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Trusts & Trustees , 2007, Vol. 13, No. 3 75

Trustee duties to beneficiaries in the exerciseof dispositive discretion: the legal framework

Anthony Molloy QC*

‘I like not that a Man should be ambitious of a Trust,

when he can get nothing but Trouble by it.’

Uvedale v Ettrick (1682) 2 Cas in Ch 130, 131;

22 ER 880, 881 (Lord Nottingham).

Trustees’ first duty: know the deed

Familiarity

Even if it is unlikely to be as much fun: indiscriminate,hasty and thoughtless acceptance of trusteeship is almost

as certain a road to woe as indiscriminate, hasty and

thoughtless acceptance of an opportunity for a casual

flirtatious encounter. Yet almost as many otherwise

sensible professional practitioners still do the former as

politicians do the latter. Many a trustee, repenting at

leisure, rues that a Lord Nottingham was not there to tap

him on the shoulder, and warn him off acceptance of the

flattering invitation. It is all about unremitting duty, and

about unremitting recrimination for breach of that duty.

The first duty of the trustee is close acquaintance

with the trust deed, and with any relevant contextual

material. Many who take up trusteeship regard this as

rather a quaint requirement. They completely ignore

the deed. These unhappy men and women play a

valuable role in society, and are much to be encouraged:

because the value of trust litigation is that it distributes

the fund or estate equitably among the members of

the Bar, and ensures that as little of it as possible is

squandered on beneficiaries.

Second duty: think the deed

through—no valid dispositive discretionwithout actual, or conceptual, clarity of beneficiary identity

Validity

The second, closely-related, duty is to consider whether

or not the settlor has described his beneficiaries, or the

class of them, unambiguously.

The court always will seek to discern the settlor’s

intention, and to ensure that it is implemented,1 or, as

least, not thwarted. But unless it be convinced that the

settlor has made it clear who his intended beneficiaries

are to be, the court will not be able to control the

administration of the trust estate for their benefit. In

that case there will be no trust at all2 on the terms of the

deed. So, on appeal from the Master of the Rolls in

Morice v Bishop of Durham,3 Lord Eldon LC held:

‘As it is a maxim, that the execution of a trust shall be

under the control of the Court, it must be of such a

nature, that it can be under that control; so that the

administration of it can be reviewed by the Court; or,

if the trustee dies, the Court itself can execute the trust:

a trust therefore, which, in case of maladministration

could be reformed; and a due administration directed;

and then, unless the subject and the objects can be

ascertained , upon principles, familiar in other cases,

it must be decided, that the Court can neither

reform maladministration, nor direct a due

administration.’

As the Lord Chancellor pointed out during the

argument of the case, there will be only a resulting

trust for the settlor: to whom, or to whose estate, the

trust estate must be returned intact , and not paid out to

anyone else.4

No validity means no power. It means no discretion.

If the trustee makes a disposition in any event, it will be

unauthorized and void. It will also be repayable by the

trustee to the settlor or to the settlor’s estate.

Difficulty

The problem here is not to be confused with mere

difficulty in tracking beneficiaries down, which does

not defeat the trust: Re Hain ’s Settlement .5 Provided the

beneficiaries are identified, or the class is conceptually

* Anthony Molloy QC Shortland Chambers, 13/70 Shortland Street, PO Box 4338, Auckland 1140, New Zealand.

1 See under the section of this article named ‘Taking the settlor’s intentionseriously is a key to the taking of that sensible approach’ subsequently as tothe requirement that sensible effect be given to the settlor’s intention.

2 Morice v Bishop of Durham (1805) 10 Ves Jr 522, 539–540.3 (1805) 10 Ves Jr 522, 539–540.4 (1805) 10 Ves Jr 522, 527.5 [1961] 1 WLR 440; McPhail v Doulton [1971] AC 424, 457 (HL).

The Author (2007). Published by Oxford University Press. All rights reserved.


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certain, the court always will give directions to the

trustee6 who encounters problems finding beneficiaries.

Test where the trust is fixed, and there is

no discretionNor is the problem of the conceptual clarity of the class

of potential beneficiaries of a discretionary power to be

confused with the fixed trust requirements for certainty

of objects. Where the trust is fixed, and the trustee has

no discretion as to objects, it will be valid only if the

whole class is ascertainable.

If an intended trustee apprehends that the fixed class

might not be ascertainable, he should require the settlor

to obtain an order from the court approving the validity

of the deed. Failing such an order, he should reject the

trusteeship.

Criterion for validity when the deed confersa simple power, or where it imposes a trustwith a power of selection

Once the element of discretion in the selection of

beneficiaries is introduced, there is no need to be able to

ascertain every possible recipient as long as the position

falls within the conclusion reached by the majority of the

House of Lords in McPhail v Doulton ,7 which Lord

Wilberforce expressed thus:

‘the test for the validity of trust powers ought to be

similar to that accepted by this House in In Re Gulbenkian ’s Settlements [1970] AC 508 for powers,

namely, that the trust is valid if it can be said with

certainty that any given individual is or is not a member

of the class ’.

Linguistic or semantic ambiguity in descriptionof beneficiary or of beneficiaries

Broad as the test is, it does not mean that anything goes.

In McPhail v Doulton 8 Lord Wilberforce, concluded

his judgment with a discussion of the potential sources

of invalidating ambiguity. His Lordship referred firstto linguistic or semantic ambiguity in the description

of the beneficiaries, or as to the class of beneficiaries.

He explained that linguistic or semantic ambiguity,

which the court cannot resolve, makes the trust void.

Earlier in his reasons,9 Lord Wilberforce had cited,

and applied to trusts, remarks of Upjohn LJ in respect of

powers, in In Re Gulbenkian ’s Settlements, Whishaw v

Stephen s,10 that, if a deed:

‘directs trustees to make some specified provision for

‘‘John Smith’’, then to give legal effect to that provision

it must be possible to identify ‘‘John Smith’’. If the

donor knows three John Smiths, then by the most

elementary principles of law, neither the trustees nor the

court in their place can give effect to that provision;

neither the trustees nor the court can guess at it. It must

fail for uncertainty, unless of course admissible evidence

is available to point to a particular John Smith as the

object of the donor’s bounty.’

Conceptual uncertainty

In McPhail v Doulton 11 Lord Wilberforce referred also

to conceptual uncertainty as to the class: which,

like linguistic or semantic uncertainty, makes the trust

unworkable and therefore void. His Lordship had in

mind the:

‘. . .case where the meaning of the words used is clear

but the definition of beneficiaries is so hopelessly wide

as not to form ‘‘anything like a class’’ so that the trust is

administratively unworkable or, in Lord Eldon’s words,

one that cannot be executed (Morice v Bishop of

Durham, 10 Ves Jr 522, 527).’

Light on meaning of conceptual uncertaintyas to the class

Uncertainty as to the class is as fatal as uncertainty as to

the individual.

‘All the residents of Great London’: problematic

Elaborating on their Lordships’ decision in

McPhail v Doulton ,12 that a trust is invalid for

conceptual uncertainty unless it can be said with

certainty that any given individual is or is not

a member of the class , Lord Wilberforce said that

‘‘‘all the residents of Greater London’’ will serve’ as

an example of a conceptually uncertain, and therefore

void, class of trust beneficiaries.13

6 See Re Gulbenkian’s Settlement, Wishaw v Stephens [1970] AC 508, 523, perLord Upjohn: ‘mere difficulty is nothing to the point. If the trustees feeldifficulty or even doubt upon the point the Court of Chancery is availableto solve it for them.’

7 [1971] AC 424, 456 (HL), on appeal from In re Baden’s Deed Trusts, Baden v Smith [1969] 2 Ch 388.

8 [1971] AC 424, 457.

9 [1971] AC 424, 455.10 [1970] AC 508, 523–525.11 [1971] AC 424, 457.12 [1971] AC 424.13 [1971] AC 424, 456.

76 Trusts & Trustees , 2007, Vol. 13, No. 3

Trustee duties to beneficiaries


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Templeman J took this up in Re Mainsty ’s

Settlement ,14 in which His Lordship held that:

‘The objection to the capricious exercise of a power may

well extend to the creation of a capricious power.

A power to benefit ‘‘residents of Greater London’’ [in aprivate, non-charitable, trust] is capricious because the

terms of the power negative any sensible intention on

the part of the settlor. If the settlor intended and expected

the trustees would have regard to persons with some claim

on his bounty or some interest in an institution favoured

by the settlor, or if the settlor had any other sensible

intention or expectation, he would not have required the

trustees to consider only an accidental conglomeration of

persons who have no discernible link with the settlor or

with any institution. A capricious power negatives a sensible

consideration by the trustees of the exercise of the power .’

Thus, whether or not Lord Wilberforce’s exampleproves to be correct, if a settlor ever decides to test it,

may depend on the existence or on the absence of

express or implied criteria.15

He and Templeman J were of course speaking of

private trusts. A charitable trust for the relief of poverty

among the residents of Greater London might be a

different matter.

‘Object of benevolence and liberality’, also problematic

In Morice v Bishop of Durham16 a trust for ‘such objects

of benevolence and liberality as the trustee in his own

discretion shall most approve’ was held uncertain,

and invalid. Referring to this case in Re Mainsty ’s

Settlement 17 Templeman J held that:

‘In a trust where the objects are described by vague

adjectives such as ‘benevolent’ and ‘liberal’ the trust breaks

the rule that the trustees and the court must be able to

determine with certainty whether a particular individual or

a particular object is within the ambit of the power.’

‘Equally between ‘‘my old friends’’’: problematic for the

non-discretionary Trust

In In Re Gulbenkian’s Settlements, Whishaw v Stephens 18

Lord Upjohn postulated a non-discretionary direction:

‘that a fund or the income of a fund should be equally

divided between members of a class. That class must be

defined as the individual; the court cannot guess at it .

Suppose the donor directs that a fund be divided equally

between ‘‘my old friends’’, then unless there is some

admissible evidence that the donor has given some

special ‘‘dictionary’’ meaning to that phrase whichenables the trustees to identify the class with sufficient

certainty, it is plainly bad as being too uncertain.

Suppose that there appeared before the trustees (or the

court) two or three individuals who plainly satisfied the

test of being among ‘‘my old friends’’, the trustees could

not consistently with the donor’s intentions accept them

as claiming the whole or any defined part of the fund.

They cannot claim the whole fund for they can show no

title to it unless they prove they are the only members of

the class, which of course they cannot do, and so, too,

by parity of reasoning, they cannot claim any defined

part of the fund and there is no authority in the trustees

or the court to make any distribution among a smallerclass than that pointed out by the donor. The principle

is, in my opinion, that the donor must make his

intentions sufficiently plain as to the object of his trust

and the court cannot give effect to it by misinterpreting

his intentions by dividing the fund merely among those

present. Secondly, and perhaps it is the more hallowed

principle, the Court of Chancery, which acts in default

of trustees, must know with sufficient certainty the

objects of the beneficence of the donor so as to execute

the trust.’

‘Between such of ‘‘my old friends’’ as my trustees shall select’:equally problematic

Lord Upjohn then considered, and found equally

wanting, a discretionary variation on the ‘my old friends’

example:19

‘Then, suppose the donor does not direct an equal

division of his property among the class, but gives

a power of selection to his trustees among the class ;

exactly the same principles must apply. The trustees

have a duty to select the donees of the donor’s bounty

from among the class designated by the donor; he has

not entrusted them with any power to select the donees

merely from among known claimants who are within

the class, for that is constituting a narrower class and the

donor has given them no power to do this.’

In the absence of any ‘dictionary’ provided by the settlor

in the deed, the spectrum from ‘old friendship’, through

mere ‘friendship’ and ‘old but no-longer friendship’,

to ‘mere acquaintanceship’, could be so broad as to

defeat attempts to encapsulate the settlor’s intention;

14 [1974] Ch 17, 27.15 Hayton et al , Underhill & Hayton Law of Trusts and Trustees (2006)

17th edn 122.16 (1805) 10 Ves Jun. 522.17 [1974] Ch 17, 24.18 [1970] AC 508, 523–524. Cited and applied by Lord Wilberforce in

McPhail v Doulton [1971] AC 424, 455. 19 [1970] AC 508, 524.




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and the trust accordingly would be void for want of that

certainty.

It is not sufficient there may be some who can be

identified as having been old friends of the settlor on any

test. Until it is clear what the concept meant to the settlor , there is no test that reveals whether any given

person is or is not an old friend for the purposes of the

instrument creating the trust.

However ‘relatives’ likely to be valid

Shared ancestry is not bedevilled by the problems of the

‘friendship’ spectrum. In his speech in McPhail v

Doulton ,20 Lord Wilberforce—hesitantly, lest his exam-

ple ‘may prejudice future cases’—suggested that

‘a discretionary trust for ‘‘relatives’’, even of a living

person’ would not be void for conceptual uncertainty or

administrative unworkability.21 It is comparatively straightforward to ascertain lines of marriage or blood

relationship.

Caution: ‘next-of-kin’ not a synonym for ‘relatives’

In Antill-Pockley v Perpetual Trustee Company Limited 22

however the argument that ‘next-of-kin’ just meant

‘relatives’ was rejected in favour of its strict meaning of

those nearest in blood relation. The class comprised any

wife, child, grandchild or next of kin of an unmarried,

childless, propositus, who had a sister alive. The

purported appointment to a nephew, the sister’s son,

was invalid: the sister was the sole next-of-kin.

Massive potential width of class not to bemistaken for conceptual uncertainty

‘Is or is not’ test not applicable unless there is a discernible class

The ‘is or is not’ test is very generous, but it cannot be

applied at all unless a class can be identified. So it is

vitally important that the very generosity of the ‘is or

is not’ test, referred to under ‘Criterion for validity when

the deed confers a simple power, or where it imposes a

trust with a power of selection’ earlier, does not lull the

trustee into glossing over certainty issues. Those issuesco-exist with that generosity; and the consequences of

overlooking them can be very expensive for the trustee.

At the same time, the trustee must not conclude from

the breadth of description of a class that the settlor has

shot himself in the foot. In Re Mainsty ’s Settlement 23

Templeman J held that In Re Gulbenkian ’s Settlements

and McPhail v Doulton teach that ‘a power cannot be

uncertain merely because it is wide in ambit’.

But the means of expressing that class can be very wide indeed

The deed in Re Mainsty ’s Settlement 24 empowered the

trustees to add, to the defined class of beneficiaries,

anyone in the world except the trustees, the settlor, his

wife, and the other members for the time being of a

defined excepted class.

Templeman J pointed out that this was not a general

power exercisable in favour of anyone; nor a special

power exercisable in favour of a class; but an

intermediate power: one exercisable in favour of

anyone in the world with certain, and few, exceptions.

But, for all its width, the power was not capricious,because, while a: ‘capricious power negatives a sensible

consideration by the trustees of the exercise of the

power . . . a wide power, be it special or intermediate,

does not negative or prohibit a sensible approach by

the trustees to the consideration and exercise of their

powers ’.25

That is to say, the context of this power—to add

anyone in the world to the class of original beneficiaries

specified in the trust deed—was a family settlement: the

original beneficiaries of which were the settlor, his

spouse, his issue, his siblings and their issue.

On any ‘sensible approach by the trustees to theconsideration and exercise of their powers’ it was

only going to be members of the family; persons

[and possibly companies] closely associated with the

original named beneficiaries; or, possibly, charities for

which any of them wished to have benefits provided:

who would require any serious consideration by the

trustees.

There was accordingly no conceptual uncertainty

within Lord Wilberforce’s discussion cited under

‘Conceptual uncertainty’ earlier. That is, by virtue of

the context in which the very wide intermediate

power being considered by Templeman J was located,the power was not one in which the definition of the

class of beneficiaries was so hopelessly wide as to have

made the trust administratively unworkable; or one

unable to be executed by the court, as Lord Eldon had

put it in the passage cited under ‘Validity’ earlier from

Morice v Bishop of Durham.2620 [1971] AC 424, 456.21 Hayton et al , Underhill & Hayton Law of Trusts and Trustees (2006)

17th edn 8.54, 8.55.22 (1974) 132 CLR 140 (High Court of Australia).23 [1974] Ch 17, 24.

24 [1974] Ch 17, 24.25 Re Mainsty’s Settlement [1974] Ch 17, 27.26 (1805) 10 Ves Jr 522, 539.




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Third duty: ascertain whether distribution is imperative; or fullydiscretionary

Trusts and powers share the test of objectcertainty

The same certainty of objects test serves both powers

and trust powers.27

Apart from that, and apart also from:

‘the fact that an individual’s interest or right is

non-assignable, there are other practical similarities

between the positions of the two types of object. Either

has the negative power to block a family arrangement

or similar transaction proposed to be effected under

the rule in Saunders v Vautier (1841) 4 Beav 115 (unless

in the case of a power the trustees are specially

authorised to release, that is to say extinguish, it).

Both have a right to have their claims properly

considered by the trustees.’28

Trusts and powers nonetheless not identical

Nonetheless, ‘assimilation of the validity test does

not involve the complete assimilation of trust powers

with powers.’29 It is accordingly important that the

trustee understand the difference between trust powers

and powers because they give rise to different trustee

obligations, which the trustee is duty-bound to recog-

nize and apply in her care and disposition of the trustestate for the benefit of the beneficiaries.

Telling the difference

It is a matter of construction whether the power is a

mere power or a trust power and the use of

inappropriate language is not decisive.30

Mere power

A mere, or bare, power to distribute to, or among,

a defined class, with a gift over in default of exercise,

is a permission or a faculty.31

(i) No duty to exercise the power : The person in whom it

is vested is under no duty to exercise it; and, normally,32

the court neither will compel him to do so, nor will

exercise it in his stead.33 because to do so, when the

settlor intended to leave it up to the trustee, generally

would defeat the intention of the settlor.34

If the trustee fails to exercise it, the fund goes to those

entitled under the trusts in default of its exercise.35

It follows that—even if it is clear, and its members are all

ascertained and are of full age and legal capacity—the

class, to or among which the trustee is entitled to

appoint, cannot compel the trustee to exercise it in their

collective favour.36

(ii) But a duty to consider whether to exercise it : But

none of this is to be taken to mean that the holder of the

mere power has no duties, or that the court has no teeth

to deal with him. A trustee vested with a mere power is

under a fiduciary duty to consider whether, or in whatway, he should exercise it.37

As Harman J put it in Re Gestetner Settlement,

Barnett v Blumka ,38 the holders of a mere power:

‘are bound, as I see it, to consider at all times during

which the trust is to continue whether or no they are to

distribute any and if so what part of the fund and, if so,

to whom they should distribute it. To that extent, I have

no doubt that there is a duty on these trustees: a

member of the specified class might, if he could show

that the trustees had deliberately refused to consider any

question at all as to the want or suitability of any member of the class, procure their removal; but there is

not . . .any duty, as I see it, on the trustees to distribute

the whole of either income or capital among the

members of the specified class; and if the whole of

the members could join together, they could still,

as I understand it, not divide the fund between them;

because there is a class in default of appointment, and

the document on its face shows that there is no

obligation on the trustees to do more than consider—

from time to time I suppose—the merits of such

persons of the specified class as are known to them and,

if they think fit, to give them something. The settlor had

good reason, I have no doubt, to trust the personswhom he appointed trustees; but I cannot see here that

27 See section of this article ‘Criterion for validity when the need confers asimple power, or where it imposes a trust with power of selection,’ earlier.

28 Schmidt v Rosewood Trust Ltd [2003] 2 AC 709, at para 41.29 Re Baden’s Deed Trusts, McPhail v Doulton [1971] AC 424, 456, per Lord

Wilberforce.30 Re Gulbenkian’s Settlements, Whishaw v Stephen s [1970] AC 508, 523 per

Lord Upjohn, with whom Lords Hodson and Guest agreed.31 Re Gulbenkian’s Settlements, Whishaw v Stephen s [1970] AC 508, 523.32 Re Baden’s Deed Trusts, McPhail v Doulton [1971] AC 424, 456, per Lord

Wilberforce, in whose reasons the other majority judges concurred.

33 Re Gulbenkian’s Settlements, Whishaw v Stephen s [1970] AC 508, 524 per Lord Upjohn.




37 Re Baden’s Deed Trusts, McPhail v Doulton [1971] AC 424, 456, per LordWilberforce, in whose reasons the other majority judges concurred.

38 [1953] Ch 672, 688.




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there is such a duty as makes it essential for these

trustees, before parting with any income or capital, to

survey the whole field, and to consider whether A is

more deserving of bounty than B. That is a task which

was and which must have been known to the settlor tobe impossible, having regard to the ramifications of the

persons who might become members of this class.’

In a passage in his reasons in Re Mainsty ’s Settlement 39

Templeman J appears to have held that that was it. That,

in respect of a mere power:

exercisable by the trustees at their absolute discretion,

the only ‘control’ exercisable by the court is the removal

of the trustees, and the only ‘due administration’ which

can be ‘directed’ is an order requiring the trustees to

consider the exercise of the power, and in particular a

request from a person within the ambit of the power.40

In Mettoy Pension Trustees Ltd v Evans ,41 Warner

J referred to a number of authorities that had not

been cited to Templeman J, and the Privy Council has

said that His Lordship took ‘a broader view [than

Templeman J] of the court’s power to intervene in the

case of a fiduciary dispositive power’.42

(iii) And a duty not to exercise it capriciously, irrationally,

or perversely : So, for instance, a trustee acting capriciously

would be in breach of that duty, and the court would

intervene to head him off, or to require redress.43 The

court did the latter in Wilson v Turner ,44 where trustees

who held a mere power to apply income for the

maintenance of children, paid the whole of it to their

father, without any inquiry into, or regard for, whether

he needed it for the purpose: which he did not. They

were held to have failed to exercise the discretion, to

have acted capriciously: and the entire amount was

recoverable from the father’s estate. If it had not been

recoverable, the trustees may well have had to restore it

to the trust estate from their own pockets.45

However, Warner J and the Privy Council were a little

unfair to Templeman J, for, in Re Mainsty ’s Settlement ,46

he had expressly held that:

‘The court may also be persuaded to intervene if the

trustees act ‘capriciously,’ that is to say, act for reasons

which I apprehend could be said to be irrational,

perverse or irrelevant to any sensible expectation of the

settlor; for example, if they chose a beneficiary by heightor complexion or by the irrelevant fact that he was a

resident of Greater London.’

(iv) Plus a duty not to exercise it excessively : The court

will restrain the trustee from any other improper

exercise of a mere power.47 For example, those entitled

to the fund in default of exercise would be entitled to

apply for an order that the trustees refrain from

exercising the mere power excessively : ie outside the

terms on which, or the beneficiaries for which, it was

conferred; and the court will intervene to protect

them.48 Again, with respect to Warner J and the Privy

Council, Templeman J had held expressly that:

‘reasonable trustees will endeavour, no doubt, to give

effect to the intention of the settlor in making the

settlement, and will derive that intention not from the

terms of the power necessarily or exclusively, but from

all the terms of the settlement, the surrounding

circumstances and their individual knowledge acquired

or inherited.’49

Which is to say that a trustee would act unreasonably,

and would be restrained by the court, if he was to

purport to exercise the power for purposes foreign to

the settlor’s intention as so determined.

Trust power

Where the deed creates a trust to distribute to, or

among, a defined class, with merely a power of selection

within that class, the trustee must exercise the power: it

being neither merely facultative, nor permissive, as in

the case of a bare power. ‘The outstanding point of

difference is of course that under a discretionary trust of

income distribution of income (within a reasonable

time) is mandatory, the trustees’ discretion being

limited to the choice of the recipients and the sharesin which they are to take’.50

Since the trustee is under a duty to exercise a trust

power, the court will do so if she refuses.5139 [1974] Ch 17, 27–28.40 [1974] Ch 17, 28.41 [1990] 1 WLR 1587, 1617–1618.42 Schmidt v Rosewood Trust Ltd [2003] 2 AC 709 at para 42 per the Privy

Council approving of Warner J.43 Re Baden’s Deed Trusts, McPhail v Doulton [1971] AC 424, 456, per Lord

Wilberforce, in whose reasons the other majority judges concurred.44 (1883) 22 Ch Div 521 (CA).45 As in Wong v Burt [2005] 1 NZLR 91 (CA) cited under ‘Consequential

excessive and fraudulent exercise’ subsequently.46 [1974] Ch 17, 26.

47 Re Gulbenkian’s Settlements, Whishaw v Stephen s [1970] AC 508, 525 per Lord Upjohn, with whom Lords Hodson and Guest agreed.

48 Re Gulbenkian’s Settlements, Whishaw v Stephens [1970] AC 508, 525 per Lord Upjohn; Re Baden’s Deed Trusts, McPhail v Doulton [1971] AC 424,456, per Lord Wilberforce.

49 Re Mainsty’s Settlement [1974] Ch 17, 26.50 Schmidt v Rosewood Trust Ltd [2003] 2 AC 709, at para 40.51 Schmidt v Rosewood Trust Ltd [2003] 2 AC 709, at para 40.




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If those entitled to be considered as beneficiaries of

such a discretionary power are all of full age and legal

capacity, they are entitled to compel the trustee to pay

the fund over to them, unless the fund is income and the

trustee has power to accumulate for the future.52

Otherwise:

‘the court, if called upon to execute the trust power,

will do so in the manner best calculated to give effect to

the settlor’s or testator’s intentions. It may do so by

appointing new trustees, or by authorising or directing

representative persons of the classes of beneficiaries to

prepare a scheme of distribution, should the proper

basis for distribution appear, by itself directing the

trustees so to distribute.’53

This discussion limited to establishing the distinguishing characteristics of mere powers and of trust powers

The concern of the discussion, under this heading, of

beneficiary rights and of trustee duties, has been to

illuminate the differences, and their importance,

between trust powers and mere powers. A trustee

cannot properly consider how to operate her dispositive

powers without knowing what manner of powers they

are. It will be necessary, later in this article, to consider

some of the duties in greater depth.

Fourth duty to beneficiaries, if trust isvalid: get in the trust estate

Validate and commence the trust

It is not the deed by which the trust is constituted,

but the trustee’s getting-in of the trust estate. So, once

the trustee is satisfied that the deed defines the

beneficiaries, or the class of beneficiaries, unambigu-

ously: it is imperative that the trust estate be got into the

trustee’s name, and invested.

The beneficiaries have the right to expect that the

trustee will attend to this; and the trustee has a duty tosee to it. Without property of which to dispose, any

purported exercise of the dispositive discretions will be

mere flatus.

An intended trustee who is so dilatory that the settlor

dies before the property is brought under the trust,

may find himself facing an action by the intended

beneficiaries whose prospects he has thus frustrated.

Trustees’ fifth duty to thebeneficiaries: survey them andascertain those with a ‘real andpractical interest’ and ‘a realprospect of benefit’

Identify all those with a ‘real and practicalinterest’ and ‘a real prospect of benefit’

In his 2003 Withers Lecture, The Trustees ’ duty to

provide information to Beneficiaries , Mr Justice Lightman

maintained convincingly that the trustees’ objective at

this stage must be to identify: ‘all the beneficiaries who

have a real and practical (as opposed to merely theoretical )

interest in the due administration of the trust and a

prospect of benefit thereunder ’.

On what basis is that identification to be made?

An extremely wide class requires a sensibleand informed approach rather than a pointlesslywide survey

The class in Re Gestetner Settlement, Barnett v Blumka 54

was extremely wide: embracing family; ex-employeesof any of the family; the widow or widower of any such

ex-employee; charitable institutions; and past and

present directors and employees—and the widows or

widowers of any of them—of Gestetner Ltd or of any

other company on the board of which any Gestetner

director was for the time being sitting. All in all ‘a class

which, it is admitted, is not one ascertainable at any

given time, being a fluctuating body’.55

For the purposes of considering the validity of a

mere power vested in the trustees, Harman J held

that it nonetheless sufficed, to validate the power, that

‘there is no difficulty, as has been admitted, in ascertaining

whether any given postulant is a member of the specified

class . Of course, if that could not he ascertained the

matter would be quite different, but of John Doe or

Richard Roe it can be postulated easily enough whether

he is or is not eligible to receive the settlor’s bounty.

There being no uncertainty in that sense, I am reluctant

to introduce a notion of uncertainty in the other sense, by

52 Re Gulbenkian’s Settlements, Whishaw v Stephen s [1970] AC 508, 523 per Lord Upjohn, with whom Lords Hodson and Guest agreed. In Schmidt v Rosewood Trust Ltd [2003] 2 AC 709, at para 40, the Privy Council referredto this, and said: ‘But the possibility of such a collective disposition will berare, and on his own the object of a discretionary trust has no more of anassignable or transmissible interest than the object of a mere power.’

53 Re Baden’s Deed Trusts, McPhail v Doulton [1971] AC 424, 456, per LordWilberforce, in whose reasons the other majority judges concurred.

54 [1953] Ch 672, 688 (Harman J).55 [1953] Ch 672, 683.




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saying that the trustees must worry their heads to survey

the world from China to Peru, when there are perfectly

good objects of the class in England ’.56

Harman J’s good sense in this, and other, aspects of his

reasons, was referred to by, and clearly influenced,Templeman J in Re Mainsty ’s Settlement , in which His

Lordship held that: ‘a wide power, be it special or

intermediate, does not negative or prohibit a sensible

approach by the trustees to the consideration and

exercise of their powers.’57

The Privy Council cited this approvingly in the

reasons for its advice in Schmidt v Rosewood Trust Ltd .58

And in McPhail v Doulton 59 Lord Wilberforce made it

clear that, once the trustee can see that there is

conceptual certainty—ie, that any given individual is,

or is not, a member of the class of beneficiaries intended

by the settlor—there is no need for that trustee to have

compiled, or to have been able to compile, ‘a complete

list of all possible objects’.

Taking the settlor’s intention seriously is a key tothe taking of that sensible approach

In Re Gestetner Settlement, Barnett v Blumka 60 Harman J

made a point so obvious that—like actually bothering to

read the trust deed—it is easily overlooked. The learned

judge continued:

‘Consequently, I am not minded to upset thescheme put forward by the settlor on the ground

indicated, namely, that of uncertainty. There is no

uncertainty in so far as it is quite certain whether

particular individuals are objects of the power. What is

not certain is how many objects there are; and it does

not seem to me that such an uncertainty will invalidate a

trust worded in this way. I accordingly declare the trust

valid.’

In Re Mainsty ’s Settlement ,61 Templeman J observed

that:

‘Reasonable trustees will endeavour, no doubt, to give

effect to the intention of the settlor in making thesettlement and will derive that intention not from the

terms of the power necessarily or exclusively, but from

all the terms of the settlement, the surrounding

circumstances and their individual knowledge acquired

or inherited.’

Applying the ‘is or is not’ test to the same effect as

Harman J in the above passage, Templeman J, likewise,

found no call: ‘to strike down a power which a settlor,disposing of his own property under skilled advice, wishes

to confer on his trustees’.62

Although the ‘is or is not’ test governs bothtrusts and mere powers, the inquiry is notquite identical in each case

In McPhail v Doulton 63 Lord Wilberforce made a point

that may require the tailoring of the survey to the nature

of the power in question:

‘Such distinction as there is [between trust powers and

mere powers] would seem to lie in the extent of thesurvey which the trustee is required to carry out: if he

has to [ie a trust] distribute the whole of a fund’s

income, he must necessarily make a wider and more

systematic survey than if his duty is expressed in terms

of a [mere] power to make grants. But just as, in the

case of a power, it is possible to underestimate the

fiduciary obligation of the trustee to whom it is given,

so, in the case of a trust (trust power), the danger lies in

overstating what the trustee requires to know or to inquire

into before he can properly execute his trust. The

difference may be one of degree rather than of principle:

in the well-known words of Sir George Farwell, Farwell

on Powers , 3rd ed (1916), p. 10, trusts and powersare often blended, and the mixture may vary in its

ingredients.’

This passage was cited, and described, by the Privy

Council in Schmidt v Rosewood Trust Ltd 64 as having

given:

‘a very clear and eminently realistic account of both

the points of difference and the similarities between

a discretionary trust and a fiduciary dispositive power.

The outstanding point of difference is of course that

under a discretionary trust of income distribution

of income (within a reasonable time) is mandatory,the trustees’ discretion being limited to the choice

of the recipients and the shares in which they are

to take.’

56 [1953] Ch 672, 688–689.57 Re Mainsty’s Settlement [1974] Ch 17, 27.58 [2003] 2 AC 709, para 42.59 [1971] AC 424, 456.60 [1953] Ch 672, 689.61 [1974] Ch 17, 26.

62 [1974] Ch 17, 29.63 [1971] AC 424, 449.64 [2003] 2 AC 709, at para 40.




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Trustees’ sixth duty: having identifiedthose with a ‘real and practicalinterest’ and ‘a real prospect

of benefit’, tell them thatthey are potential beneficiaries

No need to tell the beneficiaries that they arebeneficiaries?

The holder of a power is duty-bound to consider from

time to time whether to exercise it. In the absence of any

instructions in the instrument that confers the power,

the manner in which she must approach the making of

that decision is entirely within her discretion.65

If she does exercise it, then at least the beneficiaries

favoured by that exercise will be aware of the existence

of the power, and of the fact that they have rights to beconsidered for its exercise.

But if she does not exercise it for some time after the

trust has been created, what then? Say the settlor dies

before the trustee exercises the power; say that there is

no protector, or at least none that has been informed of

their appointment; say that no accountants have been

appointed to prepare annual accounts and have been

made aware of their appointment; and say that the

default beneficiaries have not been made aware of it

either.

The trustee then may be the only person alive who

knows the trust exists. Say she decides never to exercise

the power: who is to bring her to account? Is she obliged

to inform members of the class that the power and the

trust fund exist? Would it be sufficient if she was to have

advised the default beneficiaries: even though it is clearly

in their interest (unless they are also the potential

beneficiaries of the exercise of the power) to stand by in

the hope that the power would never be exercised:

leaving them with the entire fund undiminished by any

distributions?

Until 2003, few trustees might have seen anything

controversial in the part that I have italicised in thefollowing passage from the reasons for judgment of

Templeman J in Re Mainsty ’s Settlement :66

‘The court cannot insist on any particular consideration

being given by the trustees to the exercise of the power.

If a settlor creates a power exercisable in favour of his

issue, his relations and the employees of his company,

the trustees may in practice for many years hold regular

meetings, study the terms of the power and the other

provisions of the settlement, examine the accounts and

either decide not to exercise the power or to exercise it

only in favour, for example, of the children of the

settlor. During that period the existence of the power may not be disclosed to any relation or employee and the

trustees may not seek or receive any information

concerning the circumstances of any relation or

employee. In my judgment it cannot be said that the

trustees in those circumstances have committed a breach of

trust and that they ought to have advertised the power or

looked beyond the persons who are most likely to be the

objects of the bounty of the settlor .’

Potential for conflict between settlorand trustee

In his 2003 Withers Lecture, The Trustees ’ duty to provide information to Beneficiaries , Mr Justice

Lightman—who cited that judgment but did not refer

to this passage—made a strong case that a trustee in

those circumstances has a duty to advise potential

beneficiaries that the power exists, and that they are

within its scope.

His Lordship was under no illusion that this view

would be popular with settlors or with trustees:

‘Must a beneficiary (and in particular a beneficiary on

his attaining full age of 18 years) be informed by trustees

of a settlement of his entitlement under the trust and

the extent of his entitlement in all circumstances

notwithstanding the damage which such disclosure

may do to him? There are two sides to the argument.

It is a recurrent experience of mankind that, if a person

of too young an age knows that he is amply provided

for, this may distract him from getting on with his daily

life and discourage him from taking all necessary steps

to provide for himself or equip himself to do so.

The incentive to be self-supporting can be diluted and

there may be a risk of a lack of appreciation of the value

of money and hard work.

On the other hand it may also be fair that a child should

know the identity of any settlor and the extent of any provision made for him, whether the provision

(present and past) made for him is the generous act of

his parents or someone else, and accordingly the extent

of his debt to his parents and the settlor, and the

prospect and extent of provision in the future.

By reason of the strong views held by them executors

and trustees can be placed under considerable pressure

by well meaning and well intentioned parents to

say nothing or as little as possible on this topic.

The executors and trustees may likewise consider that65 See Sub-paragraph (ii) under ‘Mere power’ above.66 [1974] Ch 17, 27.




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the best interest of the beneficiary may require them to

say nothing.

The question raised is how far it is open to the trustees

to take this course and how far to do so exposes them to

the risk of proceedings?’

Beneficiary principle is at the root of the trust

To answer this question in respect of a trust, it must

be recalled that a supposed trust with no one to enforce

it is no trust at all.

A charitable trust—a trust for public purposes—is

enforceable by the Attorney-General on behalf of the

parens patriae 67 and in the interests of the public. But it

is oxymoronic to speak of a private trust without a

beneficiary. There can be no such thing. This is the

‘beneficiary principle’. It was famously stated by the

Master of the Rolls at first instance in Morice v Bishop of Durham:68 ‘Every other [ie private, non-charitable] trust

must have a definite object. There must be somebody in

whose favour the court can decree performance.’

The estate of a supposed trust without a beneficiary

is simply undisposed of. It is held on a resulting trust

for the settlor, as Lord Eldon put it on appeal in the

same case:69

‘If a testator expressly says, he gives upon trust, and says

no more, it has long been established, that the next of

kin will take. Then, if he proceeds to express the trust,

but does not sufficiently express it, or expresses a trust,that cannot be executed, it is exactly the same as if he

had said, he gave upon trust, and stopped there; . . . .

There is no difficulty upon that.’

That is to say, for a trust to be valid, there must be

somebody who—as the Privy Council has held in

Schmidt v Rosewood Trust Ltd ,70—can invoke ‘the

court’s inherent jurisdiction to supervise, and if

necessary to intervene in, the administration of trusts’.

Their Lordships pointed out that the right to invoke this

jurisdiction extends to the ‘object of a discretion (including

a mere power )’.

Further, as will appear,71

a discretionary beneficiary has a right to make a case to the trustee that a payment,

application or distribution be made to the beneficiary.

Without such submissions trustees often may be unable

to make fully-informed distribution decisions: a state of

affairs unlikely to win the approval of the court.

Trustee accordingly bound, as a matter of

good faith, to disclose to a sui juris beneficiarytheir interest in the trust estate

A beneficiary can neither be an enforcer, nor can she

exercise her right of making a case to the trustees, if she

does not know that she is one. If the beneficiary does not

know, there is no-one to invoke the court’s jurisdiction to

supervise, and that jurisdiction accordingly is nullified so

far as that trust is concerned. A trustee responsible for

keeping the beneficiary in the dark as to the existence of

the trust, or of the beneficiary’s rights under it, therefore

must be in breach of duty to the beneficiary.

The applicable duty is that of good faith. ProfessorHayton expresses it cogently:

‘At the core of the trust concept is a duty of confidence

imposed upon a trustee in respect of particular property

and positively enforceable in a Court of Equity by a

person.

. . .

[T]he fundamental interrelated core duties to disclose

information and to account to the beneficiaries for the

trustees’ stewardship of the trust property, so as to be

liable for losses or profits in relation thereto, cannot be

excluded.

. . .

The duty to act in good faith (ie honestly and

consciously) in respect of any trust matter cannot,

of course, be excluded. To do so would be to make a

nonsense of the trust relationship as an obligation of

confidence. It would make the trustees a law unto

themselves free from the jurisdiction of the court and

the court will not recognize this if the trustees were

intended to be trustees and not absolute owners.

Similarly, an exemption from liability for breach of

the duty to act in good faith cannot have effect, because

that would empty the area of obligation so as to leave no

room for any obligation.’72

So, in his Withers Lecture, The Trustees ’ duty to provide information to Beneficiaries , Lightman J must have been

correct—to observe73 that, unlike a Will, a private inter

vivos trust instrument:

‘is a private document which does not have to be

registered and its very existence may be known only to

67 Professor Pound, The Spirit of the Common Law (1921) 68 wrote: Atcommon law the king is parens patriae , father of his country, which is butthe medieval mode of putting what we mean today when we say that thestate is the guardian of social interests.

68 (1804) 9 Ves 399, 405.69 Morice v Bishop of Durham (1805) 10 Ves Jr 522, 527.70 [2003] 2 AC 709, para 51.71 Under ‘Ask them: they have a right to have their requests considered’.

72 Hayton, The Irreducible Core Content of Trusteeship in Oakley (ed) Trends in Contemporary Trust Law (1966) 47, 57.

73 Approving Professor Hayton in Underhill & Hayton on Trusts and Trustees (2003) 16th edn, 674.




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the settlor and the trustee or trustees and accordingly

the settlor alone if the settlor assumes the office of sole

trustee. . . . Unless the trustees are under a duty to

disclose the trust to the beneficiaries, the very existence

of the trust may be unknowable as well as unknown tothose alone who can enforce it and hold the trustees to

account. There is in the circumstances the overriding

need to impose on trustees the obligation to disclose the

existence of the trust and its provisions to those entitled

to enforce it.’

Extent of disclosure required of trustee: allcandidates for the exercise of the discretionto be informed of the possibility

The learned judge likewise reflected what is surely the

proper course when he continued by holding that:

‘Candidates for the exercise of the discretion in theirfavour should be informed not least so as to be afforded

the opportunity to make representations on their behalf

and enable the trustees to make a fully informed

decision. If the settlor has selected an individual as a

possible beneficiary, the trustees should let him know

and have his say unless the trustees can properly decide

blind to exclude him from benefit ignoring his possible

claim.’74

So there is no call for advertising to the whole of a wide

class, but only to those who the trustee regards as likely,

rather than merely theoretically possible, beneficiaries.

This is consistent with:

Templeman J’s finding, in Re Mainsty ’s Settlement ,

that ‘a wide power . . . does not negative or prohibit a

sensible approach by the trustees to the consideration

and exercise of their powers’.75 On that approach,

and where there is a power of selection expressed in

the widest terms,76 the context is likely to suggest the

range of potential beneficiaries to whom disclosure

should be made.

The reasons of the Privy Council in Schmidt v

Rosewood Trust Ltd .77 In particular, their Lordships’

decision that:‘Especially when there are issues as to personal

or commercial confidentiality, the court may have

to balance the competing interests of different

beneficiaries, the trustees themselves, and third parties.

Disclosure may have to be limited and safeguards may

have to be put in place. Evaluation of the claims of a

beneficiary (and especially of a discretionary object)

may be an important part of the balancing exercise

which the court has to perform on the materials placedbefore it. In many cases the court may have no difficulty

concluding that an applicant with no more than a

theoretical possibility of benefit ought not to be granted

any relief .’

What about potential beneficiaries undera mere power?

Because the holder of the power is under no duty to

exercise it at all, potential beneficiaries under a mere

power—having ‘no more than a theoretical possibility

of benefit’, within the passage just cited—in some

circumstances may be considered as having a lesser rightto this disclosure.

The same could not be said of the beneficiaries in

default of exercise. They are entitled to apply to the

court to restrain the holder of the power from improper

exercise.78 Those default beneficiaries accordingly are

potential enforcers, because it is they who are entitled to

the fund save insofar as it may have been disposed of

under the power. The trustee holding a mere power

accordingly would appear to be under an obligation to

make sensible disclosure to them.

However, unless the class of discretionary benefici-

aries is identically the same as the class of defaultbeneficiaries, it will not at all be in the interests of the

latter to have the trustee give any consideration to

exercising the discretion, and thereby impinge upon the

fund that otherwise will pass on default.

So communication by the trustee to the default

beneficiaries alone, to the exclusion of the discretionary

beneficiaries of a mere power, may not suffice to

discharge the duty of good faith that lies on the trustee

on Lightman J’s theory.

Effect of contrary provision in the trust deed

Under ‘Extent of disclosure required of trustee:

all candidates for the exercise of the discretion to be

informed of the possibility’, above it has appeared, by

reference to Schmidt v Rosewood Trust Ltd ,79 that the

disclosure obligation is not owed to the whole

theoretically possible class. But it is owed to those who74 Cf ‘Ask them: they have a right to have their requests considered’

subsequently.75 Re Mainsty’s Settlement [1974] Ch 17, 27.76 See ‘But the means of expressing that class can be very wide instead earlier.77 [2003] 2 AC 709, para 67.

78 See ‘Mere power’ mentioned above.79 [2003] 2 AC 709, para 67.




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are likely beneficiaries, and who are of full legal capacity

[and possibly, where there is power to pay to the parents

or guardians of underage beneficiaries, it may be owed

to the parents or guardians]. It is a reflection of the duty

of good faith, which is to say, the duty to act in theinterests of the beneficiaries; and it is not to be

dispensed with merely because of pressure from

settlors.80 In Armitage v Nurse ,81 Millett LJ held that:

It is the duty of a trustee to manage the trust properly

and deal with it in the interest of the beneficiaries. If he

acts in a way which he does not honestly believe is in

their interests, he is acting dishonestly. It does not

matter whether he stands or thinks he stands to gain

personally from his actions.

In some circumstances, the considerations82 seen by

Lightman J as appearing to militate against disclosuremay justify good faith non-disclosure, to a likely

beneficiary, provided that the trustee accountability

considerations underlying the ‘beneficiary principle’ are

not undermined; and provided further that it can

reasonably be said to be in the interests of that likely

beneficiary that he remain unaware for the time being

of his rights to make a case to the trustees for provision.

For example, if there are other discretionary bene-

ficiaries who are aware of the existence of the trust

because, say, they have received distributions from it,

it might be possible for a trustee to consider that the

knowledge of those other beneficiaries will serve toensure his accountability for the benefit of the potential

discretionary beneficiary from whom disclosure is to be

withheld until, say, he has demonstrably recovered from

an expensive drug habit.

Otherwise, as Lightman J suggests:

A trust may authorise enforcement by a person other

than a beneficiary eg the settlor or a protector, but such

a right can only be conferred in addition to , but not

instead of, the core rights of the beneficiaries, which are

inherent in their interests.

. . .

[The settlor] cannot create a trust, but deprive

beneficiaries of the incidental rights essential for the

constitution of a valid trust. So far as the law does admit

of exceptions, those exceptions should be narrowly

drawn and clearly justified by countervailing interests.

The trustee’s seventh duty: havingidentified and advised the likelypotential beneficiaries, seek to

understand, and actually consider,their circumstances

Having told them that they are potentialbeneficiaries, classify them, and find outhow are they placed, and who needs what

When the object of the exercise is to leave matters to the

trustees’ discretion, the terms of the power will seldom

prescribe how they must exercise a discretionary

distributive power. Nonetheless, there are things that

the trustee must do. In McPhail v Doulton 83 Lord

Wilberforce held that a trustee must ‘make it his duty to

know’:

‘what is the permissible area of selection and then

consider responsibly, in individual cases, whether a

contemplated beneficiary was within the power and

whether, in relation to other possible claimants, a

particular grant was appropriate.

Correspondingly a trustee with a duty to distribute,

particularly among a potentially very large class , would

surely never require the preparation of a complete list of

names, which anyhow would tell him little that he needs

to know. He would examine the field, by class and

category; might indeed make diligent and careful

inquiries, depending on how much money he had to give away and the means at his disposal , as to the

composition and needs of particular categories and of

individuals within them; decide upon certain priorities

or proportions, and then select individuals according to

their needs or qualifications . If he acts in this manner,

can it really be said that he is not carrying out the trust?

In Liley v Hey ,84 there was a trust to:

distribute amongst certain families, according to their

circumstances, as, in the opinion of the said trustees,

they may need such assistance, whose names are

hereinafter mentioned: viz—William Copley,

Kirkburton, weaver; Charles Lockwood, ditto, ditto;

William Davy, sen., ditto, spinner; Betty Heywood,

ditto; and twenty other persons, named and described in

like manner, making in the whole twenty-four persons.

The Vice Chancellor held:

I cannot decide any thing with respect to the interests of

the persons named in this trust, without knowing what

80 Cf the remarks of Lightman J in his Withers Lecture, cited under ‘Potentialfor conflict between settlor and trustee’ earlier, and the duty not to be thesettlor’s lapdog considered under ‘Potential for conflict between settler andtrustee’ below.

81 [1998] Ch 241, 251.82 Cited under ‘Potential for conflict between settler and trustee earlier’.

83 [1971] AC 424, 449.84 (1842) 1 Hare 580.




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the facts of the case are, with regard to them, and their

children, and other descendants.

The Defendants must make such inquiries as will elicit

the facts necessary to enable me to apply the will to the

circumstances of the case, if the circumstances shouldadmit of such application.

Ask them: they have a right to havetheir requests considered85

In re Gestetner Settlement ,86 Harman J held that the

trustees

are bound, as I see it, to consider at all times during

which the trust is to continue whether or no they are to

distribute any and if so what part of the fund and, if so,

to whom they should distribute it.

To that extent, I have no doubt that there is a duty on

these trustees:

a member of the specified class might, if he could show

that the trustees had deliberately refused to consider any

question at all as to the want or suitability of any

member of the class, procure their removal; but . . .there

is no obligation on the trustees to do more than

consider—from time to time, I suppose—the merits of

such persons of the specified class as are known to them

and, if they think fit, to give them something.

The settlor had good reason, I have no doubt, to trust

the persons whom he appointed trustees; but I cannot

see here that there is such a duty as makes it essentialfor these trustees, before parting with any income or

capital, to survey the whole field, and to consider

whether A is more deserving of bounty than B. That is a

task which was and which must have been known to the

settlor to be impossible, having regard to the ramifica-

tions of the persons who might become members of this

class.

Trustees might be treading dangerous ground to

purport to decide issues of ‘want’ or of ‘suitability’ of

beneficiaries without actually asking them. As

Templeman J held, citing Harman J, in Re Mainsty ’s

Settlement :87

If a person within the ambit of the power is aware of

its existence he can require the trustees to consider

exercising the power and in particular to consider a

request on his part for the power to be exercised in his

favour. The trustees must consider this request, and if

they decline to do so or can be proved to have omitted

to do so, then the aggrieved person may apply to the

court which may remove the trustees and appoint

others in their place.

. . .

[T]he trustees . . .cannot be obliged to take any form of

action, save to consider the exercise of the power and a

request from a person who is within the ambit of the

power. In practice, requests to trustees . . . are unlikely to

come from anyone who has no claim on the bounty of

the settlor. In practice, requests to trustees armed with a

special power in favour, for example, of issue, relations

and employees of a company are unlikely to come from

anyone who has no claim on the bounty of the settlor,

or has no plausible grounds for being given a benefit

from property derived from the settlor.

Trustees’ eighth duty: to makethe selection within the power conferred by the deed

The general principle of law88

It has been suggested that administrative law sets the

pace on discretionary powers, and that it is ‘‘time for

private law to catch up with public law in this respect.89

But the true position is that administrative law itself

merely reflects an overarching general legal principle,

and that, since ‘Equity follows the law, but not slavishly nor always’,90 one would expect to—and one does—find

that it does so in this sphere also.

In Equitable Life Assurance Society v Hyman ,91

Lord Cooke made his speech:

starting from the principle that no legal discretion,

however widely worded (here, by article 65(1), the

directors may apportion bonuses ‘on such principles,

and by such methods, as they may from time to time

determine’), can be exercised for purposes contrary to

those of the instrument for which it is conferred.

As Lord Woolf MR pointed out in his judgment in the

Court of Appeal in this case [2000] 2 WLR 798, 806, thisprinciple is common to administrative law (eg Padfield v

Minister of Agriculture, Fisheries and Food [1968]

AC 997) and sundry fields of private law (eg Howard

Smith Ltd v Ampol Petroleum Ltd [1974] AC 821).

85 See also the extra-judicial view of Lightman J under ‘Extent of disclosurerequired of trustee: all candidates for the exercise of the discretion to beinformed of the possibility’ earlier.

86 [1953] Ch 672, 688.87 [1974] Ch 17, 25, 26.

88 Cf Wong v Burt [2005] 1 NZLR 91 para [27] (CA) cited under‘Consequential excessive and fraudulent exercise’ subsequently.

89 Re Smiths City Group Superannuation Plan Trust Deed, Craddock v Crowhen (1995) 1 NZSC 40,331, 49,337 (Tipping J).

90 Graf v Hope Building Corp 254 NY 1, 9 (1930) per Cardozo J (dissenting:New York Court of Appeals).

91 [2000] 3 WLR 529, 540–541 (HL).




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In an administrative law context, violation of the

principle may result in no more than invalidity; in a

contractual context, it may result in a breach of contract,

which should be rectified.

Lord Cooke’s chosen private law illustration involved afiduciary power. In Howard Smith Ltd v Ampol

Petroleum Ltd ,92 the Privy Council was concerned with

the directors’ power to issue company shares:

Thus, and this is not disputed, the issue was clearly intra

vires the directors. But, intra vires though the issue may

have been, the directors’ power under this article is a

fiduciary power: and it remains the case that an exercise

of such a power though formally valid, may be attacked

on the ground that it was not exercised for the purpose

for which it was granted.

Select rationally, not capriciously

It is therefore clear that, having discharged all of her

duties thus far, it is not now open to the trustee to throw

up her hands; say ‘this is all too hard’; and throw a dart,

or use some off-the-wall criterion, to actually make the

selection.

So, in Re Mainsty ’s Settlement ,93 Templeman J said

that the court will hold them answerable:

if the trustees act ‘capriciously,’ that is to say, act for

reasons which I apprehend could be said to be

irrational, perverse or irrelevant to any sensibleexpectation of the settlor; for example, if they chose a

beneficiary by height or complexion or by the irrelevant

fact that he was a resident of Greater London.

Which is nothing more than a colourful rephrasing of

Lord Cooke’s phrase: ‘for purposes contrary to those of

the instrument for which it is conferred.’

Confer no benefits outside the class

Any distribution for the benefit of persons not entitled

to receive it will be a payment in breach of trust for

which, if he cannot recover it from the recipient,the trustee will be personally liable to reimburse the trust

estate.

The classic statement is that of Millett LJ in Armitage

v Nurse :94

So a deliberate breach of trust is not necessarily

fraudulent. Hence the remark famously attributed to

Selwyn LJ by Sir Nathaniel Lindley MR in the course of

argument in Perrins v Bellamy [1899] 1 Ch 797, 798:

‘My old master, the late Selwyn LJ, used to say,‘‘The main duty of a trustee is to commit judicious

breaches of trust.’’ ’ The expression ‘actual fraud’ in

clause 15 is not used to describe the common law tort of

deceit. As the judge appreciated it simply means

dishonesty. I accept the formulation put forward by

Mr Hill on behalf of the respondents which (as I have

slightly modified it) is that it:

‘. . .connotes at the minimum an intention on the part

of the trustee to pursue a particular course of action,

either knowing that it is contrary to the interests of the

beneficiaries or being recklessly indifferent whether it is

contrary to their interests or not.’

It is the duty of a trustee to manage the trust property and deal with it in the interests of the beneficiaries. If he

acts in a way which he does not honestly believe is in

their interests then he is acting dishonestly. It does not

matter whether he stands or thinks he stands to gain

personally from his actions. A trustee who acts with the

intention of benefiting persons who are not the objects

of the trust is not the less dishonest because he does not

intend to benefit himself.

Authority must exist in substance, and cannotbe claimed as a matter of form

The first way in which the trustee risks making adistribution to persons not entitled to receive it—for

which the trustee unable to recover it from the recipient

will be liable personally to reimburse the trust estate—is

by neglecting to consider whether the proposed payee is

certainly within the class of potential beneficiaries. It is a

fraud on the power to make a payment not within its

scope. In its determination whether a payment was

made within, or in fraud of, the power, equity regards

the substance not the form: looking through an

ostensible payee to the real one.

A testamentary lacuna

Wong v Burt 95 is a recent example. The will in question

provided for the income of the estate to be paid to

the testator’s wife for life; then to his two daughters

for their lives. On the death of the daughters, the

estate was to be distributed among the children of one of

those daughters. The other daughter’s children were

92 [1974] AC 821, 834 (PC).93 [1974] Ch 17, 26. See also Re Baden’s Deed Trusts, McPhail v Doulton

[1971] AC 424, 449, per Lord Wilberforce; and Re Lofthouse (1885) 29 ChD 921, 930 where Cotton LJ equates ‘perversity’ with ‘dishonesty’.

94 [1998] Ch 241, 251. Followed in Taylor & ors v Midland Bank Trust Company Ltd & ors [2002] WTLR 95, 103–104 (Rattee J), 113–114(Buxton LJ), and 118–119 (Stuart-Smith LJ, dissenting) (CA). 95 [2005] 1 NZLR 91; [2005] WTLR 291 (CA).




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cut out of the final distribution because of a family

falling-out.

But while the will had provided for them to be the

ultimate beneficiaries, it made no provision for the two

children of the former daughter to be substituted asbeneficiaries of their mother’s share of the intermediate

income if she was to have died before the distribution

date.

And die prematurely their mother did: disinheriting

the two young96 children from the income from their

grandfather’s estate while their late mother’s sister

remained alive.

Clause 6 of the will empowered the trustees to pay the

widow:

‘. . .such sum or sums as they in their absolute

discretion may think fit if they shall consider it

necessary, desirable or expedient so to do by reason of

the state of my wife’s health or her desire to travel or to

acquire a home or by reason of before [sic: a fall?] in the

purchasing power of money or for any other reasons

whatsoever whether similar or dissimilar to the

foregoing’.97

The testator’s widow was one of the trustees. She

regarded the lack of provision for stirpital substitution

of this daughter’s two teenage children as unfair.

Trustees anxious to please the testator’s widow

The trustees considered that the above provisionempowered them to redress the perceived unfairness

by distributing $250,000 to the widow: to enable her to

execute her wish to advance it to her family trust, of

which the two relevant children were beneficiaries.

Paying the wong beneficiary

After having obtained legal advice that this course of

action was available—albeit challengeable by the surviv-

ing daughter in whom the total income was vested for

life—the trustees proceeded with the distribution to the

testator’s widow.

In her turn, the widow advanced it to her family trust.During her lifetime she partially forgave the advance in

increments: presumably to avoid the gift duty that

would have been payable if she was to have forgiven it all

at once. She forgave the balance under her own will.

The learned trial judge rejected the challenge by the

surviving daughter, who had been deprived of the right

to the life income on the $250,000. His Honour took the

view that the payment had enabled the widow to redress

the unfairness that evidently distressed her, while

conserving her own personal assets; and that it was

authorized by the clause that I have cited.

Misreading the authorities

In the Court of Appeal, the trustees sought98 to uphold

this by reference to the authorities that have upheld

applications of capital, under powers of advancement, to

enable beneficiaries to provide for charities which they

felt morally obliged to support.99

On the apparent facts, that argument had no prospect

of success.

First, the widow seems to have had only a life interest in

income. She appears to have had only a life interest, rather

than a contingent or reversionary interest in capital100 the

vesting of which could have been advanced. Clause 6accordingly was not a power of advancement101 at all.

It gave the widow a mere expectancy, rather than any

capital interest.

Secondly, and even were that not so, powers of

advancement are fiduciary powers.102 They cannot be

exercised without the trustees first having weighed the

benefit to the proposed recipient against the rights of the

parties out of whose present or future interests in capital

the advancement is to be carved.103 It seems that the

trustees were advised that they ‘had to take into account

the interests of all beneficiaries’.104 That advice was clearly

right in the circumstances. The trustees appear to have

disregarded it on the basis that they did not expect any

challenge from the sister whose interest would be affected.

Consequential excessive and fraudulent exercise

The real issue was whether the trial judge had failed to

recognize that the trustees’ purported exercise of the

bare power in the relevant clause of the will had been

excessive. The Court of Appeal had no doubt that it had

been; that it was therefore void as a fraud on the power;

and accordingly was recoverable from the trustees

personally:The Court of Appeal held that:

[27]The notion of a fraud on a power itself rests on the

fundamental juristic principle that any form of

96 Wong v Burt [2003] 3 NZLR 526 para [8] (Young J, at trial).97 [2005] 1 NZLR 91 para [10].

98 [2005] 1 NZLR 91 para [23].99 Re Clore’s Settlement Trusts [1966] 1 WLR 955.

100 Wong v Burt [2003] 3 NZLR 526 para [8] (Young J, at trial).101 As described by Lord Radcliffe in Pilkington v Inland Revenue

Commissioners [1964] AC 612, 633.102 Re Paulings Settlement Trusts [1964] Ch 303 (CA).103 Ibid 333 per Willmer LJ.104 Wong v Burt [2005] 1 NZLR 91 para[37].




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authority may only be exercised for the purposes

conferred, and in accordance with its terms. This

principle is one of general application.105

. . .

[30]. . .

it is necessary to recall that the sine qua non which makes the exercise of a discretion or power

‘improper’ is the improper intention of the person

exercising it. The central principle is that if the power is

exercised with the intention of benefiting some

nonobject of the discretionary power, whether that

person is the person exercising it, or anybody else for

that matter, the exercise is void. If, on the other hand,

there is no such improper intention, even though the

exercise does in fact benefit a non-object, it is valid. See

Vatcher v Paull [1915] AC 372at 378 per Lord Parker

(PC Jersey).

[31]In the case of a discretionary power to be exercised

in favour of one of its objects, but in the ‘hope’ that therecipient will benefit a non-object, the validity of such

an exercise will depend upon whether the recipient had

legal and moral freedom of action (Birley v Birley (1858)

25 Beav 299; 53 ER 651.

[32]The case law in this area is difficult, not so much for

the underlying principles, which seem plain enough,

but in their application to often quite complex estates,

or inter-related transactions. Assume, for instance,

a case in which a discretionary power is exercisable in

favour of an adult male (X) who states that, if it is in fact

exercised in his favour, he will give part of the relevant

fund to his parents, Y and Z, who are not objects of the

discretionary power. If the true intention of the

appointment is to benefit the parents, the exercise is

invalid. If that is not the case, but X is under some

distinct pressure to benefit Y and Z, the exercise would

also be invalid (re Dick [1953] Ch 343). On the other

hand, if X has genuine freedom of action and wishes to

give Y and Z a benefit, then it appears that the exercise

of the power would be good (re Marsden ’s Trusts (1859)

4 Drew 594; 62 ER 228). . . .

[33] As to the effect of a finding of a fraud on a power,

it has long been held that where a power is successfully

impugned, its exercise is totally invalid (Re Cohen

[1911] 1 Ch 37), unless the improper element in theappointment can be severed from the remainder of

that appointment (Topham v Duke of Portland (1858)

1 De GJ & S. 517; 46 ER 205).

[41]The evidence in the case in this respect is well

documented and quite clear. . . . Thus it was that a

scheme was settled by Mrs Wong [the testator’s

widow], with the trustees, and after taking legal advice,

which had the overt and pre-determined idea that the

trustees would utilise clause 6 of the will to avoid

the effect of clause 5 of the will, in the circumstances

which had arisen. This exercise was not undertaken

as a distinct, or separate advance to Mrs Wong or

in the ‘hope’ that Estelle Wong would benefit anonobject.

The exercise was already constrained by a

pre-considered course of action which also avoided

Mrs Estelle Wong having to resort to any assets

under her control or direction to assist her

grandchildren.

[42]In our view, this deliberate, and pre-conceived,

device amounted to a fraud on the power. If Mrs Estelle

Wong had simply been advanced the money out of the

estate and had then exercised genuine freedom of action

to benefit the children (as for instance by setting up a

trust for them), that would not have been unlawful.

But what was knowingly erected was a deliberate schemeto subvert the terms of the will. What was overlooked

was that the property was vested in those entitled in

default of the exercise of the power, subject to its being

divested by a proper exercise of the power in clause 6,

and the steps in fact taken gave rise to a fraud on those

entitled in default.

Court-identified victim of the fraud not the only one

The children who stood to take what, if anything,

was left at the death of the successful claimant daughter,

do not appear to have been the only victims of the

fraud . They were partly that, and were partly victims of

the failure of the draftsman of the will to take account of

the familiar fact that some mothers die earlier than

most. They accordingly had lost the income stream the

benefit of which they previously had enjoyed via their

late mother, as well as the chance of a capital sum in

remainder.

The other victim of the fraud had been the testator’s

claimant daughter.

By her sister’s untimely death, and thanks to that

drafting oversight, it was she who had become entitled,

for her lifetime, to the whole of the income of the

estate. The unauthorized $250,000 reduction in thecapital of the estate must have significantly reduced her

income.

Distribution to unauthorized persons is voidfor all purposes, and not only as against otherbeneficiaries

Because a distribution to an unauthorized recipient is

fraudulent and void, the court cannot uphold it even if

the victims want it to do so.105 Cf para ‘The general principle of law’ earlier.




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The Steve Hart Family Trust was at the centre

of Ramsden v Federal Commissioner of Taxation .106

Clause 3 of the deed evidencing the terms of the trust

provided that:

(b) The Trustees may at any time prior to the

expiration of each Accounting Period until the Vesting

Day determine with respect to all or any part or parts of

the net income of the Trust Fund for such Accounting

Period to do all or any of the following:—

i To pay apply or set aside the same for any one or more

of the General Beneficiaries living or in existence at the

time of determination;

ii to accumulate the same;

iii to pay apply or set aside for such charitable purposes

as the Trustees may think fit.

. . .

(e). . .

the Trustees shall hold so much of the netincome of the Trust Fund for each Accounting Period as

shall not be the subject of a determination effectively

made at or prior to the end of such Accounting Period

pursuant to paragraph (b) of this Clause in Trust

successively for the persons described in paragraphs (a),

(b) and (c) of Clause 4 hereof as though the last day of

such Accounting Period were the Vesting Day.

Clause 4(a) described Steven Hart, Troy Hart, Philip

Hart and Tamara Petersen (now Ramsden): the last

three of whom were the applicants.

The trustee of the trust was Steve Hart Family

Holdings Pty Ltd. In the year ended 30 June 1996,a meeting of its directors had resolved that

Download - Trusts & Trustees 2007 Molloy 75 95

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