Variation and Termination of Express
Trusts
Professor Cameron Stewart (with a
few additions by Dr Lisa Ford, UNSW)
Variation of Express Trusts
Powers to Vary Contained in Express Trusts
A trust instrument can contain provisions which give
the trustee the power to make certain amendments
to the trust arrangement. For example, it is common
for discretionary trusts to grant a power to the
trustee to add beneficiaries to the class of objects:
Ford & Lee at [15260]. In Kearns v Hill (1990) 21
NSWLR 107 the NSW Court of Appeal found that the
power of variation contained in a trust instrument
was to be given its natural an ordinary meaning even
where it included a power to vary the identity of the
beneficiaries of the trust.
Variation of Express Trusts
Inherent Power to Vary Trusts
Emergencies:
• Changes in the nature of investments for infants from
personalty to realty, Lord Ashburton v Lady Ashburton
(1801) 6 Ves 6; 31 ER 910; Re Jackson (1882) 21 Ch D 786;
• Investments in business transactions not authorised by a
trust of settled land, Re Collins (1886) 32 Ch D 229;
Havelock v Havelock (1881) 17 Ch D 807;
• Payment of maintenance out of income , even where
there is a direction to accumulate income, Re New [1901]
2 Ch 534; Re Tollemache [1903] 1 Ch 955; and
• Compromises in favour of unborn children, Re Trenchard
[1902] Ch 378; Salkeld v Salkeld (No 2) BC 200001626;
[2000] SASC 296
Variation of Express Trusts
• In Re Langford (dec’d) Equity Trustees Ltd v
Langford [2005] VSC 84 at [31] (decision
varied on appeal but not on this point), Byrne
J found that the sale of settled land to pay
outstanding land tax was not an emergency, as
it was possible that the beneficiaries could all
agree to the sale, even though they had not all
done so by the date of hearing.
Variation of Express Trusts
Tickle v Tickle (1987) 10 NSWLR 581, Young J decided not
to follow the restrictions placed on the courts power as
set down by Chapman v Chapman. Instead, His Honour
found at 586 that the inherent power might embrace
circumstances where there was 'an element of salvage
and a flavour of compromise and the combination of
these factors may make it a proper case for the court
to exercise jurisdiction to vary.' As such Young J
thought it wise to add a fifth category where the power
to vary should be exercised when circumstances have
occurred which have tended to thwart the settlor's
intention and where the parties have consented to a
course which will effect an alternative scheme in line
with the settlor's intention.
Variation of Express Trusts
Statutory Power to Vary Trusts
• After the Second World War, the taxation of
family trusts in Britain led to political pressure
to allow variation of express trusts in ways
that would lessen the impact of taxation
Trustee Act 1925 (NSW), s 81
• (1) Where in the management or administration of any property
vested in trustees, any sale, lease, mortgage, surrender, release, or
disposition, or any purchase, investment, acquisition, expenditure,
or transaction, is in the opinion of the Court expedient, but the
same cannot be effected by reason of the absence of any power for
that purpose vested in the trustees by the instrument, if any,
creating the trust, or by law, the Court:
• (a) may by order confer upon the trustees, either generally or in any
particular instance, the necessary power for the purpose, on such
terms, and subject to such provisions and conditions, including
adjustment of the respective rights of the beneficiaries, as the
Court may think fit, and
• (b) may direct in what manner any money authorised to be
expended, and the costs of any transaction, are to be paid or borne
as between capital and income. ..
Management or administration
• The words ‘management or administration’ have
been said to be of ‘wide import’ and ‘pick up
everything that a trustee may need to do in
practical or legal terms in respect of trust
property’: Royal Melbourne Hospital v Equity
Trustees Ltd (2007) 18 VR 469 at 500.
• The phrase concerns both ‘the manner in which
trust property is managed, administered,
handled, directed or controlled and the actual
carrying out of those functions’: Arakella Pty Ltd v
Paton (2004) 60 NSWLR 334 at 354
Expedient
• The word ‘expedient’ is given a flexible meaning, but
should be read to mean expedient for the
beneficiaries: Riddle v Riddle (1952) 85 CLR 202 at 214.
The term means ‘advantageous’, ‘desirable’, ‘suitable to
the circumstances of the case’ and includes
‘expediency created by sound practical business
considerations’: Trust Company Fiduciary Services Ltd v
Challenger Managed Investments Ltd [2008] NSWSC
1155 at [24]; Application of NSFT Pty Ltd [2010] NSWSC
380 at [17].
• The court may refuse to order a variation if not all the
beneficial interests have been represented on the
question of expediency: Feeney v Feeney [2008]
NSWSC 298.
Expedient
• Examples of expedient variations include Arakella Pty
Ltd v Paton, where Hamilton J used the power to
change the nature of the beneficiaries’ interest in a
unit trust from units to shares, on the basis that it did
not subvert the beneficial interests but accommodated
them to the commercial needs of the trust.
• In Colonial Foundation Ltd v The Attorney-General
[2007] VSC 344, the deletion of otiose clauses which
had been rendered redundant was found to be
expedient, as were changes to the trustee’s power to
vary the trust deed and distribute capital and income,
so that investment could be targeted to more capital
growth.
The intention of the creator
• The intention of the creator of the trust is a
relevant consideration in discovering what is
expedient: Riddle v Riddle at 224. The exercise
of the court’s discretion should be informed,
but not governed by, the intention of the
settlor or testator/trix: Royal Melbourne
Hospital v Equity Trustees Ltd at 493–4;
Alexander v Alexander [2011] EWHC 2721 (Ch)
at [22].
Impact on beneficial interests
• In Re Ansett Australia Ltd (2006) 151 FCR 41, the court
refused a variation which would have allowed a resolution
to be put to a meeting which was adverse to the interests
of the beneficiaries. But variations may be expedient if they
adversely affect some of the beneficiaries as an incidental
effect of management and administration. It has been said
that ‘expediency’ requires that the variation be expedient
for the trust ‘as a whole’: Re Craven’s Estate [1937] Ch 431
at 436; Re Sykes [1974] 1 NSWLR 597 at 600.
• In Riddle v Riddle, at 222, Williams J said that, ‘[t]he sole
question is whether it is expedient in the interests of the
trust property as a whole’. This might be one reason for not
allowing a variation which negatively alters some of the
beneficial interests.
Impact on beneficial interests
• Stein v Sybmore Holdings, Campbell J went so far as to say
that s 81 of the Trustee Act 1925 (NSW) did not contain a
requirement for the variation to be expedient for the trust
‘as a whole’. His Honour found that the section did allow for
beneficial interests to be altered. Campbell J approved of a
postponement of the vesting date of the beneficial
interests under a trust, in circumstances where the delay
might have caused potential beneficiaries to be added to a
class (watering down other interests), or caused some
classes of beneficiaries to miss out altogether. The change
nevertheless was asked for by the beneficiaries (and
granted), given the large tax liabilities they would have
faced had the property vested when originally intended.
Royal Melbourne Hospital v Equity
Trustees Ltd (2007) 18 VR 469
• Victorian Court of Appeal had to consider whether to give trustees a
power to sell portions of a large estate of settled land to create a managed
fund so that mounting land taxes could be paid. If the land taxes were not
paid the estate would be sold in portions by the state government to meet
the debts.
• The grandchildren, who were entitled to the use of the land for life, were
in favour of doing nothing as this left their rights least affected. But by
doing nothing, eventually all the property would have to be sold to meet
the tax debts and nothing would be left for residuary beneficiaries (a
number of charities).
• The variation to create a managed fund would avoid this eventuality as
larger amounts could be sold to create a fund which could then meet the
debt.
• However, the immediate impact of such sales would be to accelerate the
reduction of the grandchildren’s rights. It was argued that such a variation
was not in the interests of the trust as a whole, because the grandchildren
would be adversely affected earlier than what they would otherwise be.
Royal Melbourne Hospital v Equity
Trustees Ltd (2007) 18 VR 469
•
•
•
Bell AJA, at 504, said:
The submissions of the minority (but not the majority) grandchildren would deny
the court any capacity to bring a sense of proportion to the exercise of the
expedience power. No matter how clear the settlor’s intention to create several
beneficial interests, how inimical the consequences of inaction for the trust
property or the interests of one class of beneficiaries, how great the sphere of
beneficial enjoyment preserved, how small the degree of beneficial enjoyment
reduced, how fairly the scales are held between the various beneficial interests
and how expedient the power is in all other respects, if conferring the power
would disadvantage some or even a single beneficiary, that, it is submitted, is the
end of it. Those submissions must be rejected. This ‘large and important’ [quoting
Riddle v Riddle at 214] power is not exercised by the principle of the dog in the
manger. The true position is that a power, otherwise expedient for the
management or administration of the trust property and in the interests of the
trust or beneficiaries as a whole, may be conferred even if its impact may be
relatively positive for some beneficiaries and relatively negative for others. A
power does not necessarily lose its character of being expedient for that purpose
because it may impact differentially on the beneficiaries.
Illegality
• Any estate involved will be allowed to lie
where it falls, meaning that equity will not
upset the legal title of the property by
imposing a trust: Holman v Johnson
• The court’s finding of illegality depends on
whether the party has to rely on evidence of
his or her own fraud to prove their title —
equity will not assist them: Tinsley v Milligan
Termination or failure of express trusts
• However, if it is possible to prove title without the
need to rely on evidence of illegality, the title can be
upheld in equity. For example, in Tinsley v Milligan, a
house had been purchased jointly by the parties but
registered in the name of one party, so as to allow
the other to continue to get social security. Given
that one party had provided part of the proceeds an
automatic presumption arose of a resulting trust: see
Chapter 21. The resulting trust was found to be valid
because it arose without the necessity to bring
evidence of the illegal purpose behind the
transaction.
Termination or failure of express trusts
• In Australia the Tinsley v Milligan approach
has been rejected and a more flexible test
adopted that requires the court to examine
the policy behind the law that has been
breached
Termination or failure of express trusts
• Nelson v Nelson (1995) 184 CLR 538
• A mother paid the purchase price of a house which was then
registered in her son and daughter’s names. The purpose
behind the transaction was to allow the mother to purchase
another home at some future time, with the benefit of a
subsidy under the Defence Service Homes Act 1918 (Cth). The
subsidy was only available for one house. Sometime later the
mother purchased another house with the use of the subsidy,
making false declarations that she did not own any other
property. The house in the children’s names was later sold.
The daughter argued that she had a beneficial interest in the
proceeds, whereas the mother and the son claimed a
beneficial interest for the mother.
Nelson v Nelson
Mother
LAW: Legal Title holders?
(son and daughter)
Purchase $$
House
Who gets
beneficial
title in the
proceeds?
EQUITY: Resulting trust
presumed for benefit of ‘real’
purchaser (mother)
Registration
EQUITY: Presumption of
Son &
Daughter
resulting trust is negated by
presumption of advancement
when purchase money
provided by a parent and
property put in name of a child
So unlike Tinsley v Milligan, Mrs Nelson had to rely on her illegal behaviour
to show that she did not provide the purchase price for the benefit of her
children.
Termination or failure of express trusts
• Deane and Gummow JJ found that there
should be no general policy of letting the loss
fall where it lies. Instead equity should look at
the specific circumstances of the case and the
particular policy behind the law that had been
breached. After analysing the Act, Deane and
Gummow JJ found at CLR 570; ALR 158 that
the policy was to help eligible persons
purchase dwellings. It was not to prevent
them from owning more than one house.
Termination or failure of express trusts
• As such, the policy did not require the court to
automatically refuse equitable relief.
Additionally, given the mother was seeking
equitable relief, she was obliged to make good
the amounts that she had defrauded from the
government, before a resulting trust would be
enforced
Termination or failure of express trusts
• McHugh J stated at CLR 613; ALR 193:
• … courts should not refuse to enforce legal or equitable rights
simply because they arose out of or were associated with an
unlawful purpose unless: (a) the statute discloses an intention
that those rights should be unenforceable in all
circumstances; or (b) (i) the sanction of refusing to enforce
those rights is not disproportionate to the seriousness of the
unlawful conduct; (ii) the imposition of the sanction is
necessary, having regard to the terms of the statute, to
protect its objects or policies; and (iii) the statute does not
disclose an intention that the sanctions and remedies
contained in the statute are to be the only legal consequences
of a breach of the statute or the frustration of its policies.
Termination or failure of express trusts
• Toohey J, at CLR 5978; ALR 180 did not require the mother to
pay back the subsidy as that was a matter for the government
• Dawson J took a different path and found that the false
declaration was not sufficiently related to the circumstances
giving rise to the resulting trust. The purchase of the home
occurred a substantial period before the false declara tion was
made. His Honour rejected at CLR 581; ALR 166 the distinction
drawn in Tinsley v Milligan between cases where the illegality
needs to be relied upon and those where it does not. Like
Toohey J, Dawson J did not require the mother to repay the
subsidy, given that the government had the power to recall it.
Fear of litigation
• Day v Couch [2000] NSWSC 230, the plaintiff was in a car
accident and believed that he was liable for a large claim of
damages. He transferred properties to his father for the
purpose of making them unavailable to any possible creditors.
However, no claim was brought against him. After his father’s
death he sought a declaration that he was the beneficial
owner of the properties on resulting trust. There was no
breach of any statute as the consequences of the illegal intent
did not occur. As such Bryson J upheld the imposition of a
resulting trust.
Foreign ownership
•
Menezes v Salmon [2009] NSWSC 2 concerned a trust of land
where the beneficiary was a foreign national. This trust was not
approved under s 21A of the Foreign Acquisitions and Takeovers Act
1975 (Cth), but Macready AsJ found that the imposition of a trust
would not be inconsistent with the Act, as the Act did not make it
illegal for a foreign national to own land in Australia.
• Penalties could be imposed for failing to notify the Treasurer of an
intention to buy land. Because of this the court would not strike
down the trust as that would effectively impose additional
sanctions on the plaintiff.
• Other courts have found similarly: Huang v Fu [2011] NSWSC 316;
Fan v Tang [2010] NSWSC 11; Ikeuchi v Liu [2001] QSC 54.
• In Sheikholeslami v Tolcher [2011] FCA 1050, Yates J said that the
defence of unclean hands would only require the foreign national to
notify the Treasurer of the beneficial interest.
Trusts to defeat insolvency
• Bankruptcy Act 1966 (Cth),s 120 voids any transfer of property for less
than market value which occurs within five years of the commencement of
the bankruptcy. Declarations of trust are clearly within the provisions of
the section: Ambrose (Trustee) in the matter of Poumako (Bankrupt) v
Poumako [2012] FCA 889.
• There are a number of exceptions, such as payments of tax, maintenance,
and debt agreements: s 120(2). Transfers will not be void if they took place
more than two years prior to the commencement of bankruptcy and the
transferee can prove that at that time the transferor was solvent: s 120(3).
• However, if the transfer occurred less than two years prior to the
commencement of bankruptcy, the provision is activated and it will not
matter that the transferee had acted in good faith and paid valuable
consideration, if that consideration was less than market value: Anscor Pty
Ltd v Clout (2004) 135 FCR 469.
• If the transfer was to a related entity, the transfer has to have taken place
more than four years prior to the commencement of bankruptcy. There is
a rebuttable presumption that a person who had not kept books, records
and accounts was insolvent: s 120(3A).
Section 121
1) A transfer of property by a person who later becomes a
bankrupt (the transferor) to another person (the transferee) is
void against the trustee in the transferor’s bankruptcy if:
(a) the property would probably have become part of the
transferor’s estate or would probably have been available to
creditors if the property had not been transferred; and
(b) the transferor’s main purpose in making the transfer was:
(i) to prevent the transferred property from becoming
divisible among the transferor’s creditors; or
(ii) to hinder or delay the process of making property
available for division among the transferor’s creditors.
Trustees of the Property of Cummins (a
bankrupt) v Cummins (2006) 227 CLR 278
• Cummins, a barrister, who had become bankrupt after
failing to pay income tax for nearly 45 years. In 1987 he had
transferred his legal and beneficial interests in his
matrimonial home to his wife, and he also transferred his
shares in his chambers to a trustee, where the trust was set
up to benefit his family.
• The barrister argued that his main purpose for doing this
was to limit his exposure to professional negligence liability,
as he claimed to fear the possibility that barristers would
lose their immunity from negligence.
• The trustee in bankruptcy argued that the main purpose in
transferring the assets was to avoid the Commonwealth
Government’s considerable claims for unpaid income tax.
Trustees of the Property of Cummins (a
bankrupt) v Cummins (2006) 227 CLR 278
• Main purpose test:
• [Mr Cummins] was well aware in August 1987 that he had incurred
very substantial liabilities to [the ATO], contingent only on [the ATO]
issuing assessments in respect of past income years;
• [Mr Cummins] was well aware at that time that [the ATO] would
issue assessments once [his] longstanding tax delinquency became
known, an event that could occur at any time;
• [Mr Cummins] divested himself voluntarily of virtually all his
substantial assets in August 1987;
• in any event, the assets retained by [Mr Cummins] were not
sufficient to meet his taxation liabilities, if [the ATO] decided to
issue assessments; and
• [Mr Cummins] saw the transfers as increasing the chances that his
assets would be protected from any claims made by [the ATO].
Fraudulent conveyances
• Conveyancing Act 1919 (NSW) ss 37A
• (1) Save as provided in this section, every alienation of
property, made whether before or after the
commencement of the Conveyancing (Amendment) Act
1930 , with intent to defraud creditors, shall be voidable at
the instance of any person thereby prejudiced.
• (2) This section does not affect the law of bankruptcy for
the time being in force.
• (3) This section does not extend to any estate or interest in
property alienated to a purchaser in good faith not having,
at the time of the alienation, notice of the intent to defraud
creditors.
Fraudulent conveyances
• Marcolongo v Chen (2011) 242 CLR 546 French CJ,
Gummow, Crennan and Bell JJ found that an ‘intent to
defraud’ included attempts to delay, hinder and defeat
creditors.
• The majority also found that it was sufficient of the
section to prove an intent to hinder, delay or defeat
creditors without also showing that the debtor wanted
creditors to suffer loss or had a purpose of causing loss.
• Nor does the intent to defraud does need to be the
sole or dominant intent. The expression ‘ an intent to
defraud creditor’ should therefore be given a liberal
interpretation: Cassegrain v Gerard Cassegrain & Co
Pty Ltd [2012] NSWSC 403 at [255].
Agusta Pty Ltd v Provident Capital Ltd
[2012] NSWCA 26
• Agusta incurred fees to Provident, when it was acting as a trustee. Agusta
had a right to be indemnified out of the trust assets for those fees.
• Later, Agusta was replaced as trustee by Riva and trust assets were
transferred to Riva. Provident argued that the transfer of trust property to
Riva was void because the transfer was intended to delay or hinder its
rights to be paid.
• There was no direct evidence of any intention to defraud Provident. An
intention could only be inferred from the nature of the transaction and
the effect that it had on Provident’s rights to be paid.
• The Court of Appeal found that Provident could still seek payment from
the assets even though they had passed to Riva. The transfer of trustee
rights to Riva included Agusta’s right to be indemnified for the fees.
• Provident was the only creditor of the trust. There was, therefore, no
equitable reason, preventing Provident from subrogating its rights with
Riva’s right to be indemnified for those costs
Family Law
• The Family Court has the power to declare the
rights and titles that parties to a marriage have to
property and it has the power to make alterations
to those rights: Family Law Act 1975 (Cth) ss 78,
79.
• Section 85A of the Family Law Act also allows the
courts to make orders it thinks are just and
equitable in relation to property dealt with by
ante-nuptial and post-nuptial settlements which
are made in relation to the marriage.
Section 106B
• In proceedings under this Act, the court may
set aside or restrain the making of an
instrument or disposition by or on behalf of,
or by direction or in the interest of, a party,
which is made or proposed to be made to
defeat an existing or anticipated order in
those proceedings or which, irrespective of
intention, is likely to defeat any such order.
Kennon v Spry (2008) 238 CLR 366
• Dr ICF Spry created a trust in 1968, and later
recorded in writing in 1981. Dr Spry was the
settlor and trustee.
• The trust was a discretionary trust where the
beneficiaries were all the issue of Dr Spry’s father
and their spouses.
• In 1983 Dr Spry removed himself as a beneficiary.
• When his marriage came into difficulties in 1998
he executed a document which removed himself
and his wife as capital beneficiaries. Dr Spry and
his wife separated in 2001.
Kennon v Spry (2008) 238 CLR 366
• In 2002, he created four trusts for his daughters and he exercised
his discretion as trustee to apply all the income and capital from the
primary trust into the trusts for his daughters.
• He also transferred a number of shares into the daughters’ trusts.
Later that year he appointed Kennon as joint trustee, with himself,
of the four trusts for the daughters.
• Mrs Spry made an application to the Family Court seeking to set
aside the 1998 document which had removed her as a beneficiary,
and the later transactions which had benefited the daughters.
• At trial, Strickland J found in favour of Mrs Spry and set aside the
transactions using s 106B. Strickland J ordered that Dr Spry pay the
wife a sum of over $2 million.
• The Full Court dismissed an appeal and the matter then proceeded
to the High Court.
Kennon v Spry (2008) 238 CLR 366
• Did s 106B apply?
• French CJ, at CLR 395, found that:
• Because the 1998 instrument effectively disposed of Mrs
Spry’s equitable right to be considered in the application of
the Trust fund, and having regard to the trial judge’s
conclusions about the purpose of the instrument, the order
setting it aside was an appropriate exercise of the Family
Court’s power under s 106B.
• Stephens v Stephens (Enforcement) ([2009) 42 Fam LR 423
Public policy
• Immorality: A trust that promotes immorality will be
invalid. Under this heading trusts in favour of future
illegitimate children have been struck down: Re
Ayles’ Trusts (1875) 1 Ch D 282, although it would
seem highly unlikely that this would be the case in
modern times
Public policy
• In Andrews v Parker [1973] Qd R 93, an agreement that a
woman would return property should she forsake her de
facto relationship and go back to her husband was
upheld as it had not brought about the immoral
relationship.
• Similarly, in Seidler v Schallhofer [1982] 2 NSWLR 80, an
agreement to continue a de facto relationship for a
period (wherafter the relationship would be abandoned
or lead to marriage) was not void because the state of
‘immorality’ of the relationship was already in existence
when the agreement was struck.
Ashton v Pratt (No 2) [2012] NSWSC 3
• Madison Ashton, who provided escort services
to the late billionaire, Richard Pratt.
• Ashton alleged that she had contracted with
Pratt to provide him with services as his
mistress in exchange for him settling $5
million of trust for her two children, paying
her $500,000 per annum, $36,000 per annum
for rental accommodation and $30,000 per
annum for travel expenses.
Ashton v Pratt (No 2) [2012] NSWSC 3
• Brereton J, at [52], said:
• The arrangements between Ms Ashton and Mr Pratt involved none
of the saving graces which enabled a different result to be reached
in the cases to which I have referred [including Andrews v Parker
and Seidler v Schallhofer]. Those arrangements were not made to
facilitate continuation of an existing cohabitation, but to establish
the ‘mistress relationship’. The evidence does not reveal a
relationship, or consideration, beyond ‘meretricious sexual
services’. In my view, on the current state of the authorities, the
arrangements were contrary to public policy and illegal in the
relevant sense. Had they otherwise constituted a contract, it would
have been void as contrary to public policy
Marriage and family
• Trusts that completely restrain a person from marrying,
or which encourage a person to divorce, are also void: Re
Johnson’s Will Trusts [1967] 1 All ER 553.
• Trusts which have the effect of separating parent and
child will also offend public policy: Re Boulter; Boulter v
Boulter [1922] 1 Ch 75.
• A trust for one’s widow or widower which ceases on their
remarriage is valid: Lloyd v Lloyd (1852) 2 Sim (NS) 255;
61 ER 338.
• Partial restraints on marriage, such as preventing
marriage to a person of a particular religious
denomination, race, ethnicity or class, have also been
upheld: Seidler v Schallhofer
Ramsay v Trustees Executors & Agency
Co Ltd (1948) 77 CLR 321
• A gift of income to the testator’s son with an
absolute gift to take effect at the end of the
marriage with his present wife was upheld.
• The intention of the testator was not to separate
the married couple but merely to prevent the
wife from receiving any interest in the funds.
• The son still got the benefit of the income from
the trust while married, which indicated that
there was no intention to encourage divorce.
Penfold v Perpetual Trustee [2002]
NSWSC 648
• Will where the children would get no capital benefits until
the death and burial or cremation of their mother (who
had been divorced from the testator).
• The children argued that the requirement was void against
public policy because it had a tendency to wish their
mother dead and engender hatred for her being alive.
• It was argued that the condition was calculated to cause
family disharmony.
• Windeyer J disagreed and found that the fact that the
children’s interests were delayed was not an
encouragement to hatred or murder. The intention of the
testator was to ensure that his ex-wife would not benefit
from his estate.
Ellaway v Lawson [2006] QSC 170
• The testatrix left a gift in her will to her two daughters but required
the interest of one daughter to be conditional on her divorcing her
current husband or his death.
• Unlike Ramsay, there were no other gifts to this daughter. It was
argued that the conditions were against public policy as they
encouraged divorce and wished the husband dead.
• Douglas J rejected these arguments and upheld the condition.
There did not appear to be an obligation imposed on the daughter
to divorce.
• While troubled by the lack of any other gift, Douglas J thought that
there were other means for ameliorating this problem (namely
through a family maintenance application). Douglas J also opined
that society’s changing attitude to divorce may suggest that the
public policy issue is no longer as prominent as it had been in the
past, although his Honour declined to decide on that issue
Kay v South Eastern Sydney Area
Health Service [2003] NSWSC 292
• I give the Children’s hospital at Randwick $10,000 for the
treatment of White babies
• Racial Discrimination Act s 8(2)
This Part does not apply to:
(a) any provision of a deed, will or other instrument, whether
made before or after the commencement of this Part, that
confers charitable benefits, or enables charitable benefits
to be conferred, on persons of a particular race, colour or
national or ethnic origin; or
(b) any act done in order to comply with such a provision
Misrepresentation
• If the settlor has been induced to create a
trust by misrepresentation, or has been
pressured into creating a trust via undue
influence, the trust will be voidable: Johnston
v Johnston (1884) 52 LT 76; Williams v Bayley
(1866) LR 1 HL 200.
Tjiong v Tjiong [2012] NSWCA 201
• The case involved the estate of the late George Tjiong. Two of
George’s children, Katrina and Lindsay, sought to set aside a
discretionary trust which had been created by George’s brother
and executor, Richard Tjiong, who was also trustee of the
discretionary trust.
• At trial, Palmer J found that the daughters had been fraudulently
deceived into giving their consent to the creation of the trust.
• They falsely were told that they would avoid a large tax liability
and therefore be better off financially by settling a trust.
• Palmer J also found that Richard had also made payments in
breach of trust and had fabricated a claim against the deceased
estate.
• These findings were upheld on appeal.
Restraints on alienation
• Once property has been given absolutely on trust,
any restraint that is inconsistent or repugnant to that
absolute gift will be invalid. For example, a restraint
purporting to prevent the sale of the property after it
has been given absolutely will be void: Public Trustee
v Donoghue [1999] TASSC 147. Similarly in Brandon v
Robinson (1811) 18 Ves 429; 34 ER 379, a trust which
granted a life interest was given on the basis that the
life interest was not transferable. This restraint was
void because the life interest contained a power to
alienate, which was offended by the condition
subsequent.
Restraints on alienation
• A distinction must be drawn between an absolute
gift that is subject to a restraint, and a determinable
interest that automatically ends on the happening of
some event. The absolute gift, which is subject to a
condition subsequent, in effect grants a complete
interest, that is then divested on the satisfaction of
the condition. As such, this type of condition
subsequent is void as a restraint on alienation. If,
however, the interest transferred in trust is
determinable, the interest is considered to have
ended naturally on the occurrence of the event:
Restraints on alienation
• For example, ‘to A on trust for B for life, but if
B ceases to use the property as a hotel, then
to C’ is considered to contain a restraint on
alienation. The life interest is granted to B, but
can be artificially cut short by the event of B
no longer using the property as a hotel. Such a
condition subsequent is a restraint on
alienation.
Restraints on alienation
• However, if the trust was worded ‘to A on trust for B
for life until B ceases to use the property as a hotel’,
B’s life interest is always limited in time to the event
of the property no longer being used as a hotel. If
and when the property is no longer used as a hotel
B’s estate comes naturally to an end. This disposition
is not considered to be an absolute gift with a
limitation, as the interest contains the limitation
within itself. As such there is no restraint on the
interest granted
The rule against indestructible trusts
• A trust instrument that seeks to prevent the
beneficiaries from eventually using and
exhausting the capital of the trust funds will
be void. Such a trust is objectionable because
it prevents the trust property from being
alienable: Re Cain [1950] VR 382 at 391. Such
a trust also offends the rights of beneficiaries
under the rule in Saunders v Vautier
The rule against perpetuities
• The purpose behind the rule is to place time
limits on the creation of interests in property
that prevent testators from being able to
forever control property from the grave via
the use of infinite successive interests
• McCrimmon states at 130:
– While strong arguments can be made for the
abolition of the Rule, that fact remains that it is
part of our law and legal practitioners and law
students should have an understanding of its
application
The modern rule against perpetuities
• An interest that is created to vest some
time in the future, must vest within a life
in being plus 21 years from the date the
instrument becomes effective
The modern rule against perpetuities
• Note that the rule is not concerned with how long an interest
will last. It is only concerned that the interest vest within the
perpetuity period.
• A ‘vested interest’ is an interest in property that has taken
effect in possession, or one that will take effect in possession
through the natural determination of prior estates. To
illustrate, consider a gift ‘to A on trust for B for life, and then
to C’. This disposition contains three separate interests: the
legal title of A as trustee, the equitable life estate in B and the
remainder to C. All of these interests are considered to be
vested. A’s interest has taken effect in possession.
The modern rule against perpetuities
• To contrast, consider a gift of property ‘to A on
trust for B for life, then to C if C attains 21
years’. Unlike the previous example, C’s interest will not automatically come into
possession on B’s death. C’s interest is subject
to a contingency, and is referred to as a
‘contingent remainder.’ C’s interest will only
vest if C attains the age of 21.
The modern rule against perpetuities
• The perpetuity period is equivalent to a life in being
plus an additional 21 years. The phrase a ‘life in
being’ is usually a reference to the life of someone
mentioned expressly in the disposition. The life in
being must be human and the person must be alive
at the date of the creation of the interest:
• For example, in a gift to ‘B for life and then to any
children of B who attain 18 years’ the life in being is
taken to be B. The contingent interests of the unborn
children must vest within 21 years after the death of
B.
The modern rule against perpetuities
• More than one person can be employed in a
disposition as ‘lives in being’. When a class is
used the 21 years runs from the death of the
last survivor in the class. Classes will only be
valid if the class is not capable of increasing in
number when the instrument takes effect.
Moreover, the class must be capable of
ascertainment at the date the instrument
comes into effect.
The modern rule against perpetuities
• A popular example of this principle is the
‘royal lives’ clause where the lives in being are
defined to be the descendants of a particular
member of the royal family. For example, in
Clay v Karlson (1998) 19 WAR 287, the life in
being was defined to be the last living survivor
of King George V.
The modern rule against perpetuities
• If the life in being is an unborn child (en ventre
sa mere — ‘in the belly of the mother’) the
length of gestation is added to the perpetuity
period.
• People are presumed to be able to reproduce
no matter what age they are!!!!!
SOME STEPS
1. Is this a perpetuity problem? IE is there a
contingent remainder
2. When is the interest created? (death? Inter
vivos)
3. Who is the life in being? (living person or
closed class of living persons)
4. Is there any possibility that it will vest outside
the period of LIB + 21 years
5. Is there some mitigating rule or statute (will
talk about later)
DRAW IT ON A DIAGRAM!!!!
The modern rule against perpetuities:
EXAMPLES
• An inter vivos gift ‘to A on trust for B for life, and
then to any of B’s children that marry’. In this
disposition the life in being is taken to be B. If B is
alive at the time of the creation of the trust, the gift
is to the children is void. B’s interest is vested but the
children’s interest is contingent on them marrying. B
may have children after the trust is created and
those children might marry more than 21 years after
B’s death
B is life in Being
B’s children can marry more than
21 years after his death
To A on trust B for life, then to any of B’s children that marry
The modern rule against perpetuities
• A gift of a gravel pit on trust to A to use until
the pit is exhausted, and then to be sold and
divided equally among the testator’s living
issue. Assume that the pit is actually
exhausted after six years. This gift will still be
void because at the date the gift becomes
effective it may take longer than a life in being
and 21 years for the pit to be exhausted. This
is known as an example of the magic gravel
pit
A is life in being
At the time the gift vests, no one knows if the gravel pit
will ever be exhausted.. Doesn’t matter if it is in fact
exhausted before perp pd POSSIBILITY = VOID
gravel pit on trust to A to use until the pit is exhausted, and then to be sold and
divided equally among the testator’s living issue
The modern rule against perpetuities
• A testamentary gift ‘to A, my wife, for life, then to A’s
children for life, then for such of any children of my
brother and sister who attain 21’. In this example, the
wife is treated as the life in being. Assume that at the
death of the testator his parents were both aged 66.
Regardless of this fact, it is presumed under the
modern rule that both parents were fertile and could
produce more children. Therefore the gift over to the
nephews and nieces is too remote as it was possible
that the parents of the testator could have more
children who might then breed and add to the class
more than 21 years after the death of the wife. This is
known as the example of the fertile octogenarian
A (wife) is LIB
Brothers + Sisters of T can be
born and have babies
Babies of brothers and sisters
can reach 21
‘to A, my wife, for life, then to A’s children for life, then for such of any children of
my brother and sister who attain 21’ (T’s parents are old but living at the time of
death)
Common Law Amelioration
To soften the Rule against perpetuities, courts
developed the Rule in Andrew v Partington
(1791) 3 Bro CC 401; 29 ER 610. It is best
explained through example.
TAKE THE VOID GIFT:
‘A on trust for B for life and then such of B’s
children that attain 25 years’
B is LIB
B can have children
until the day he dies
B’s children can turn 25 >21
years after B’s death
‘A on trust for B for life and then such of B’s children that attain 25 years’, where B
is alive at the time death/effect
RULE IN Andrews v Partington
If one of B’s children turns 25 before the first
interest vests, the class of B’s children is
closed.
Children born after that date don’t get anything.
So the gift doesn’t offend the Rule
Statutory reform
• The primary reform has been the introduction
of wait-and-see provisions: Perpetuities Act
1984 (NSW), s 8(1)
• The second major reform is in relation to the
calculation of the perpetuity period. The
period is set at 80 years automatically:
Perpetuities Act 1984 (NSW), s 7
Statutory reform
• The third reform consists of an automatic
reduction in age for beneficial interests that
would fail because they are stipulated to take
effect upon the beneficiaries reaching a
specified age beyond 21 years plus a life in
being. In some jurisdictions the age can be
read down to an age that would not infringe
the modern rule: Perpetuities Act 1984 (NSW),
s 9(1)
Nemesis Australia Pty Ltd v Commissioner
of Taxation (2005) 150 FCR 152
• There were a number of dispositions which could
possibly have vested outside the perpetuity
period. The court refused to invalidate the
dispositions as it was possible that the interests
could vest prior to the expiry of the period.
• Tamberlin J, at 586, found that the wait-and-see
provisions applied so that the disposition must be
treated as if it were not subject to the rule until
such time as it becomes established that the
vesting must occur outside the perpetuity period
Question
• Sue died leaving a farming property and a
large bank account. Under her will, Sue
appointed her brother Lex as executor and
trustee of her estate. Sue was a prejudiced
woman and disliked Catholics immensely.
Clause 4 of her will stated:
• I give the farm to Lex on trust for Elizabeth for
life, on the condition that Elizabeth is not
married to a Catholic.
Question
• Clause 8 of her will states:
• I give $200,000 to Lex on trust for Anthony, then for
any wife he may marry for life, then to Anthony’s
children that attain 25 years.
• At the time of Sue’s death, Elizabeth had been
married to Patrick (a Catholic) for five years. Sue had
been aware of the marriage and did not approve.
Anthony was aged 65 and had not yet married or had
any children. He was, however, considering marriage
to Bronwyn, his girlfriend who was aged 70. Analyse
the validity of these trusts.
Solution
• Given the use of the phrase ‘on the condition that’ in
cl 4, the gift of the life estate to Elizabeth has taken
the form of a disposition with a condition
subsequent. The condition subsequent concerning a
marriage to a Catholic can be struck out as being
against public policy because it requires Elizabeth to
divorce. At first glance the gift appears to be a valid
partial restraint of marriage as the condition
restrains marriage to a person of a particular
religious faith
Solution
• However, if a partial restraint is worded in
such a way that it forces the beneficiary to
divorce it will be struck down . It is clear that
the testator’s intention is to force the
beneficiary to divorce. As the condition is
severable from the disposition, Elizabeth can
take her interest free from it.
Solution
• Clause 8 needs to be examined to determine
whether it offends the rule against
perpetuities. For the purpose of calculating
the perpetuity period, Anthony must be the
life in being as the future wife and children are
not ascertainable at the date the will comes
into effect. The gift to the future wife is valid
as it will vest within the life in being, because
her interest will vest when she marries
Anthony.
Solution
• However, the children’s interest offends the
rule. First it is presumed that Anthony is fertile
and that any wife he marries will also be
fertile, regardless of their age. It is therefore
possible that Anthony’s wife will bear him a
child that will not reach 25 years of age within
21 years of his death. Therefore, that child’s
interest could possibly vest outside the period.
Solution
• The gift would be saved by legislation, which
automatically reduces the age restriction to
bring it within the perpetuity period. This
would have the effect of reducing the age
restrictions to 21 years as opposed to 25
years. Finally, the wait-and-see provisions
would allow the gift to survive initial
uncertainty