Fox v Waller

A difficult issue of construction arose in this recent matter, namely whether ss 31(1) and 33(1)(l) Trusts Act 1973 apply to exclude a wider power of appropriation in a trust instrument. A will contained an express power of appropriation. The applicants queried whether they were entitled to exercise that power in circumstances where certain subdivided lots of real property appeared to be specific gifts under the will. Justice Cooper held that the limitations prescribed in the Act do not apply to, nor limit the exercise of, the grant of a wider power of appropriation in a will.

Cooper J

4 August 2023

The application for declaratory relief was brought by the estate’s executors and it concerned whether an express power of appropriation conferred by the will of the deceased was subject to, and limited by, certain provisions of Trusts Act 1973. [1], [3]. The respondents to the application consisted of the deceased’s adult children; each one of three trustees and also a principal beneficiary of a testamentary trust constituted under the will (the other two trustees of both of the separate trusts being the applicants); and each (along with the other respondent) the equal beneficiary in respect of the personal effects of the deceased. [6].

Prior to his death, the deceased had commenced the process of subdivisional development approval in respect of certain real property. His will established testamentary trusts, with each being an equal beneficiary of a specific gift under the will of the real property (subject to subdivision and the residue of the estate). [7]. Subsequent to probate being granted the applicants continued the process of subdivision. [9]. Thereafter, the respondents proposed that some of the subdivided lots be dealt with in a different manner in the administration of the estate. [10].

Cl 19.1.15 of the will expressly permitted the applicants, in their discretion and without the consent of any beneficiary, partition or appropriate any asset of the deceased’s estate in or towards the satisfaction of a legacy or a share of any person or persons in the estate. [11]. The issue arose as to whether the applicants were entitled to exercise that power of appropriation in circumstances where the subdivided lots of real property appeared to be specific gifts under the will. That is because, on a plain reading of ss 31(1) and 33(1)(l)(i) of the Act, an appropriation ought not to be made where it would adversely affect any specific gift. [12]. In addition the applicants queried whether, if they were able to exercise the power conferred by the will, they needed to conform with the requirements within s 33(1)(l)(ii). [13].

The specific questions of statutory construction put to the court were framed as follows:

(a)did the limitations set out in ss 33(1)(l)(i) and (ii) of the Act apply, by reason of the words in s 31(1) of the Act, to express powers of appropriation conferred in a trust instrument; or

(b)did the limitations only apply to the statutory power of appropriation conferred by s 33(1)(l)?

The applicable provisions

The application of the provisions of the Act is set out in s 4:

“4 Application

(1)…

(2)Nothing in this Act shall preclude a settlor from conferring on a trustee or other person exercising the powers of a trustee under this Act any powers additional to or larger than those conferred by this Act.

(3)Any additional or larger powers so conferred shall, as far as may be, notwithstanding anything in this Act, and unless a contrary intention is expressed in the instrument (if any) creating the trust, operate and be exercisable in the like manner and with all the like incidents effects and consequences as if conferred by this Act.

(4)The powers conferred by or under this Act on a trustee are in addition to the powers given by any other Act and by the instrument (if any) creating the trust; but the powers conferred on the trustee by this Act, unless otherwise provided, apply if and so far only as a contrary intention is not expressed in the instrument (if any) creating the trust, and have effect subject to the terms of that instrument.”

The statutory power of appropriation is set out in s 33(1)(l), as follows:

“33 Miscellaneous powers in respect of property

(1)Every trustee, in respect of any trust property, may—

…

(1)appropriate any part of the property in or towards satisfaction of any legacy payable thereout or in or towards satisfaction of any share of the trust property (whether settled, contingent or absolute) to which any person is entitled, and for that purpose value the whole or any part of the property in accordance with section 51; but—

(i)the appropriation shall not be made so as to affect adversely any specific gift; and

(ii)before any such appropriation is effectual, notice thereof shall be given to all persons not under a disability who are interested in the appropriation, and to the parent or guardian of any infant who is interested in the appropriation, and to the person having the care and management of the estate of any person who is not of full mental capacity, and any such person may within 1 month after receipt of the notice or, upon the person’s application to the court within that month, within such extended period as the court may allow, apply to the court to vary the appropriation, and the appropriation shall be conclusive save as varied by the court; …”

Did the provisions in Trusts Act 1973 apply to exclude a wider power of appropriation in the will?

His Honour noted that if ss 33(1)(l)(i) and (ii) operated to impose limitations on express powers of appropriation conferred in a trust instrument or limit their exercise, it would follow that:

“in circumstances where s 33(1)(l) confers a power of appropriation which is proscribed by the limitations set out in ss 33(1)(l)(i) and (ii), a trust instrument which provides that the trustee is to have a more extensive power of appropriation expresses a ‘contrary intention’ for the purposes of s 31(1). If that is accepted, then the words used in s 31(1) mean that s 33(1)(l) shall apply despite that contrary intention. The result is said to be that the statutory power of appropriation operates in lieu of the power expressed in the trust instrument”. [25].

Given those implications, he was not prepared to accept that that was the intended construction of s 31(1) of the Act. He further observed that reading the provision in that way would be inconsistent with the text of s 4(2), which expressly preserves the ability of a settlor to confer powers on the trustee that are additional to or broader than those with the Act confers. [26].

His Honour’s reasoning was supported by the dicta in Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355, wherein the Court stated that provisions should be construed in a way that is consistent with the remainder of a statute, and having regard to the unity of its scheme. He noted that s 31(1) is subject to s 4 which allows wider powers to be conferred by the trust instrument (here the will). In his view, s 4 is key to determining the relationship between the provisions of the Act and the terms of a trust instrument, [29], whilst s 31(1) is subordinate to s 4. [33].

He held that, upon applying the first part of s 4(4), the powers so conferred by the Act are supplementary to the powers conferred by the trust instrument, and due to the operation of s 4(2) do not limit any powers given by the trust instrument that exceed the powers conferred by the Act. That construction is consistent with the language of s 33(1)(l) of the Act. [35]–[36]. His Honour clarified that such a construction does not render s 31(1) as having “no work to do, whether in respect of the power of appropriation conferred by s 33(1)(l) or in respect of any other power conferred by the provisions of Part 4 of the Act.” Rather, the section will operate in the way it was originally designed, namely where a settlor intends to deny the trustee a power of a kind contained within Part 4 of the Act, to prevent the settlor from excluding the conferral of the relevant statutory power. [37].

In his Honour’s view, on a proper reading of the Act, the limitations set out in ss 33(1)(l)(i) and (ii) of the Act only apply to the statutory power of appropriation conferred by s 33(1)(l). Here, they neither applied to, nor limited, the exercise of the grant of a wider power of appropriation in the will of the deceased. [45]. Importantly, his Honour’s preferred construction was supported by the available extrinsic material including statements made in the report of the Queensland Law Reform Commission, “A Report of the Law Reform Commission on the Law Relating to Trusts, Trustees, Settled Land and Charities, (Report No 8, 16 June 1971)”, which preceded the enactment of the Act. [38]–[44]. That the report clearly indicated that:

1.the “contrary intention” referred to in both s 4(4) and s 31(1) is an intention to exclude the conferral of powers by provisions of the Act;

2.s 31(1) was designed to avoid problems which might arise in the event a settlor or testator retained the ability to exclude the conferral of the powers set out in Part 4 of the Act; and

3.ss 33(1)(l)(i) and (ii) are exclusively directed to limiting the exercise of the statutory power conferred by s 33(1)(l).

Disposition

It was declared that on the proper construction of Trusts Act 1973, the express power of appropriation under the last Will of the deceased in respect of the subdivided lots was not subject to nor limited by the provisions of ss 31(1)(l)(i) and (ii) of Trusts Act 1973.

A Jarro