wms. 506; Ross v Ewer (1744) 3 Atk 156; Sanders v Franks (1817) 2 Madd 147; Re Weightman’s Settlement [1915] 2 Ch 205}.

If a power is excisable by a deed then a deed must be used. If the power is to be exercised “by an instrument in writing” it is excisable by a deed or by anything in writing that ranks as an instrument, such as for example, a written order directed to the trustees of a fund or a letter.

If the power is to be exercised by a deed, then the relevant statutory provisions required for a valid execution of a deed must be complied with.

Consent to exercise the power

It is not uncommon for the holder of a power to be made subject to the consent of some person or persons. That consent is then a material and important element in the execution of the power and its requirement must be strictly observed. It is a matter or substance and not form {Hutton v Simpson (1716) 2 Vern. 722; Hawkins v Kemp (1803) 3 East 410}.

Where the giving of consent is regarded as a condition precedent, then clearly unless and until the consent is given, any exercise of the power is to all intents and purposes void  {Cocker v Quayle (1830) 1 Russ. & M. 535; Bateman v Davis (1818) 3 Madd. 98; Wiles v Gresham (1854) 2 Drew. 258 at 267; Greenham v Gibbeson (1834) 10 Bing 363}. Usually, of course, consent is given and the power is exercised by the same instrument.

A power to consent, like any other power – and wether a fiduciary power or not – may be subject to some express restriction or constraint, in which case such restriction or condition must be observed and will be enforceable according to its terms {Re Courage Group’s Pension Schemes [1987] 1 W.L.R. 495}. Of course a fiduciary power, by its nature, is subject to certain restrictions, eg the done  must exercise his power by reference only to the interests of its objects disregarding his own interests {Imperial Group Pension Trust Ltd v Imperial Tobacco Ltd [1991] W.L.R. 589, 596E}

Any power, including a non-fiduciary power, must be exercised “in good faith” in the sense that its exercise must not be excessive or fraudulent; It must be exercised, if at all, only for the purposes for which it was created {Thomas on Powers (1st Edition) 5-163}.

In the Imperial Group Pensions Trust Ltd v Imperial Tobacco Ltd [1991] 1 W.L.R 589 the pension fund was managed by a committee exercising the powers conferred by the trust deed and rules. The committee had the power to amend the rules of the scheme subject to the consent of the sponsoring employer.

The company’s powers were created to enable it to preserve the employees’ rights under the scheme and not to destroy them {Thomas on Powers (1st Edition) 5-163}.

Lord Brown- Wilkinson stated:

“If the sole purpose of refusing to consent to an amendment increasing benefits is the collateral purpose of putting pressure on members to abandon their existing rights, including the right to the surplus on determination, in my judgement the company would not be acting in good faith 599D-E”

Thomas notes: “This is clearly the language of the doctrine of a fraud on a power”.

In Lock v Westpac Banking Corporation & Others [1991] 25 NSWLR 593 the Supreme Court of NSW held that the power of amendment held by the employer had to be exercised honestly and in good faith, but it was not a fiduciary power.

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