1. Trustees: Rights, Powers and Duties
Cameron Stewart

2. Appointment
Trustees are appointed in the original trust instrument. The trust instrument may also contain a power to appoint new trustees. This power may be exercised by the trustee or by a third party (usually referred to as an “appointor”).
Only a legal person (a natural person or corporation) with the capacity to hold and deal with property can be appointed as a trustee. Corporations can be appointed as trustees, as long as their constitutional documents allow them to be appointed: Re Levin & Co Ltd [1936] NZLR 558.
Minors are, however, generally unable to act as trustee, because they are presumed to lack the capacity to deal with the management of trust property. In New South Wales and the Australian Capital Territory, the appointment of a minor as trustee is void

3. Failure to accept appointment
If, for whatever reason, a prospective trustee fails to take up the office of trustee, the trust will not fail: Re Smirthwaite’s Trusts (1871) LR 11 Eq 251.
In the case of a testamentary trust, the trustee’s office will fall on the legal personal representatives of the testator’s estate until a new trustee is appointed. In the case of an inter vivos trust, the trust property will divest back to the settlor who will hold it on trust until the appointment of a new trustee Mallot v Wilson [1903] 2 Ch 494.

4. Statutory power granted to trusts to appoint new trustees
In the absence of such a power, Trustee Act 1925 (NSW) s 6 grants powers of appointment to particular classes of individuals. The appointees of the statutory power include any person named in the trust instrument or, in the absence of such a person, any continuing or surviving trustees or legal personal representatives of the last surviving or continuing trustee. The statutory power can be exercised when:
a trustee dies;
a trustee is out of the jurisdiction for 12 months or more;
a trustee refuses to accept;
a trustee is incapable, or unfit to act; or
a trustee desires to be discharged

5. Statutory power granted to trusts to appoint new trustees
The appointment must be made in writing and, in New South Wales and the Australian Capital Territory. may be made by registered deed. In Retravision (NSW) Ltd v Copeland [1997] NSWSC 466, Young J found that the New South Wales provision required that the deed be registered before it took effect.
Later decisions have accepted this analysis: Lubavitch Mazal Pty Ltd v Yeshiva Properties No 1 Pty Ltd [2003] NSWSC 535 at [40]; Attorney-General for New South Wales v Fred Fulham [2002] NSWSC 629 at [59]; Commonwealth Bank of Australia v Nick Frisina Pty Ltd [1999] NSWSC 907 at [12].
However, in Statewide Developments Pty Ltd (in liq) (Recs and Mgrs Appointed) v Azure Property Group (Holdings) Pty Ltd (2012) 84 NSWLR 133 at 137–8, Pembroke J felt that these decisions were incorrect and that a registered deed may not be necessary if the trust instrument provided for another mechanism of appointment .

6. Inherent power
The court has an inherent power to appoint trustees on the basis that equity will not allow a trust to fail for want of a trustee
Expedient and practical eg
an infant trustee has been appointed;
a trustee has become bankrupt;
a trustee has been convicted of a felony;
a corporate trustee has been dissolved;
a trustee has gone missing;
a trustee suffers from mental or physical incapacity; and
a trustee resides permanently outside the jurisdiction.

7. Statutory power Trustee Act 1925 (NSW) s 70 – expedient
Northwest Capital Management v Westate Capital Ltd [2012] WASC 121 at [283], Edelman J described three “rules of practice” that must be considered:
Regard for the wishes of the settlor as expressed in the trust instrument or clearly to be collected from it …;
Ensuring that the appointment will not promote the interests of some of the beneficiaries in opposition to the interests of others ...;
Consideration of whether the appointment of a particular person will promote or impede the execution of the trust.

8. Disclaimer
A person cannot be forced to be a trustee of an express trust and a proposed trustee can always disclaim the appointment.
However, disclaimer will be ineffective if the person has impliedly accepted the trust, for example, by dealing with the trust property.
Additionally, to be effective, the disclaimer must relate to the entirety of the trust.
Disclaimers should take the form of a deed, but a disclaimer may be implied from oral declarations and refusals to act

9. Death
If a trust has several trustees and one of them dies, the office is continued by the surviving trustees: Trustee Act 1925 (NSW) s 57
The death of a sole trustee leaves the office vacant and the trustee’s heirs and assigns have no automatic right to take up the office.

10. Retirement
Trust deeds normally make provision for the retirement of trustees. Most jurisdictions have provided for a statutory mechanism for retirement, should the trust instrument be silent on the issue: Trustee Act 1925 (NSW) s 8
A trustee is normally required to retire with the consent of his or her co-trustees and must retire in writing or via a deed. All things necessary to vest the trust property in continuing trustees must be done to give effect to the retirement. A promise or covenant that a trustee will retire in certain situations does not bring about an automatic retirement when those situations arise: Whitton v ACN Pty Ltd (in liq) (1996) 42 NSWLR 123

11. Removal via the trust
Trustees may be removed by using express powers outlined in the trust instrument. If the procedures laid down for the exercise of the power have not been followed, the attempted removal of the trustee will fail: Northwest Capital Management v Westate Capital Ltd [2012] WASC 121 at [218]–[225].
Courts will examine the proper construction of the language of the power to see that it is wide enough to allow for the removal of the trustee and the appointment of a replacement: Montefiore v Guedalla [1903] 2 Ch 723 at 725–726; In Re Christina Brown (1921) 22 SR (NSW) 90 at 93–94.
The express power to remove trustees and appoint new ones has often been described as a “fiduciary power”. Pope v DRP Nominees Pty Ltd (1999) 74 SASR 78 at 89–90; Berger v Lysteron Pty Ltd [2012] VSC 95 at [67]–[83].

12. Montevento Holdings Pty Ltd v Scaffidi, (2012) 246 CLR 325
The power of appointment of a new trustee precluded the appointment as trustee of a beneficiary under a discretionary trust.
In this case, the appointor, who was also a beneficiary under the trust, removed a corporate trustee of which he and members of his family were shareholders and directors, and appointed a corporation of which he was the sole shareholder and director as the new trustee.
The High Court upheld the appointment on the basis that the proper interpretation of the trust’s power of appointment only precluded his appointment as a natural person. It did not preclude the appointment of a corporation that he controlled.

13. Court’s power to remove trustees
Both inherent and statutory
For the inherent jurisdiction, the welfare of the beneficiaries is the dominant consideration in determining whether or not it is proper to remove a truste: Letterstedt v Broers (1884) 9 App Cas 371 at 387
For the statutory jurisdiction, the main test is whether the removal of the trustee is “expedient”: Trustee Act 1925 (NSW) s 70

14. Grounds for removal
Trustees who act in ways inimical to the trust will be removed: Officer v Haynes (1877) 3 VLR (Eq) 115; McLauchlan v Prince [2002] WASC 274
Trustees who fundamentally misunderstand their duties and responsibilities will be removed, as will be trustees who are hopelessly conflicted: Mansour v Mansour (2009) 24 VR 498
Trustees who have disappeared and become uncontactable may also be removed: Kennedy v Kennedy [2011] NSWSC 1619

15. Grounds for removal Disagreement?
In National Westminster Bank Plc v Lucas [2014] EWHC 653 (Ch) at [83], Sales J said:
There are many contexts in which trustees … have to make judgments which involve striking a balance between different competing interests and which may thus adversely affect some persons claiming under the trust … It is to be expected that in such cases there will often be an element of friction between the trustee … and those disappointed by their decisions. This is not in itself a good ground to remove the trustee … from their office.

16. Rinehart v Welker [2012] NSWCA 95.
Gina Rinehart sought to enforce an agreement to the effect that her family would arbitrate any disputes concerning her trusteeship of her family’s discretionary trust.
Some of her children sought to have her removed as trustee and argued that the agreement was against public policy, as it ousted the court’s jurisdiction over the removal of trustees.
While the Court of Appeal found, for reason relating to its drafting, that the arbitration agreement did not apply to the dispute at hand, a majority found that the court could give effect such an agreement

17. Rinehart v Welker [2012] NSWCA 95.
Bathurst CJ said at [175].
[I]t is my opinion that at least in circumstances where the trustee and each beneficiary have expressly agreed to their disputes being referred to arbitration, a court should give effect to that agreement. The supervisory jurisdiction of the court is not ousted. It continues to have the supervisory role conferred upon it by the relevant legislation … There may be powerful commercial or domestic reasons for parties to have disputes between a trustee and beneficiary settled privately. It does not seem to me that the matters to which I have referred above should preclude a court from giving effect to such an agreement provided the jurisdiction of the court is not ousted entirely.

18. The right to reimbursement and exoneration
Trustees have a right to be indemnified for costs and expenses incurred in the proper administration of the trust. Such a right is recognised in equity, but it also may be expressly conferred by a trust instrument: Franknelly Nominees Pty Ltd v Abrugiato [2013] WASCA 285 at [212].
The right also exists pursuant to statute: Trustee Act 1925 (NSW) s 59(4).
Indemnity and exoneration

19. Reasonable expenses
The trustee’s expenses must have been properly incurred in the course of the trustee’s duties: Franknelly Nominees Pty Ltd v Abrugiato [2013] WASCA 285 at [206].
If expenses are not properly incurred, the indemnity may be reduced or completely denied: Re O’Donoghue [1998] 1 NZLR 116.

20. Gatsios Holdings v Nick Kritharas Holdings (in liq) [2002] NSWCA 29
Nick Kritharas Holdings (NKH) was trustee of a family trust that was involved in the packaging of snack foods.
NKH made certain representations in relation to the business that were held to be in breach of the statutory prohibition against misleading or deceptive conduct, set out in s 18 of the Australian Consumer Law.
As a result, NKH was ordered to pay damages in the sum of $400,000. Claims that NKH had acted fraudulently were rejected.
Shortly after judgment, NKH was replaced as trustee by Gatsios Holdings. NKH subsequently claimed to be entitled to an indemnity from the trust assets for the liability it incurred.
Gatsios Holdings argued that liability for misleading or deceptive conduct was not a proper expense for which the indemnity principle applied.
However, the Court of Appeal held that, on the facts of the case, NKH was entitled to the indemnity

21. Gatsios Holdings v Nick Kritharas Holdings (in liq) [2002] NSWCA 29
Spigelman CJ doubted whether the term was really a test when he said at [8].
The use of such terminology as conduct being “proper” or “reasonable”, cannot be regarded as a test of when a trustee is entitled to receive indemnity for outgoings incurred [in] the course of execution of the trust. Such terminology generally records a conclusion which has been reached on other grounds. Rather than constituting a statement of the relevant test it is “the end of the inquiry and not the beginning”.
Meagher JA doubted whether it meant anything more than “non-criminal” or “non-fraudulent”: at [47].

22. Trustees’ legal expenses
If trustees are sued in their capacity as trustees, the trustees are entitled to defend their conduct as an incident of administration and they can be indemnified for their legal costs: Re Llewellin; Llewellin v Williams (1887) 37 Ch D 317 at 327; Bovaird v Frost [2009] NSWSC 917 at [26]–[45]; Wales v Wales (No 3) [2015] VSC 151 at [68]–[71].

23. Metropolitan Petar v Mitreski, [2012] NSWSC 16
I therefore do not accept that it can be said that there is a breach of trust in resorting to trust assets to fund the defence of litigation brought against the trustee. Upon incurring a liability in the course of its duties as such, the trustee is entitled to be indemnified out of the trust assets. If it is not improperly defending proceedings brought against it as trustee, the trustee is entitled to resort to the trust assets to fund its defence. Only if the trustee takes more than the proper limit of its right of indemnity would there be a breach of trust. What costs orders will be made, and to what extent the [trustee] will be held entitled or disentitled to indemnity out of the trust assets, will be known only following the outcome of these proceedings, and any consequential issues in respect of costs. It is not possible to say now that the [trustee] has, by resorting to trust assets to fund the defence of these proceedings and the associated litigation, thereby committed a breach of trust; it may have taken no more than it was entitled to take in exercise of its right of indemnity. If, when the question of costs is ultimately determined and quantified, it transpires that the [trustee] has helped itself to more than its legitimate entitlement, that will then be a different question.

24. Rights are proprietary
The equitable property right flowing from the right to an indemnity takes the form of either a lien or a charge, and it is effective against third parties in any priority dispute over the trust property. In Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at CLR 367, the trustee’s right of indemnity was described by Stephen, Mason, Aickin, and Wilson JJ as follows:
It is common ground that a trustee who in discharge of his trust enters into business transactions is personally liable for any debts that are incurred in the course of those transactions. However, he is entitled to be indemnified against those liabilities from the trust assets held by him and for the purpose of enforcing the indemnity the trustee possesses a charge or right of lien over those assets. The charge is not capable of differential application to certain only of such assets. It applies to the whole range of trust assets in the trustee’s possession except for those assets, if any, which under the terms of the trust deed the trustee is not authorised to use for the purposes of carrying on the business.

25. Hardoon v Belilios [1901] AC 118
Hardoon was the registered owner and trustee of certain shares in a bank. Belilios was the beneficiary of the trust of the shares. When the bank went into liquidation, the liquidator demanded certain payments from Hardoon. Hardoon paid these “calls” made upon him in his capacity as the legal owner of the shares. Belilios, being sui juris, was held liable to indemnify Hardoon. Lord Lindley said:
[T]he right of the trustee to indemnity by him against liabilities incurred by the trustee by his retention of the trust property has never been limited to the trust property; it extends further, and imposes upon the cestui que trust a personal obligation enforceable in equity to indemnify his trustee.
His Lordship noted that, if the trustee seeks indemnity in respect of transactions in which the trustee should not have engaged in or which were not within the scope of the trust, the indemnity is only available if the beneficiary authorised or ratified such transactions.
It should be noted, as was pointed out in Hardoon v Belilios, that one cannot be made a beneficiary against their will and that any attempt to do so can be negated by a disclaimer. However, once a person has accepted the beneficial ownership of property, they are locked into, as in this case, the obligation to indemnify a trustee.

26. J W Broomhead (Vic) Pty Ltd (in liq) v J W Broomhead Pty Ltd [1985] VR 891
A corporate trustee of a unit trust in relation to a construction business was wound up. The trustee had properly incurred liabilities while conducting a building business for the unit holders. The trust assets were insufficient to indemnify the trustee.
The liquidator of the trustee company sought a personal indemnity from the unit holders. It was held that he was entitled to do so.
However, one of the unit holders was in liquidation and another had successfully disclaimed her interest as a beneficiary. It was held that this did not mean that the other unit holders had to meet the entire shortfall. The unit holders were only liable in proportion to their beneficial interests. In such a case, the loss was one to be carried by the trustee.

27. The right of contribution
Co-trustees are jointly and severally liable for losses occasioned by a breach of trust, even where one trustee is solely responsible for the loss.
Where two defendant trustees have committed a breach of trust, each is liable to pay compensation to the beneficiary, measured by the amount of loss attributable to their breach.
However, if only one trustee is available to be sued as a defendant, that trustee will be liable.
Even a passive trustee will be liable, because their inactivity has allowed the co-trustees to breach the trust.

28. Selkirk v McIntyre [2013] 3 NZLR 265
Katz J at 270 summarised the trustee indemnity rules as follows:
(a) Where one of the trustees is a solicitor an indemnity may be claimed against that trustee by a co-trustee who has reasonably relied on the advice of the solicitor trustee (solicitor-trustee rule).
(b) Where a trustee receives a personal benefit from a breach of trust which the other trustees did not actively participate in, an indemnity may be claimed, requiring the defaulting trustee to first contribute the amount of the personal benefit received (personal benefit rule).
(c) A trustee who commits fraud will be required to fully indemnify his or her innocent co-trustees (fraudulent trustee rule). Fraudulent trustees may not, however, obtain contribution from other fraudulent trustees.
(d) Where a trustee who is also a beneficiary benefits from a breach of trust, the value of the trustee-beneficiary’s interest will be deducted from the amount owed by all the liable co-trustees as compensation to the trust fund. The remaining sum is then shared equally as an obligation between the co-trustees (trustee-beneficiary rule).

29. Section 59(2) of the Trustee Act 1925
A trustee shall be answerable and accountable only for the trustee’s own acts, receipts, neglects, or defaults, and not for those of any other trustee, nor for any banker, broker, or other person with whom any trust moneys or securities may be deposited, nor for the insufficiency or deficiency of any securities, nor for any other loss, unless the same happens through the trustee’s own wilful neglect or default

30. Dalrymple v Melville (1932) 32 SR (NSW) 596
A trustee had allowed his fellow trustee (a solicitor) to sell part of the estate of the trust in order to provide for the payment of some legacies.
The trustee allowed the solicitor-trustee to be put in the position where he was able to misappropriate the proceeds of the sale of the trust property as well as two bearer cheques that were drawn from the trust funds to pay legatees. T
he trustee had always acted honestly and did not suspect that the solicitor-trustee was acting dishonestly. However, the court found that the trustee knew that it was his duty to safeguard the interests of the estate and that he failed to take simple precautions.
Long Innes J found that the trustee was not relieved of liability by s 59(2) of the Trustee Act 1925 (NSW). The conduct of the trustee was found to have been in wilful default, as he took unnecessary risks.

31. The right to be relieved from a breach of trust
Trustee Act 1925 (NSW) s 85
This legislation empowers the court to relieve a trustee from liability for breaches of trust if:
the trustee has acted honestly;
the trustee has acted reasonably; and
the trustee ought fairly to be excused

32. The right to impound a beneficial interest
If a breach of trust is committed by a trustee with the consent, advice, or assistance of a beneficiary, the trustee may impound that beneficiary’s interest and use it to satisfy the loss occasioned to the trust: Fletcher v Collis [1905] 2 Ch 24.
This right is now included in Trustee Act 1925 (NSW) s 86(1).

33. The right to get directions from the court
Trustees have a right to seek advice and get directions from the court: Trustee Act 1925 (NSW) s 63
In Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 at 89 the High Court observed that “[t]here is nothing in [these legislative provisions] which limits [their] application to ‘non-adversarial’ proceedings, or proceedings other than those in which the trustee is being sued for breach of trust, or proceedings other than those in which one remedy sought is the removal of a trustee from office”.
The role of the court in these cases is to determine what it perceives should be done in the best interests of the trust estate: Application by Mary Joy Cottee; Estate of Gwenyth Shirley Smith [2014] NSWSC 464 at [35]; Re Estate Late Chow Cho-Poon [2013] NSWSC 844 at [45].
The power to give advice is discretionary and courts may refuse to give advice when they see the advice as inappropriate or futile. Re Atlantis Holdings Pty Limited [2012] NSWSC 112 at [23]; Application of Uncle’s Joint Pty Ltd [2014] NSWSC 321 at [26]–[27].

34. Re Estate Late Chow Cho-Poon [2013] NSWSC 844
Lindsay J said at [187]–[188]
[T]here is nothing express or implied in the text of s 63 that makes some discretionary factors always more significant or controlling than others. There are no implied limitations on discretionary factors arising under s 63. The Court’s discretion is confined only by the subject matter, scope and purpose of the legislation. Thus: (a) the fact that a court may rely on a written statement of the trustee, or use other material ‘instead of evidence’ by reason of s 63(3), gives rise to discretionary considerations of substantial weight where the question for advice is in form or substance an application which will determine or affect questions that could also be resolved in ordinary adversarial litigation; and (b) the Court may properly decline judicial advice if, for example, a contested construction suit, constituted by the disputing parties and resolved by a judge acting on evidence, appears to be more apt to the resolution of a question concerning the interpretation of a trust instrument; but (c) the discretion of the Court to consider applications brought under s 63 is not yoked to a general first principle that, where there is a contest or where there are adversaries, it is not appropriate to give advice.

35. Power of sale
Trustees do not have a general power to sell the trust property and convert the proceeds, unless such a power is expressly or impliedly granted in the trust deed. This is because trustees are charged with the responsibility of preserving trust property.
Statute may also confer a power of sale: Trustee Act 1925 (NSW) s 38(1)
Furthermore, in the absence of a power of sale in the trust instrument or pursuant to statute, a court order may grant a power of sale if, in the exercise of its statutory jurisdiction to vary the terms of a trust, it is expedient to do so

36. Power of/Duty to manage
Legislation has been introduced to grant trustees wide powers of management. For example, most jurisdictions grant trustees the following powers:
powers to effect repairs and improvement of property: Trustee Act 1925 (NSW) ss 82, 82A
powers to insure the property: Trustee Act 1925 (NSW) s 41
powers to settle claims made against the trust: Trustee Act 1925 (NSW) s 49

37. Powers of maintenance and advancement
Trust instruments often provide for the trustee to make payments from the income of the trust towards the maintenance of beneficiaries, or for payments out of the capital of the trust for the advancement of the beneficiaries.
“Maintenance” refers to periodic payments for such goods and services as food, clothes, and medical treatment; whereas “advancement” refers to lump sum payments for goods and services that establish the beneficiary in life, such as payments towards establishing a beneficiary in a trade or profession
Trustee Act 1925 (NSW) s 43

38. Duty to obey the terms of the trust
In Cowan v Scargill [1985] 1 Ch 270 at 288, Megarry VC stated:
This duty of the trustees towards their beneficiaries is paramount. They must, of course, obey the law; but subject to that, they must put the interests of their beneficiaries first.

39. Duty to obey the terms of the trust
Erzurumlu v Kellog Superannuation Pty Limited [2013] NSWSC 1115 at [53]., Ball J said:
The Trustee has a duty to apply the trust assets in accordance with the Trust Deed. In performing that duty, it is required to inform itself properly of the relevant facts. It is also required to act in good faith, on a real and genuine consideration of the material before it and for sound reasons, although it is not obliged to give reasons for its decision. If, for any reason, the Trustee has failed to discharge its duties in considering the member’s claim, the appropriate order is to refer the matter back to the Trustee. The court generally does not itself seek to execute the trust.

40. Duty to inquire
Upon taking up their office, trustees are under a duty to inquire as to the state of the trust: Hallows v Lloyd (1888) 39 Ch D 686
This initially involves becoming familiar with the terms of the trust. Additionally, trustees must examine the trust property and relevant documentation to ensure that they have title to and control over trust property: The Trustees of the Christian Brothers in Western Australia (Inc) v A-G (WA) [2006] WASC 191 at [37]; Reid v Hubbard [2003] VSC 387; Low v Bouverie [1891] 3 Ch 82 at 99.
If there are a number of trustees, property should vest in all of them as joint tenants: Guazzini v Pateson (1918) 18 SR (NSW) 275 at 282.

41. Duty to keep accounts
Trustees are obliged to keep records of the dealings of the trust, which must be produced to the beneficiaries when called for: Spellson v George (1987) 11 NSWLR 300 at 315–6.
Trustees are also obliged to allow beneficiaries to inspect trust accounts and documents. Accounts must be kept up to date and be accurate: Hancock v Rinehart [2015] NSWSC 646 at [339].

42. Byrnes v Kendle (2011) 243 CLR 253 at 270–1
Gummow and Hayne JJ said the following in relation to the duty to account:
The references to accounting by [a] … trustee indicate the several senses in which the term ‘duty to account’ may be used, namely, (i) a duty to keep records, (ii) a duty to report to the beneficiaries or to the court concerning the administration of the trust, and (iii) a duty to pay amounts the trustee is obliged to pay to the beneficiaries. With respect to (i) and (ii), and as a matter of first principle, a trustee should gain no advantage by failure to keep proper records and the court will resolve doubts against a trustee who fails to do so.

43. Duty to give information to beneficiaries
Trustees have a duty to provide beneficiaries with information regarding the trust property
The right to information about the trust does not mean that all documents should be handed over to any beneficiary. The duty to provide information is not absolute, as it needs to be measured alongside all the rights and obligations created by the trust instrument. For example, one beneficiary’s right to view these documents must be balanced against the rights of the other beneficiaries to have their identities remain confidential: Wentworth v de Montfort (1988) 15 NSWLR 348 at 356; Rouse v IOOF Australia Trustees Ltd (1999) 73 SASR 484.

44. Re Londonderry’s Settlement; Peat v Walsh [1965] Ch 918
A trust had been established that granted the trustees a discretion to distribute the capital of the fund and thus terminate the trust. The trustees decided to exercise the power.
A beneficiary, who was entitled to the residuary income if the discretionary power was not exercised, sought to examine documents such as the agenda and minutes of meetings of trustees as well as any documents prepared for the meetings.
The trustees refused to provide this information. The Court of Appeal held that the beneficiary had no right to access the documents

45. Re Londonderry’s Settlement; Peat v Walsh [1965] Ch 918
Salmon LJ said:
The settlement gave the absolute discretion to appoint to the trustees and not to the courts. So long as the trustees exercise this power with the consent of persons called appointors under the settlement, and exercise it bona fide with no improper motive, their exercise of power cannot be challenged in the courts and their reasons for acting as they did are, accordingly, immaterial. This is one ground for the rule that trustees are not obliged to disclose their reason for exercising a discretionary power. Another ground for this rule is that it would not be for the good of the beneficiaries as a whole, and yet another that it might make the lives of the trustees intolerable should such an obligation rest on them.

46. Re Londonderry’s Settlement; Peat v Walsh [1965] Ch 918
Salmon LJ said ‘trust documents’:
(1) they are documents in the possession of trustees as trustees; (2) they contain information about the trust which the beneficiaries are entitled to know; (3) the beneficiaries have a proprietary interest in the documents and, accordingly, are entitled to see them. If any parts of a document contain information which the beneficiaries are not entitled to know, I doubt whether such parts can truly be said to be integral parts of a trust document. Accordingly, any part of a document that lacked the second characteristic to which I have referred would automatically be excluded from the document in its character as a trust document.

47. Trust documents Circular definition
In Hancock v Rinehart [2015] NSWSC 646 at [359], Brereton J said that, at the very least, trusts documents include “documents containing or evidencing the terms of the trust, documents relating to the trust property, and the accounts of the trust”.

48. Intention
Breakspear v Ackland [2009] Ch 32- the settlor sent the trustees a non-binding “wish” letter which contained instructions as to what factors should be included in the trustees’ deliberations. Briggs J acceded to the wish on the facts of the case and denied the beneficiaries access to the settlor’s letter. However, Briggs J in explaining that the trustees or the courts could disclose such a letter, said:
In the absence of special terms, the confidentiality in which a wish letter is enfolded is something given to the trustees for them to use, on a fiduciary basis, in accordance with their best judgment and as to the interests of the beneficiaries and the sound administration of the trust. Once the settlor has completely constituted the trust, and sent his wish letter, it seems to me that the preservation, judicious relaxation or abandonment of that confidence is a matter for the trustees or, in an appropriate case, for the court.

49. Legal advice to the trust?
Talbot v Marshfield (1865) 62 ER a legal opinion given to trustees when they were being sued did not have to be produced to beneficiaries. Kindersley VC said:
This was not to guide the trustees in the execution of their trust; but, after proceedings had been commenced against them, they took advice to know in what position they stood, and how they should defend themselves in the suit. It appears to me that the cestuis que trust have no right to see this case and opinion, unless they can make out that the trustees can charge the expense thereof on the trust funds. As to this there is no proof; the trustees may themselves have to bear the expense of this case and opinion, as having been stated and taken by them as litigant parties with the cestuis que trust.

50. Rollo Ventry Wakefield Gray v BNY Trust Co of Australia Ltd [2009] NSWSC 789
Bergin CJ in Eq refused to order the production of documents that had been prepared in litigation against a beneficiary where the trustee’s legal costs were paid out of the trust estate. Her Honour said:
The fact that an order was made that the plaintiff pay the defendant’s costs coupled with an order of its entitlement to indemnification, does not in my view convert the privileged advice received by the defendant to defend itself into an advice for the benefit of the plaintiff and thus a trust document to which the plaintiff is entitled to access.

51. Schreuder v Murray (No 2) (2009) 41 WAR 169
The beneficiary sought to remove the trustee and, during the course of proceedings, wished to inspect documents held by the trustee regarding the administration of the estate, including legal advice.
The trustee claimed legal professional privilege.
The Court of Appeal of Western Australia found that the legal advice had been given for the administration of the estate and not to the trustee personally.
The documents had not been created for the purpose of defending the trustee against any claims made by the beneficiary. On that basis the beneficiary was entitled to inspect the documents.

52. Krok v Szaintop Homes Pty Ltd (No 1) [2011] VSC 16
Judd J said:
In my opinion, a trustee’s right to withhold, in the course of litigation, disclosure of a document from a beneficiary, on the ground of client legal privilege, is not to be determined by an analysis of the beneficiary’s proprietary right to trust documents. The question is to be resolved by reference to the ordinary principles applicable to the protection of privileged information and documents, and obligations of disclosure in litigation.

53. Proprietary or discretionary right?
O’Rourke v Darbishire [1920] AC 581 at 626, Lord Wrenbury said:
The beneficiary is entitled to see all trust documents because they are trust documents and because he is a beneficiary. They are in this sense his own.
Fixed or discretionary

54. Schmidt v Rosewood Pty Ltd [2003] 2 AC 709
Son was tracking own the fortune of his deceased father which was held in a discretionary trust
Son wished to see trust records but was denied information by the trustees
Lord Walker:
Their Lordships have already indicated their view that a beneficiary’s right to seek disclosure of trust documents, although sometimes not inappropriately described as a proprietary right, is best approached as one aspect of the court’s inherent jurisdiction to supervise (and where appropriate intervene in) the administration of trusts

55. AIT Investment Group Pty Ltd v Markham Property Fund No 2 Pty Limited [2015] NSWSC 216
Bergin CJ in Eq :
It involves the following propositions: (a) the object of a discretion, including a mere power, may apply to the Court for access, as well as beneficiaries with a ‘fixed’ interest; (b) the power to order disclosure is “one aspect of the court’s inherent jurisdiction to supervise, and if necessary to intervene in, the administration of trusts”; (c) the power to order inspection is discretionary; and (d) the Court may have to “balance” the competing interests of different beneficiaries, the trustees and third parties, with disclosure being limited and safeguards being put in place.

56. Avanes v Marshall (2007) 68 NSWLR 595
Gzell J said at 599 :
In my view, the approach in Schmidt should be adopted by Australian courts. The decision should not be regarded as abrogating the trustee’s duty to keep accounts and to be ready to have them passed, nor the trustee’s obligation to grant a beneficiary access to trust accounts. But when it comes to inspection of other documents there should no longer be an entitlement as of right to disclosure of any document. It should be for the court to determine to what extent information should be disclosed .

57. McDonald v Ellis (2007) 72 NSWLR 605
Bryson AJ at 619:
In Avanes v Marshall Gzell J after review of authorities, including recent authorities in Australia in which Schmidt reference has been made to, expressed the view that the approach in Schmidt should be adopted by Australian courts. I respectfully do not agree. It might be that the approach of Schmidt is appropriate where the interest of the beneficiary is no higher than those of the potential objects of a discretionary trust, although opinion in New South Wales is otherwise. However that may be, in the present case where the plaintiff’s right is already vested in interest, it would be a departure from clearly established opinion in New South Wales not to treat the claim to information as based on a proprietary interest, or to withhold enforcement of it except so as to enforce some competing entitlement, such as that of the trustees considered in In re Londonderry’s Settlement, which required such departure.

58. Duty not to profit from the trust
No remuneration
3 exceptions:
Trust deed sets out remuneration
By agreement
Court awarded (NSW inherent jurisdiction)

59. Self-dealing and trafficking
The duty not to profit from the trust also prevents trustees from taking a beneficial interest in trust property, or from borrowing from trust funds.
This is sometimes referred to as “trafficking” or “self-dealing”.
In Fenwick, Kingi and Heke v Narea [2015] NZSC 68 , the majority judgment of the Supreme Court in New Zealand said that “[u]nder the ‘self-dealing’ rule … if a trustee sells the trust property to him or herself, the sale is voidable by any beneficiary ex debito justitiae (as of right), however fair the transaction”.
Furthermore, the majority judgment rejected the proposition that the self-dealing rule was confined to purchases of trust property and held that it applied to other forms of commercial transactions, such as a lease of trust property. Finally, the majority judgment held that the rule applied to circumstances where the purchaser of the trust property is another company in which the trustee has shares or some interest, although it may be that is such cases exceptional circumstances may negate the application of the rule.

60. Duty to act impartially between beneficiaries
Life tenants and remainderpersons
Howe v Lord Dartmouth (1802) 32 ER 56
Apportionment

61. Duty to sell trust property
Trustees may be subject to a duty to exercise a power of sale, such as where the creator has intended that the trust property be sold and a fund be created for the purposes of the trust.
In such circumstances, the trust is referred to as a trust for sale.
The duty to sell can be expressly stated in the trust, or be implied from the intention of the creator as expressed in the trust document
Fair and reasonable price within a reasonable time

62. Duty to invest
Gerner v Mattila [2015] NTCA 1 at [34], the Northern Territory Court of Appeal said:
[The duties relating to investment] include the duty to exercise the care, diligence and skill that a prudent person of business would exercise in managing the affairs of other people, a duty not to invest in speculative or hazardous investments, a duty to take advice, and a duty (as trustee exercising a power of investment) to exercise that power in the best interests of the beneficiary.
Not a fiduciary duty

63. Cowan v Scargill [1985] 1 Ch 270
Beneficiaries sought to force the trustee to invest in union friendly businesses
Court found that, absent an express terms of the trust, that the trustee’s duty was to advance the best financial interests of the beneficiaries – they should invest wherever they could get the best return

64. Standard of investing
The standard of care applicable to the trustee is to take as much care as an ordinary prudent person “would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide”: Re Whiteley; Whiteley v Learoyd (1886) 33 Ch D 347 at 355.
Moreover, the word “investment” has been read restrictively to exclude purchases of property for the enjoyment of the beneficiaries, and unsecured loans based on a promise to repay.: In the Will of Sherriff [1971] 2 NSWLR 438; Khoo Tek Keong v Ch’ng Joo Tuan Neoh [1934] AC 529
In Perpetual Trustee Company Ltd v Cheyne [2011] WASC 225 at [52]–[56], Edelman J found that the word “investment” would not cover the purchase by the trustee of membership rights in a superannuation fund which would then be legally owned by the beneficiary (a man with severe disabilities). The fact that the trustee would retain no legal right to the superannuation membership, nor receive anything back from the superannuation fund, meant that the purchase could not be classed as an “investment”

65. Re Speight (1883) 22 Ch D 727
Gaunt and Wilkinson were trustees of the estate of the late Mr Speight.
They hired a broker, Cooke, to invest the estate's money into company shares. The trustees gave over the money.
Cooke stole the money
The beneficiaries sued the trustees

66. Re Speight (1883) 22 Ch D 727 Lord Blackburn:
…as a general rule a trustee sufficiently discharges his duty if he takes in managing trust affairs all those precautions which an ordinary prudent man of business would take in managing similar affairs of his own. There is one exception to this: a trustee must not choose investments other than those which the terms of his trust permit, though they may be such as an ordinary prudent man of business would select for his own money; and it may be that however usual it may be for a person who wishes to invest his own money, and instructs an agent, such as an attorney, or a stockbroker, to seek an investment, to deposit the money at interest with the agent till the investment is found, that is in effect lending it on the agent's own personal security, and is a breach of trust

67. Statutory standards
Trustee Act 1925 (NSW) s 14A: A trustee exercising the power, is to exercise it according to the standard of care, diligence, and skill a prudent person of business would exercise in managing the affairs of other persons

68. Duty to act personally, unfettered, and unanimously
Trustees must exercise their own discretion
Three exceptions:
delegation permitted by the trust instrument: Re Trusts of Kean Memorial Trust Fund (2003) 86 SASR 449 at 471;
delegation permitted by statute: Trustee Act 1925 (NSW) s 64; and
situations where delegation is a matter of necessity and the agency relates to ministerial acts unconnected with the trustee’s exercise of discretion.

69. Duty to consider the exercise of trust powers
Trustees are obliged to properly consider the use of their powers: Re Gestetner Settlement; Barnell v Blumka [1953] Ch 672; [1953] 1 All ER 1150.
In cases where trustees are granted a discretion to choose when and how they will act, they are bound by fiduciary duty to give, from time to time, real and genuine consideration to the issue by examining the options and determining which one was an appropriate course of action: Fay v Moramba Services Pty Ltd [2010] NSWSC 725 at [34]–[40]; Re Baden’s Deed Trusts; McPhail v Doulton [1971] AC 424 at 449; [1970] 2 All ER 228 at 240.

70. Re Beloved Wilkes’s Charity (1851) 42 ER 330
Lord Chancellor Truro said at 333–4.
[I]in such cases as I have mentioned it is to the discretion of the trustees that the execution of the trust is confided, that discretion being exercised with an entire absence of indirect motive, with honesty of intention, and with a fair consideration of the subject. The duty of supervision on the part of this Court will thus be confined to the question of the honesty, integrity, and fairness with which the deliberation has been conducted, and will not be extended to the accuracy of the conclusion arrived at, except in particular cases. If, however, … trustees think fit to state a reason, and the reason is one which does not justify their conclusion, then the Court may say that they have acted by mistake and in error, and that it will correct their decision; but if, without entering into details, they simply state, as in many cases it would be most prudent and judicious for them to do, that they have met and considered and come to a conclusion, the Court has then no means of saying that they have failed in their duty, or to consider the accuracy of their conclusion.

71. Elovalis v Elovalis [2008] WASCA 141
Buss JA said 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

72. Lutheran Church of Australia v Farmers’ Co-operative Executors & Trustees Limited (1970) 121 CLR 628
Windeyer J said at 652:
A discretionary power, given to a trustee as such, to act or not to act in a specified manner imposes a duty on the trustee at least to consider the matter and decide deliberately whether to exercise the power. Lord Reid recently said, in In re Gulbenkian’s Settlement [1970] AC 508 at 518: ‘A settlor or testator who entrusts a power to his trustees must be reliant on them in their fiduciary capacity so that they cannot simply put aside the power and refuse to consider whether it ought in their judgment be exercised’. If it is a mere power, the court cannot dictate to the trustees whether it should be exercised or not exercised. That discretion is committed to them. But, even in that case, the court is not entirely unconcerned; for if trustees having a purely discretionary power refuse to consider whether and how they will exercise their discretion, then the court will remove them and substitute new trustees — who will have the same discretion but who, it is hoped, will not be recalcitrant. That would not be a usurpation by the court of the discretion given to trustees. It would be merely a means of accomplishing its exercise one way or another by dutiful trustees.

73. Fraud on a power
“Fraud on a power” relates to situations where a trustee has exercised a discretionary power for an unauthorised or improper purpose.
Hancock v Rinehart [2015] NSWSC 646 at [57], Brereton J said:
A power must be exercised in good faith for the purpose for which it was given, and not for an ulterior purpose — whether for the benefit of the trustee or otherwise - not contemplated by the instrument creating the power. A “fraud on a power” is an exercise of a power for such an extraneous purpose.

74. Karger v Paul [1984] VR 161
Trustees made a decision to transfer the entire capital of the trust to the deceased’s husband, who died shortly thereafter.
A residuary beneficiary, who was deprived of any entitlements by the trustee’s decision, challenged that decision.
McGarvie J found that there had been no bad faith or failure to give genuine consideration to the decision

75. Karger v Paul [1984] VR 161
It is an established general principle that unless trustees choose to give reasons for the exercise of a discretion, their exercise of the discretion cannot be examined or reviewed by a court so long as they act in good faith and without an ulterior purpose … I would add the further requirement, so obvious that it is often not mentioned, that they act upon real and genuine consideration. In the context, it was in that sense that Lord Truro LC used the expression “with a fair consideration” in Re Beloved Wilkes’ Charity (1851) 42 ER 330 at 333. In the case of an absolute and unrestricted discretion such as the discretion in the present case, the general principle is given unqualified operation.

76. Curwen v Vanbreck Pty Ltd [2008] VSC 338
Discretionary beneficiaries who were the grandchildren of the settlor had been excluded by the corporate trustee (which was controlled by their aunt) only after their parents had requested information about the trust.
It was alleged that the aunt had exercised the power to exclude her nephews after she had realised that they were potential beneficiaries.
Nevertheless, the claim of bad faith failed, as the aunt had not been asked in cross-examination regarding her reasons for excluding the grandchildren.
There was, therefore, no evidence upon which to base a claim of bad faith