Taking a closer look at court approved trust deed amendments

30/08/2017

The New South Wales Court of Appeal's decision in Re Dion Investments Pty Ltd has cast uncertainty on previous court decisions, where a trustee may make an application to the court to vary the terms of a trust deed.

The Trustee Acts (TA) in each of the Australian States and Territories (for example s 63 of the Victorian Trustee Act, s 81 of the New South Wales Trustee Act and s 94 of the Queensland Trust Act) contain provisions which allow the court to approve transactions or amendments that are not otherwise permitted under the trust deed.

An examination of some of the earlier court decisions prior to Re Dion Investments Pty Ltd is needed to illustrate the circumstances in which a court was prepared to approve amendments to a trust deed.

In the case of Re Queensland Coal & Oil Shale Mining Industry (Superannuation) Fund (Queensland Coal), it was decided that a court has the power, either under s 94 of the Qld TA or the court’s inherent jurisdiction to amend a trust deed in circumstances where a conflict of interest arose as a result of the trustee seeking court approval to amend the trust deed to permit remuneration to be paid to the trustee and its directors. The proviso was that the trustee showed that the administration of the fund has required some particular exertion on the part of the trustee which justifies remuneration.

A similar decision was reached in the case of Re Cuesuper Pty Ltd (Cuesuper). An application was made under s 81 of the NSW TA on three grounds. The first being for the court to confer power on the trustee so that it could remunerate itself from the trust fund. Secondly, for the court to exercise its inherent jurisdiction to permit the trustee to be remunerated; and thirdly, for the court to make a direction to use its power of amendment conferred by the trust deed to vary the terms of the trust deed to provide for its remuneration, given that the trust deed did not expressly state and made no provisions for the trustee to be remunerated for carrying out its duties.

As a conflict of interest would arise if the trustee had power to remunerate itself, the court gave a direction that the trustee was justified in amending the trust deed, rather than resort to s 81 of the TA or the inherent jurisdiction of the court.

In the case of Re Retail Employees Superannuation Pty Ltd (Retail Employees Superannuation) it was held that in some circumstances where an employer sponsoring organisation objects to a trustee’s proposed amendment to permit trustee and director remuneration, a trustee may make an application under s 63 of the NSW TA to the court for an opinion, advice or a direction regarding any proposed amendments to the trust deed.

The significance of the decisions in the abovementioned cases seem to suggest that prior to Re Dion Investments Pty Ltd, the courts were readily prepared to vary the terms of a trust deed by relying on the court’s inherent jurisdiction or by giving advice or direction to the trustee.

Since Re Dion Investments Pty Ltd, the court has taken the view that it is not empowered to amend a trust deed given that an amendment to a trust deed is not of itself a transaction that falls within the management or administration of a trust.

The court can however grant to the trustee not the power to amend the trust deed but the power and right to undertake a specific transaction which relates to the management or administration of the trust. The end result may be the same although the inability to amend the deed means that the trustee would need to seek court approval every time such a transaction was desired.

For further information, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222.