The Courts supervisory powers: ensuring the proper administration and due execution of trusts
The Western Australian decision, Dryandra Investments Pty Ltd v Hardie by her guardian ad litem Ian Torrington Blatchford [2024] WASC 248, involved two separate proceedings relating to:
the Trust, where Isobel Hardie (Isobel), age 82 years, was appointed as both the guardian and the appointor (Trust Proceedings); and
Isobel’s Will (Will Proceedings).
These two proceedings were heard together, with Isobel being represented by her Guardian ad Litem.
Factual Background:
The Dyandra Trust (Trust) was established by deed of trust dated 26 June 2018 between Con Peter Kramer as settlor and Dryandra Investments Pty Ltd as trustee.
Despite Isobel having lost decision-making capacity at the relevant time, she was appointed as both the appointor and guardian of the Trust upon the death of her husband. Consequentially, Isobel was unable, and in fact, had never been able, to fulfill her duties in these roles.
The Trust Proceedings
The Trustee sought orders under section 90 of the Trustees Act 1962 (WA) (Trustees Act) that the Court approve and assent to variations of the Trust deed to ensure the Trust could operate as intended, despite Isobel’s loss of capacity. Notably, Isobel was a specified beneficiary of the Trust for the purposes of these orders.
Alternatively, the plaintiff sought orders under the Court’s inherit jurisdiction to replace Isobel as both the appointor and guardian of the Trust.
Analogous provisions, allowing the Court to intervene and vary a trust deed are found in section 63A of the Trustee Act 1968 (Vic) (Trustee Act Vic).
The Will Proceedings
As the plaintiff in these proceedings, Isobel’s attorney sought an order under section 40 if the Wills Act 1970 (WA) for the Court to authorise the making of a codicil to Isobel’s last will, appointing the attorney as a successor guardian to the Trust.
Section 21 of the Wills Act 1997 (Vic) provides the Court with the ability to authorise the making of wills for persons who lack testamentary capacity.
Joint proceedings
There were two fundamental flaws in the Trust deed stemming from Isobel’s loss of capacity:
The Trust deed did not provide for the appointment of a replacement guardian in the event of Isobel’s death or loss of capacity. As a result, without Court intervention, Trust would be left without a guardian upon Isobel’s death.
Clause 9(c) of the Trust required the guardian’s consent for the trustee to exercise any of the reserve or restricted powers. As Isobel was the appointed guardian, but no longer able to consent, the trustee was unable to exercise these powers. This included, amongst other things, the power to distribute income and make variations to the Trust deed. Without the guardian’s consent, the trustee had limited options with respect to distribution of income, being [55]:
Accumulating the income or distributing it to Isobel (both of which…would result in the income being taxed at the highest marginal tax rate); or
by default, holding the net income on trust for the Specified Beneficiaries then living (Isobel …) as tenants in common in equal shares;
neither of which allowed for the intended flexibility over distributions of income, which the Court heard, was one of the underlying purposes in the establishment of the Trust.
As the Trust deed did not address the appointment of an alternate or successor guardian in the event of Isobel’s incapacity or death, nor did Isobel have the ability to appoint a replacement guardian herself, the trustee sought to vary the deed to provide that:
the definition of guardian be amended to provide for the appointment of Isobel’s legal personal representative on her death; and
Isobel’s attorney act as both appointor and guardian during the period which Isobel was alive, but unable to act because of her loss of capacity.
Decision
The Court held that while Isobel’s loss of capacity alone did not invalidate her appointment as guardian and appointor, it did render her incapable of exercising the powers conferred on her. Specifically, she was unable to consent to the reserved powers the trustee sought to exercise.
For the Court to vary the Trust deed, thereby exercising the power afforded it under section 90 of the Trustees Act, it needed to be satisfied, amongst other things, that the person on whose behalf the variation was sought had an interest in the Trust. In this case, the Court was being asked to agree to the variation on behalf of Isobel in her capacity as guardian, rather than as a beneficiary. This distinction was key in the Court having the ability to make the orders sought under section 90 of the Trustee Act.
Noting the above, the Court was not persuaded that its power under section 90 of the Trustees Act extended to approving a variation of the Trust deed where the Trust deed required the consent of the guardian, whom did not have capacity to provide it. As a result, because of the existence of a guardian, notwithstanding their incapacity, the Court did not approve the variations sought.
Instead, the Court looked to its inherent supervisory jurisdiction and considered whether it could appoint a replacement or substitute guardian and appointor, independent of the powers granted by section 90 of the Trustee Act. Upon considering the impact of Isobel’s loss of capacity on the administration of the Trust, the Court determined that, although a guardian existed, the trustee could not consult the guardian as intended by the Trust deed, and therefore no restricted powers could be exercised – severely hindering the intended purpose of the Trust.
In these circumstances, the Court concluded that it had authority to intervene and appoint a replacement guardian and appointor, given that these roles were fundamental to the proper administration and due execution of the Trust. The Court made the order to appoint Isobel’s attorney as both the guardian and appointor.
With this order being made in respect to the Trust Proceedings, the Court determined the Will Proceedings were unnecessary.
Key Takeaways
This case serves as an important reminder of the need for clear succession planning in relation to trusts, particularly where the trustee’s ability to exercise certain powers is requires the consent of the appointor and/or guardian.
It is important that succession plans be reviewed regularly to ensure that the it remains relevant and reflective of current family dynamics.
For further information please contact:
Tayla Berger
Senior Associate
T: 03 5226 8559 | M: 0407 825 365
E: tberger@ha.legal
Alasdair Woodford
Principal
T: 03 5225 5217 | M: 0436 456 144
E: awoodford@ha.legal
Joseph Flanagan
Senior Associate
T: 03 5226 8504 | M: 0491 307 550
E: jflanagan@ha.legal
