LAWS3114 Lecture 1

Trustees’ Duties and Powers

1. Appointment and Removal of Trustees

Trusts Act 1973 ss 11, 12, 15, 80, 82

  • Who’s qualified to be a trustee?
    • Natural persons
    • Companies
    • Family trusts are often organised in the way that companies are
  • It is possible to be a trustee and beneficiary, so long as that person is not the sole trustee and sole beneficiary. So you can be a co-trustee, or a co-beneficiary, but not your own trustee and beneficiary.
  • Merger – the beneficial title merges into the legal title (when A is trustee; A and B are beneficiaries; B assigns their beneficial title to A) and there’s no longer a trust.
  • A trust can be created by a unilateral manifestation of intention – you don’t need a contract in order for there to be a trust
  • Disclaiming – if acting as a trustee is forced upon you, you can disclaim.
  • How many trustees are possible?
    • Section 11 of Trusts Act
    • Section 11(1) – 4 is the maximum number (there are some exceptions s11(3) – charitable trusts, or where the Minister (J&AG) gives a certificate
    • Superannuation trusts generally have 10+ trustees
  • Trustees must act unanimously – thus better to have a smaller number of trustees.
  • Trustees are normally appointed as joint tenants
  • Co-ownership of land – there are 2 ways in which land can be held in co-ownership:
    • Joint tenancy
      • The right of survivorship – if 2 or more people hold property as tenants, if one dies then the title passes to the others
    • Tenancy in common
      • The will of the deceased tenant will dictate
  • The initial trustees will be named in the trust instrument when the trust is setup.
  • There are 2 ways in which additional/replacement trustees can be appointed:
    • Under s 12 Trusts Act
      • Look at trust instrument and see if instrument names a person responsible for naming new trustees (Appointor).
      • If there isn’t such a person, then the responsibility goes to the surviving or continuing trustees
      • If all trustees are dead, then the responsibility falls to the executor of the last surviving trustee
    • By the Supreme Court of Queensland
  • The new trustee also needs the title to the trust property
  • Section 15 Trusts Act
    • s 15(1) – deemed to have title automatically.
    • Exception for land and others that are registered.
      • s 15(3) – where the title needs to be registered, the trustees need to modify the registration.
  • Appointment by Supreme Court
    • The plenary court of jurisdiction of common law and equity has its traditional supervisory jurisdiction….
    • The Supreme Court is the plenary (full) jurisdiction – inherited the supervision of trusts
    • Section 80 Trusts Act – power to appoint new trustees
      • S5 – Court = Supreme Court of Queensland
    • Section 82 mirrors section 15 – Supreme Court makes a ‘vesting’ order
  • Removal of trustees
    • By an express power in the trust deed

2. Duties and Powers

e.g. Trusts Act ss 21, 22

  • Re Whitehouse [1982] QdR 196
    • Didn't get this <— Hahaha Amy!!! You do this too :) I usually just mention ducks somewhere when this happens.
  • The distinction between a duty and a power
    • Duty – something that has to be done
    • Power – something that CAN be done – discretion as to action
  • There are limitations on exercise of power
    • The most obvious is that the trustee must remain within the subject matter of the power
  • Exercise of power in an inappropriate/improper way – the procedure/process of decision making
  • “Where a trustee exercises a discretion, it may be impugned on a number of different bases…bad faith, arbitrarily, capriciously, wantonly, irresponsibly, mischievously or irrelevantly to any sensible expectation of the settlor or without giving a real or genuine consideration to the exercise of the discretion. The exercise of a discretion by trustees cannot…be impugned upon the basis that their decision was unfair or unreasonable or unwise.” Wilkinson v Clerical Administrative and Related Employees Superannuation Pty Ltd (1997) 79 FCR 469 at 480 (quoted in Attorney-General v Breckler (1999) 197 CLR 83, 99
  • Karger v Paul [1984] VR 161
    • Deceased estate. The testatrix (Mrs Smith) left her estate to her husband Alfred Henry Smith for life – entitled to the income. But, the trustees are given a power to pay or transfer the whole or part of the capital to Mr Smith. The trustees were Mr Smith and a solicitor (Mr Paul). Rita Karger was the remainder beneficiary.
    • Ultimately Mr Smith did go to Mr Paul and request a transfer of the capital of the estate to himself, and by the time that Mr Smith had died, the whole of the capital of the estate had been transferred to Mr Smith.
    • Had Mr Smith and Mr Paul considered all of the things that should have been considered in exercising a discretion of that type. The decision was to ‘rob Karger to pay Smith’. If Smith’s need was greater than Karger, it would generally be the reason for exercising the power. Mr Paul knew the Smiths fairly well, but some of the information he had was incorrect
    • Found for Mr Paul.
    • Read Page 172 – 175
  • Life estate and remainder interest
    • The person who has the life estate is entitled to the income by the trust estate, but not the capital value of the property
    • The capital value has to be kept for the remainder beneficiaries
  • The disappointed beneficiary brings a case for breach of trust.
    • Trusts Act 1973 (Qld), s 8
  • Hennessy v Perpetual Trustees Queensland Limited [2000] QSC 311
    • General law, statute and trust instrument
    • White J: Reluctant to bring case against trustee, only for the reasons in bold above.

3. Types of Trustee's Duties

It is possible to draw up different lists of trustee’s duties depending upon the level of abstraction at which one considers the matter. Compare Evans, Equity and Trusts (2nd ed) pp 493-521, Cope, Equitable Obligations: Duties, Defences and Remedies Chapter 1 and Bank of New Zealand v New Zealand Guardian Trust Co Limited [1999] 1 NZLR 664, 686-687 per Tipping J.

The following threefold classification provides a convenient framework for considering trustee’s duties:-

  • duties of administration
  • duties of loyalty and confidence
  • duties of care and skill
  • Section 21
    • Power of Trustee to invest – a power to choose the investment
  • Section 22
    • Duties to invest
    • In the general law there is a duty to invest – because trustees have to ‘hedge against inflation’.
    • Duty to exercise reasonable care in carrying out investments of trust property
  • Three places to find trustees duties and powers
    • General Law (case law)
    • Trusts Act 1973 (Qld)
    • Trust Instrument (but some Trusts Act provisions apply whether or not contrary intention in instrument, e.g. s31 Trusts Act)
  • Trusts Act ss 4, 31
    • Section 4 – the powers conferred in the Act
    • Section 31 – the otherwise provided section (first section in part 4 of the Trusts Act)