It is essential that discretionary trust deeds are easy to understand so that a trustee’s rights and obligations are clear. An important reminder of this was provided by a recent decision in the Western Australia Court of Appeal in Mercanti v Mercanti 2016 WASCA 206 (“Mercanti”).
In Mercanti, the court was required to determine the validity of an amendment to the schedule of a trust deed and whether the trustee was permitted to make such an amendment. The amendment in question had the effect of changing the trust’s appointor.
Finer detail in Trust Deeds
The Court’s decision was based on its interpretation of the word “hereinbefore” in clause 28 of the trust deed. Clause 28 gave the trustee power to revoke, add or vary “all or any of the trusts terms and conditions hereinbefore contained”.
The dispute was whether the word “hereinbefore”:
- only allowed the trustee to vary the terms and conditions before clause 28 (meaning that the trustee was not permitted to amend the schedule);
- was not intended to be a word of limitation.
In the initial trial the amendment was considered valid and within the powers of the trustee.
On appeal, the court decided that the wording of the clause 28 did not limit the trustee’s ability to vary the appointor in the deed. The basis for their decision is as follows:
- The term “appointor” was defined at the beginning of the trust deed to include the person named in the schedule. This clause preceded clause 28 and was therefore hereinbefore contained.
- The President of the Court of Appeal found that the word “hereinbefore” was a word of limitation. This meant that the trustee did not have the power to vary any clauses after clause 28. However, in this case as the term appointor was defined prior to clause 28, the trustee was permitted to vary the appointor.
The use of plain language in trust deeds can avoid the interpretation issues seen in the Mercanti case that may lead to legal action at a substantial cost for the parties involved. If you require a trust deed to be drafted in plain language, please do not hesitate to contact our team of lawyers at The Quinn Group on (02) 9223 9166 or submit an online enquiry form today.
