Re Tracey

These proceedings were commenced by the Public Trustee seeking declarations as to its entitlement, in its capacity as a financial administrator for persons under a disability, to exercise a power to terminate trusts for those persons under the rule in Saunders v Vautier. On the hearing of the initial application, the Court was concerned that there was no contradictor to the Public Trustee’s application and the matter was adjourned.  At the invitation of the Court the Attorney-General acted as contradictor to the Public Trustee’s application.

In brief, s 33(2) of the Guardianship and Administration Act 2000 provides that, when a person is appointed as the financial administrator of a person under a disability, the person may “do … anything in relation to a financial matter that the adult could have done if the adult had capacity for the matter”. The Public Trustee is the trustee of many trusts for persons who are under a disability.  Many such trusts arose as a result of personal injury actions where the proceeds of the litigation were ordered by the Court to be held on trust for the benefit of the injured plaintiff.  There are a variety of different orders which create such trusts.  Some create the trust “until further order”.  Others merely create the trust and make no further provision.  The trustee was also a trustee of numerous testamentary trusts and, similarly there were many in respect of which the beneficiaries were under a disability. The Public Trustee was of the view that its powers as trustee were less than optimal to make provision for the beneficiary and, in particular, to make arrangements by way of superannuation funds.  As the financial administrator of the beneficiaries, it desired to use that power to terminate the existing trusts so as to make better financial arrangements for them.  However, the rule in Saunders v Vautier only applies where the beneficiaries are all sui juris, such that the question was whether the Public Trustee could exercise its power “as administrator”, on behalf of the incapacitated beneficiaries to terminate the trusts?  A number of questions were stated for the consideration of the Court pursuant to the Public Trustee Act which enables him to seek the opinion of the Court on certain matters.  The essential question for the Court was summarised by Fraser JA in the following terms:

“The issue in each of the six questions in the case stated is whether upon the proper construction of s 33(2) of the Guardianship and Administration Act 2000 the Public Trustee, acting in his capacity as the administrator for all financial matters of an adult under a legal disability, may without a court order terminate the trust described in the questions, of which the adult is the sole beneficiary where, but for the legal disability, the beneficiary would have an absolute, vested and indefeasible interest in the trust property and could invoke ‘the rule in Saunders v Vautier’.”

The respective reasons for judgment in this case are well worth reading in detail for the careful analysis of the rule in Saunders v Vautier and for the process of statutory construction.  In brief summary the points which were identified in the reasons for judgment were:

• The rule in Saunders v Vautier may be stated as being “an adult beneficiary (or a number of adult beneficiaries acting together) who has (or between them have) an absolute, vested and indefeasible interest in the capital and income of property may at any time require the transfer of the property to him (or them) and may terminate any accumulation”.
• The rule makes it clear that it may only be invoked by a beneficiary who is sui juris.
• The wide scope of s 33(2) of the Guardianship and Administration Act had the effect that the administrator could, in effect, substitute its capacity for the beneficiary.  Moreover, the termination of a trust which was for the beneficiaries’ support was a “financial matter” within the scope of the administrator’s power.

“[23]  Each question in the present case assumes that, but for the lack of the necessary legal capacity the adult beneficiary could exercise the power to bring the trust to an end.  Under the rule, that power is exercisable notwithstanding that it would ‘overbear and defeat the intention of a testator or settlor to subject property to the continuing trusts, powers and limitations of a will or trust instrument’.   Accordingly the literal meaning of s 33(2) is that the authority to exercise that power is conferred upon an administrator for all financial matters of an adult under a legal disability.  The express terms of the provision seem deliberately designed to confer upon such an administrator powers which are precisely co-extensive with the powers in financial and property matters of an adult who does not have any impairment of legal capacity.

• It is noted that where an order of the Court is to the effect that money be held on trust for the benefit of a beneficiary “until further order” the rule in Saunders v Vautier could not be used to bring an end to the trust.
• Even where the trust was established by the Court without the inclusion of the proviso “until further order”, the rule in Saunders v Vautier is not applicable as it cannot be used to override the exercise of the court’s parens patriae jurisdiction.
• In respect of other trusts the Court held that power existed for a substitute decision maker to terminate the trust.

The dissenting reasons of Boddice J are most interesting and should be considered as well.  His Honour favoured the view that the anomalous rule in Saunders v Vautier should not be extended beyond its limits.  His Honour said that:

“[89]  Whilst there may be good administrative reasons for the Public Trustee, in its role as administrator of financial matters of an adult incapacitated beneficiary, to seek the termination of a trust of which that adult beneficiary is a sole beneficiary with an absolute, vested and indefeasible interest in that trust property, the rule in Saunders v Vautier requires two pre-conditions for its operation.  One pre-condition is that the adult beneficiary be sui juris.  An adult beneficiary subject to a legal incapacity is not sui juris.  That pre-condition is not met by reason of the circumstance that there is a substitute decision maker who may consent on behalf of the adult but legally incapacitated beneficiary.”