Trusts & Trustees 2007 Molloy 75 95

75
Trusts & Trustees, 2007, Vol. 13, No. 3
Trustee duties to beneficiaries in the exercise

of dispositive discretion: the legal framework
Anthony Molloy QC*
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

throughno valid dispositive discretion
without 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.
*
Anthony Molloy QC Shortland Chambers, 13/70 Shortland Street, PO Box

4338, Auckland 1140, New Zealand.
The Author (2007). Published by Oxford University Press. All rights reserved.
The court always will seek to discern the settlors

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 settlors estate.
Difficulty
The problem here is not to be confused with mere
difficulty in tracking beneficiaries down, which does
not defeat the trust: Re Hains Settlement.5 Provided the
beneficiaries are identified, or the class is conceptually
1
2
3
4
5
See under the section of this article named Taking the settlors intention
seriously is a key to the taking of that sensible approach subsequently as to
the requirement that sensible effect be given to the settlors intention.
Morice v Bishop of Durham (1805) 10 Ves Jr 522, 539540.
(1805) 10 Ves Jr 522, 539540.
(1805) 10 Ves Jr 522, 527.
[1961] 1 WLR 440; McPhail v Doulton [1971] AC 424, 457 (HL).
Downloaded from http://tandt.oxfordjournals.org/ at London School of economics on March 23, 2016
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).
76
Trustee duties to beneficiaries

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 discretion
Criterion for validity when the deed confers

a simple power, or where it imposes a trust
with 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
Gulbenkians 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 description

of beneficiary or of beneficiaries
Broad as the test is, it does not mean that anything goes.
In McPhail v Doulton8 Lord Wilberforce, concluded
his judgment with a discussion of the potential sources
of invalidating ambiguity. His Lordship referred first
to 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.
6
7
8
See Re Gulbenkians Settlement, Wishaw v Stephens [1970] AC 508, 523, per

Lord Upjohn: mere difficulty is nothing to the point. If the trustees feel
difficulty or even doubt upon the point the Court of Chancery is available
to solve it for them.
[1971] AC 424, 456 (HL), on appeal from In re Badens Deed Trusts, Baden
v Smith [1969] 2 Ch 388.
[1971] AC 424, 457.
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 donors bounty.
Conceptual uncertainty
In McPhail v Doulton11 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 Eldons words,
one that cannot be executed (Morice v Bishop of
Durham, 10 Ves Jr 522, 527).
Light on meaning of conceptual uncertainty

as 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
9
10
11
12
13
[1971]
[1970]
[1971]
[1971]
[1971]
AC
AC
AC
AC
AC
424,
508,
424,
424.
424,
455.
523525.
457.
456.
Nor 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.
Earlier in his reasons,9 Lord Wilberforce had cited,

and applied to trusts, remarks of Upjohn LJ in respect of
powers, in In Re Gulbenkians Settlements, Whishaw v
Stephens,10 that, if a deed:
77

Templeman J took this up in Re Mainstys
Settlement,14 in which His Lordship held that:
Thus, whether or not Lord Wilberforces example

proves 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 Mainstys
Settlement17 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 Gulbenkians Settlements, Whishaw v Stephens18

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
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, 523524. Cited and applied by Lord Wilberforce in
McPhail v Doulton [1971] AC 424, 455.
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 donors 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 settlors intention;
19 [1970] AC 508, 524.
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 a
private, 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.
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 which
enables 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 donors 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 smaller
class 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.
78

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
Caution: next-of-kin not a synonym for relatives
In Antill-Pockley v Perpetual Trustee Company Limited22

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 sisters son,
was invalid: the sister was the sole next-of-kin.
Massive potential width of class not to be

mistaken 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 issues
co-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 Mainstys Settlement23
20 [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.
But the means of expressing that class can be very wide indeed
The deed in Re Mainstys Settlement24 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 powerto add
anyone in the world to the class of original beneficiaries
specified in the trust deedwas 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 the
consideration 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 Wilberforces 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.26
24 [1974] Ch 17, 24.
25 Re Mainstys Settlement [1974] Ch 17, 27.
26 (1805) 10 Ves Jr 522, 539.
Shared ancestry is not bedevilled by the problems of the

friendship spectrum. In his speech in McPhail v
Doulton,20 Lord Wilberforcehesitantly, lest his example may prejudice future casessuggested 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.
Templeman J held that In Re Gulbenkians Settlements

and McPhail v Doulton teach that a power cannot be
uncertain merely because it is wide in ambit.
79
Third duty: ascertain whether

distribution is imperative; or fully
discretionary
Trusts and powers share the test of object
certainty
The same certainty of objects test serves both powers
and trust powers.27
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 recognize and apply in her care and disposition of the trust
estate 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
27 See section of this article Criterion for validity when the need confers a
simple 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 Badens Deed Trusts, McPhail v Doulton [1971] AC 424, 456, per Lord
Wilberforce.
30 Re Gulbenkians Settlements, Whishaw v Stephens [1970] AC 508, 523 per
Lord Upjohn, with whom Lords Hodson and Guest agreed.
31 Re Gulbenkians Settlements, Whishaw v Stephens [1970] AC 508, 523.
Wilberforce, in whose reasons the other majority judges concurred.
If the trustee fails to exercise it, the fund goes to those

entitled under the trusts in default of its exercise.35
It follows thateven if it is clear, and its members are all
ascertained and are of full age and legal capacitythe
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 what
way, 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 supposethe 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
33 Re Gulbenkians Settlements, Whishaw v Stephens [1970] AC 508, 524
per Lord Upjohn.
per Lord Upjohn.
per Lord Upjohn.
per Lord Upjohn.
38 [1953] Ch 672, 688.
Apart from that, and apart also from:

the fact that an individuals 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
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
80

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 height
or complexion or by the irrelevant fact that he was a
resident of Greater London.
In a passage in his reasons in Re Mainstys Settlement39

Templeman J appears to have held that that was it. That,
in respect of a mere power:
(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:
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 courts 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 fathers 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 Mainstys Settlement,46
he had expressly held that:
39
40
41
42
43
44
45
46
[1974] Ch 17, 2728.

[1974] Ch 17, 28.
[1990] 1 WLR 1587, 16171618.
Schmidt v Rosewood Trust Ltd [2003] 2 AC 709 at para 42 per the Privy
Council approving of Warner J.
Re Badens Deed Trusts, McPhail v Doulton [1971] AC 424, 456, per Lord
(1883) 22 Ch Div 521 (CA).
As in Wong v Burt [2005] 1 NZLR 91 (CA) cited under Consequential
excessive and fraudulent exercise subsequently.
[1974] Ch 17, 26.
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 settlors 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 shares
in 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.51
Lord Upjohn, with whom Lords Hodson and Guest agreed.
Lord Upjohn; Re Badens Deed Trusts, McPhail v Doulton [1971] AC 424,
456, per Lord Wilberforce.
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 to
be impossible, having regard to the ramifications of the
persons who might become members of this class.
81

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:
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 is

valid: get in the trust estate
Validate and commence the trust
It is not the deed by which the trust is constituted,
but the trustees getting-in of the trust estate. So, once
the trustee is satisfied that the deed defines the
beneficiaries, or the class of beneficiaries, unambiguously: it is imperative that the trust estate be got into the
trustees name, and invested.
The beneficiaries have the right to expect that the
trustee will attend to this; and the trustee has a duty to
see to it. Without property of which to dispose, any
purported exercise of the dispositive discretions will be
mere flatus.
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 referred
to this, and said: But the possibility of such a collective disposition will be
rare, and on his own the object of a discretionary trust has no more of an
assignable or transmissible interest than the object of a mere power.
Trustees fifth duty to the

beneficiaries: survey them and
ascertain those with a real and
practical interest and a real
prospect of benefit
Identify all those with a real and practical
interest 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 sensible

and informed approach rather than a pointlessly
wide survey
The class in Re Gestetner Settlement, Barnett v Blumka54
was extremely wide: embracing family; ex-employees
of any of the family; the widow or widower of any such
ex-employee; charitable institutions; and past and
present directors and employeesand the widows or
widowers of any of themof 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 settlors bounty.
There being no uncertainty in that sense, I am reluctant
to introduce a notion of uncertainty in the other sense, by
54 [1953] Ch 672, 688 (Harman J).
55 [1953] Ch 672, 683.
the court, if called upon to execute the trust power,

will do so in the manner best calculated to give effect to
the settlors or testators 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
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.
82

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
Taking the settlors intention seriously is a key to

the taking of that sensible approach
In Re Gestetner Settlement, Barnett v Blumka60 Harman J
made a point so obvious thatlike actually bothering to
read the trust deedit is easily overlooked. The learned
judge continued:
Consequently, I am not minded to upset the
scheme 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 Mainstys Settlement,61 Templeman J observed

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
56
57
58
59
60
61
[1953] Ch 672, 688689.

Re Mainstys Settlement [1974] Ch 17, 27.
[2003] 2 AC 709, para 42.
[1971] AC 424, 456.
[1953] Ch 672, 689.
[1974] Ch 17, 26.
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 both

trusts and mere powers, the inquiry is not
quite identical in each case
In McPhail v Doulton63 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 the
survey which the trustee is required to carry out: if he
has to [ie a trust] distribute the whole of a funds
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 powers
are 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.
62 [1974] Ch 17, 29.

63 [1971] AC 424, 449.
64 [2003] 2 AC 709, at para 40.
Harman Js good sense in this, and other, aspects of his

reasons, was referred to by, and clearly influenced,
Templeman J in Re Mainstys 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 Doulton59 Lord Wilberforce made it
clear that, once the trustee can see that there is
conceptual certaintyie, that any given individual is,
or is not, a member of the class of beneficiaries intended
by the settlorthere is no need for that trustee to have
compiled, or to have been able to compile, a complete
list of all possible objects.
circumstances and their individual knowledge acquired

or inherited.
83
Trustees sixth duty: having identified

those with a real and practical
interest and a real prospect
of benefit, tell them that
they are potential beneficiaries
No need to tell the beneficiaries that they are
beneficiaries?
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
65 See Sub-paragraph (ii) under Mere power above.
66 [1974] Ch 17, 27.
Potential for conflict between settlor

and trustee
In his 2003 Withers Lecture, The Trustees duty to
provide information to Beneficiaries, Mr Justice
Lightmanwho cited that judgment but did not refer
to this passagemade 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 that
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 be
considered 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 the
following passage from the reasons for judgment of
Templeman J in Re Mainstys Settlement:66
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.
84

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
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 whoas the Privy Council has held in
Schmidt v Rosewood Trust Ltd,70can invoke the
courts 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
67 Professor Pound, The Spirit of the Common Law (1921) 68 wrote: At
common law the king is parens patriae, father of his country, which is but
the medieval mode of putting what we mean today when we say that the
state 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.
Trustee accordingly bound, as a matter of

good faith, to disclose to a sui juris beneficiary
their 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 courts 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 beneficiarys rights under it, therefore
must be in breach of duty to the beneficiary.
The applicable duty is that of good faith. Professor
Hayton 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
correctto 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
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.
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 trusta trust for public purposesis
enforceable by the Attorney-General on behalf of the
parens patriae67 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
to make fully-informed distribution decisions: a state of

affairs unlikely to win the approval of the court.
85

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 to
those 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.
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 their
favour 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 Js finding, in Re Mainstys 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.
74 Cf Ask them: they have a right to have their requests considered
subsequently.
76 See But the means of expressing that class can be very wide instead earlier.
77 [2003] 2 AC 709, para 67.
What about potential beneficiaries under

a mere power?
Because the holder of the power is under no duty to
exercise it at all, potential beneficiaries under a mere
powerhaving no more than a theoretical possibility
of benefit, within the passage just citedin some
circumstances may be considered as having a lesser right
to 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 beneficiaries is identically the same as the class of default
beneficiaries, 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 Js 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 who
78 See Mere power mentioned above.

79 [2003] 2 AC 709, para 67.
Extent of disclosure required of trustee: all

candidates for the exercise of the discretion
to be informed of the possibility
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 placed
before 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.
86

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 the
interests 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:
In some circumstances, the considerations82 seen by

Lightman J as appearing to militate against disclosure
may 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 beneficiaries 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 to
ensure 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.
80 Cf the remarks of Lightman J in his Withers Lecture, cited under Potential
for conflict between settlor and trustee earlier, and the duty not to be the
settlors lapdog considered under Potential for conflict between settler and
trustee below.
81 [1998] Ch 241, 251.
82 Cited under Potential for conflict between settler and trustee earlier.
Having told them that they are potential

beneficiaries, classify them, and find out
how 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 Doulton83 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:
vizWilliam
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
83 [1971] AC 424, 449.
84 (1842) 1 Hare 580.
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.
The trustees seventh duty: having

identified and advised the likely
potential beneficiaries, seek to
understand, and actually consider,
their circumstances
87

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 should
admit of such application.
Ask them: they have a right to have

their requests considered85
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
considerfrom time to time, I supposethe 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 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 to be impossible, having regard to the ramifications 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 Mainstys
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
85 See also the extra-judicial view of Lightman J under Extent of disclosure
required of trustee: all candidates for the exercise of the discretion to be
informed of the possibility earlier.
86 [1953] Ch 672, 688.
87 [1974] Ch 17, 25, 26.
Trustees eighth duty: to make

the 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 toand one doesfind
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, this
principle 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).
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, 540541 (HL).
In re Gestetner Settlement,86 Harman J held that the

trustees
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.
88

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 Cookes chosen private law illustration involved a

fiduciary power. In Howard Smith Ltd v Ampol
Petroleum Ltd,92 the Privy Council was concerned with
the directors power to issue company shares:
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 Mainstys 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 sensible
expectation 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 Cookes 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
92 [1974] AC 821, 834 (PC).
93 [1974] Ch 17, 26. See also Re Badens Deed Trusts, McPhail v Doulton
[1971] AC 424, 449, per Lord Wilberforce; and Re Lofthouse (1885) 29 Ch
D 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, 103104 (Rattee J), 113114
(Buxton LJ), and 118119 (Stuart-Smith LJ, dissenting) (CA).
Authority must exist in substance, and cannot

be claimed as a matter of form
The first way in which the trustee risks making a
distribution to persons not entitled to receive itfor
which the trustee unable to recover it from the recipient
will be liable personally to reimburse the trust estateis
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 Burt95 is a recent example. The will in question

provided for the income of the estate to be paid to
the testators 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 daughters children were
95 [2005] 1 NZLR 91; [2005] WTLR 291 (CA).
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.
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
their interests then he is acting dishonestly. It does not
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.
89
. . . 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 wifes 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 testators widow was one of the trustees. She

regarded the lack of provision for stirpital substitution
of this daughters two teenage children as unfair.
Trustees anxious to please the testators widow
The trustees considered that the above provision

empowered 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 availablealbeit challengeable by the surviving daughter in whom the total income was vested for
lifethe trustees proceeded with the distribution to the
testators 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
96 Wong v Burt [2003] 3 NZLR 526 para [8] (Young J, at trial).
97 [2005] 1 NZLR 91 para [10].
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 6
accordingly 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
98
99
100
101
[2005] 1 NZLR 91 para [23].

Re Clores Settlement Trusts [1966] 1 WLR 955.
Wong v Burt [2003] 3 NZLR 526 para [8] (Young J, at trial).
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].
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 as
beneficiaries of their mothers 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
grandfathers estate while their late mothers sister
remained alive.
Clause 6 of the will empowered the trustees to pay the
widow:
90
[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 testators
widow], with the trustees, and after taking legal advice,
which had the overt and pre-determined idea that the
105 Cf para The general principle of law earlier.
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 a
nonobject.
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 scheme
to 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 testators
claimant daughter.
By her sisters 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 the
capital of the estate must have significantly reduced her
income.
Distribution to unauthorized persons is void

for all purposes, and not only as against other
beneficiaries
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.
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 372 at 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 the
recipient 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 Marsdens 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 the
appointment can be severed from the remainder of
that appointment (Topham v Duke of Portland (1858)
1 De GJ & S. 517; 46 ER 205).
91

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:
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 the trust
income for that year be appropriated, set aside and
applied to the beneficiaries listed in the resolution. This
list included The Adcock Practice Trust $429,000.
Notwithstanding that resolution, the Revenue
assessed on the basis that, in terms of clause 3(e), the
resolution in favour of the Adcock Trust had not been
effectively made; and that Steven Hart, Troy Hart,
Philip Hart, and Tamara Petersen were three of the four
persons described in clause 3(e), andthe purported
Adcock distribution being ineffectiveeach of them was
therefore assessable, as a default beneficiary, with a
quarter share in the $429,000.
Counsel for the applicant taxpayers conceded
that the Adcock Practice Trust was not one of the
General Beneficiaries within clause 3(b) of the
trust deed. However, it was submitted that Revenue
had no power to challenge the resolution by the
106 (2004) 56 ATR 42 (Federal Court of Australia, Spender J.)
It was authorised by section 61(3) of the Trusts Act

1973 (Qld), in that
- that enactment empowered trustees to pay or apply
income, from trust capital held for sui juris
contingent beneficiaries, for, or towards, their
maintenance, education, advancement or benefit;
and
- it was for their benefit to have the $429,000 given
away to a non-beneficiary so that it did not attract
an income tax liability for them.
In any event, no beneficiary had challenged it, and
because the application, having been made by the
trustee, continues in force unless and until it is
rectified by the Trustee or set aside by a Court in an
action by a beneficiary for breach of trust.
Spender J rejected the section 61(3) claim on the
grounds that the trustee had not made the distribution
by reference to the enactment at all, and, in any event,
it is impossible to accept the proposition that giving
away $429,000 of trust property to a non-beneficiary
because otherwise tax might have to be paid on it could
be an application of trust income for the benefit of any
beneficiary within subs 61(3) of the Trusts Act.107
His Honour then quickly, and accurately, put the
taxpayers alternative argument out of its misery:
I turn to the contention that the Commissioner is
unable to challenge the validity of the distribution. It
was contended for the applicants that the Commissioner
must take the world as he finds it, and cannot
officiously seek to set aside or treat as set aside a trust
distribution which the interested parties are content to
allow to stand. That is to say, the Commissioner is not
entitled to challenge the validity of trust transactions in
the absence of any challenge by any beneficiaries . . ..
Further, it was submitted that the Court should not
make such a determination in taxation proceedings in
the absence of all interested parties, and a court should
not determine that the persons to whom the distribution was made are in fact not entitled to claim the
moneys without hearing from them. It was further
contended that the decision to apply the trust fund for
the benefit of a non-beneficiary was merely a violation
of an equitable obligation which may be acquiesced in
by the beneficiaries, (as the applicants assert has
happened here), and the Trustee as legal owner was
able to apply the trust assets as it saw fit, though that
107 Ibid para [24].
(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 net
income 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.
trustee because:
92
Consequences for trustees of distribution

to unauthorized persons
Just as the trustee in Wilson v Turner,110 would have
been liable to make good the deficiency from his
own pocket, if the wrongful payments were to have been
irrecoverable from the payee, so with the trustees in
Wong v Burt.111 It was of no help to them that they had
acted on legal advice.
To add insult to injury, they were denied relief under
both the trustee legislation and the express terms of the
trust instrument. The basis for the denial was that either
form of relief was available only to a trustee who had
been honest; and, in the view of the Court of Appeal,
an honest trustee would not have set up a scheme for
108 Section 97(1) of the Income Tax Assessment Act 1936 (Cth) provides that
where a beneficiary of a trust estate who is not under any legal disability
is presently entitled to a share of the income of the trust estate: (a) the
assessable income of the beneficiary shall include (i) so much of that share
of the net income of the trust estate as is attributable to a period when the
beneficiary was a resident.
109 (2004) 56 ATR 42, paras 4247.
110 (1883) 22 Ch Div 521 (CA). See And a duty not to exercise it
capriciously, irrationally, or perversely earlier.
111 See [2005] 1 NZLR 91, [59].
payment to a non-beneficiary without having sought the

confirmation of the court that the legal advice he had
received had been sound.
The classic statement by Millett LJ in Armitage v
Nurse112 has been cited already.113 It is worth repeating
here, because it does not appear to have been drawn to
the attention of the Court of Appeal:
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
their interests then he is acting dishonestly. It does not
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.
By this standard, the Wong trustees may have been hard

done by. The trustees appear to have taken the course
they did take on the basis of reputable legal advice.
Although that advice was that they were obliged to
consider the interests of all beneficiaries, it seems to have
come down on the side that what they did would be
lawful, and a proper exercise of their powers. Against
that background, either knowledge that, or reckless
indifference to whether, what they were doing was
wrong, might not have seemed as obvious as the Court
of Appeal found it to have been. Certainly, the Court of
Appeal acknowledged114 that the learned trial judge
112 [1998] Ch 241, 251. Followed in Taylor & ors v Midland Bank Trust
Company Ltd & ors [2002] WTLR 95, 103104 (Rattee J), 113114
(Buxton LJ), and 118119 (Stuart-Smith LJ, dissenting) (CA).
113 Confer no benefits outside the clause above.
114 [2005] 1 NZLR 91 para [56].
rendered it liable to an action for breach of trust at the

suit of any beneficiary who objected, and none has. . . .
I do not agree.
The Commissioner has a duty to assess whether a
taxpayer is a beneficiary presently entitled to income for
the purposes of s 97 of the Assessment Act.108 Neither
the Commissioner nor the Court are required to give
effect to a transaction that is null and void, or otherwise
legally ineffective. A trustee who acts ultra vires in
making an appointment of income effects nothing.
Cooper J in [BRK (Bris) Pty Ltd v Federal Commissioner
of Taxation (2001) 46 ATR 347] said at 353:
The purported resolutions were nullities and liable to be
set aside ab initio by a court:
His Honour referred to Re Cavill Hotels Pty Ltd [1998]
1 Qd R 396, in particular the observations of Williams J
at 402, and the observations of Mervyn Davies J in
Turner v Turner [1984] 1 Ch 100 at 111.
The Trustee had no power to appoint the Adcock
Trust as a beneficiary entitled to benefit from the Trust
provided for in the Trust Deed, and the Trustee had no
power to appoint any income in any income year to the
Adcock Trust, as it was outside any class eligible to be
the object of an appointment of income under the terms
of the Trust.
The ultra vires appointment was thus, in my view,
void ab initio and a nullity, and not merely voidable
following a challenge by disappointed beneficiaries.109
93

[who also appears not to have been referred to Armitage
v Nurse115] had found that:
the trustees actions were both honest and reasonable
and . . . there was no suggestion of a dishonest motive of
the trustees nor any evidence of it; the trustees obtained
both legal and accountancy advice before making their
decision; and there was a real family emergency
requiring the financial protection of two vulnerable
children.
Where the trustees have benefitted the settlors

by decisions taken at the direction of the settlors
and not by the exercise of their own independent
judgement.116
Armitage v Nurse117 certainly was cited in Taylor & ors v
Midland Bank Trust Company Ltd & ors.118 Each of the
deeds there in issue had evidenced orthodox discretionary capital and income trusts. One was created by a
settlement made in 1964 by Mr Taylor, and the other by
Mrs Taylor, in each case for the benefit of their issue. In
the aggregate, the trust estates comprised the entire
share capital of RP Taylor Holdings Ltd, and of AJA
Taylor & Co Ltd. The latter was a property investment
company. Mr and Mrs Taylor were directors, as, until
1994, were their two sons.
The companies thus were of the class contemplated
in Re Lucking s Will Trust119 and in Bartlett v Barclays
Trust Co (No 1).120 That is, they were trusts the trustees
of which were bound to ensure the receipt of all the
information that an ordinary prudent investor having
a dominant shareholding would require at all times,
so as to enable them to act timeously for the protection
of the trust estate.
Notwithstanding the trustees obligation to protect
the trust estate, the settlors were paid directors
remuneration disproportionate to the value of their
work in that role. This went on for 30 years between
1964 and 1994, and had been a matter of deliberate
policy on the part of the settlors, and had been agreed to
115 [1998] Ch 241, 251.
116 Taylor & ors v Midland Bank Trust Company Ltd & ors [2002] WTLR
95 (CA).
117 [1998] Ch 241, 251.
118 [2002] WTLR 95 (CA).
119 [1968] 1 WLR 866, esp at 874 (Cross J).
120 [1980] Ch 515, esp at 533 (Brightman J).
The trustees caused or permitted the companies to

make payments to the settlors otherwise than as
proper remuneration for their services as directors.
In so doing, the trustees had acted dishonestly within
the dictum of Millett LJ in Armitage v Nurse123 that is
cited under Effect of contrary provision in the trust
deed above: in that the remuneration starved the
companies of funds necessary to make purchases of
trading stock, and the trustees knew that, or did not
121 [2002] WTLR 95, 115 per Buxton LJ.

122 Ibid 110 per Rattee J.
123 [1998] Ch 241, 251.
Trustees ninth duty: be in charge

recognize the settlors wishes, but do
not act the lapdog
by the trustees, when, as the shareholders, it had been

for them in general meeting to reject or to approve any
proposals for directors remuneration.
The sons had been directors of the company [but not
trustees] themselves during most of the period, but
appear to have gone along with the arrangement: as a
result of which the assets of the company were said to
have been seriously depleted, and the value of its shares
[and therefore of the trust estate] reduced.
In December 1993, one of the beneficiaries complained that the remuneration that had been paid to the
settlors as directors of the companies had been at the
expense of the companies ability to re-invest profits.
A letter in response, from the auditor and de facto
chairman, said that It has always been accepted that,
for their lifetimes, Mr and Mrs RP Taylor have the
benefit of income from the Group.
At the time of that letter, 10.64 percent of the trust
estates had been appointed irrevocably to each of the
settlors three grandchildren, and their daughter,
absolutely; and the 57.44 percent balance, or most of
it, had been appointed revocably to the settlors
childrentheir daughter, and the two sonsfor life.
Following further beneficiary [except the daughter]
complaints,121 about the settlors drawing the company
income in the manner described by the auditor, the
trustees revoked those revocable appointments, and
appointed their controlling interest in the company to
the daughter absolutely. While previous appointments
had suggested, or had been consistent with, a policy of
stirpital equality, this appointment gave the complaisant
daughter a much greater share of the trust funds than
her siblings or their issue.122
The beneficiaries then issued proceedings. They
alleged that:
94

care whether, paying it was contrary to the interests
of the trust estate.
The trustees appointment of the majority shareholding to the daughter was made to cover up their
dishonesty, and accordingly was a fraud on their
powers.
Firstly, if the trustees have deliberately pursued a policy

of favouring the settlor at the expense of the beneficiary,
that at least arguably is dishonest under the Armitage v
Nurse approach as I understand it. It is no answer that
they are not in any way benefiting themselves, nor that
many people might find it difficult to attach any moral
opprobrium to a policy of favouring the person whose
money it was in the first place. The resonances of King
Lear do not change the fact that in law, following the
settlement, the parents had no right to anything from
the company other than proper remuneration.
...
Fourthly, the [1994] appointment to [the daughter]
gave her a vastly disproportionate share of the company,
compared to her brothers families. There is no obvious
explanation, other than that which the plaintiffs give.
The appointment followed immediately upon a period
of intense criticism of the trustees conduct and, as
alleged, she was known to be standing apart from that
criticism. Although she has not sworn an affidavit,
she does not put forward any reason why she might
have been so favoured.
Fifthly, the trustees have chosen not to respond to
criticisms relating to remuneration, nor to the 1994
appointment. While they are entitled to take this
stance, it leaves the court with no material to rebut
the inferences which appear to follow from the other
material.
In these circumstances I conclude that there is a case
to answer and the [strikeout/summary judgment]
application therefore fails.
124 [2002] WTLR 95, 106107.
As had Carnwath J at first instance, the Court of Appeal

held that the beneficiaries allegations, like any other
allegations of something as serious as fraud, had to cross
a high bar if they were to succeed at trial.
Nonetheless, the considerations mentioned by
Carnwath J put them in with a chance.
Not the least of those considerations was the trustees
reluctance to provide the reasons for their action; the
simple innocent explanation, if there was one. They relied
on Re Londonderry,125 in which the Court of Appeal
upheld the trustees contention that they were not obliged
to give reasons for their discretionary decisions. The
court did not hold that they could not give such reasons,
but only that they could not be compelled to do so. For
example, Danckwerts LJ held:126
It seems to me that where trustees are given discretionary
trusts which involve a decision upon matters between
beneficiaries, viewing the merits and other rights
to benefit under such a trust, the trustees are given
a confidential role and they cannot properly exercise that
confidential role if at any moment there is likely to be
an investigation for the purpose of seeing whether they
have exercised their discretion in the best possible
manner. Of course, if a case is made of lack of bona fides,
that is an entirely different matter. In that case I agree
it becomes necessary to examine exactly what has
happened because that is in an action and not in
a theoretical application for directions, as the present
case appears to me to be. It appears to me that
the documents are confidential and the trustees
duty would become impossible and the execution of
the trust would become impossible if the trustees were
bound to disclose to any beneficiary any information
or other matters in regard to beneficiaries that they
had received.
The phrase I have italicized should have put the trustees
on guard about relying on the authority of that case
in the circumstances. Buxton LJ certainly thought so,
and expressed his doubts thus:127
But, as the judge pointed out, the absence of obligation
is just that, and no more. If the defendants choose to
give no explanation there is no separate sanction that
can be directed at them; but at the same time they
provide no material to assist the court in holding the
complaints to be unsustainable.
125 [1965] Ch 918 (CA).
126 [1965] Ch 918, 935936.
127 [2002] WTLR 95, 115, 116.
The trustees moved to strike out; and, under Part

24.2 of the Civil Procedure Rules, for summary
judgment: on the grounds that the beneficiaries had
failed to show a case which, if unanswered, would entitle
them to judgment, or that the trustees had shown that
the beneficiaries claim would be bound to be dismissed
at trial.
Carnwath J dismissed the motion. On appeal, Rattee J
noted approvingly124 that Carnwath J had held that:
Whether Re Londonderry enables trustees

to take the fifth
95
The trustees attempt to strike out the case against them

failed accordingly.
Trustees tenth duty: be yourself

consider, but do not defer unduly to,
the wishes of beneficiaries, or of
co-trustees
Beware Madame Lash
The defendant trustees in Re Mulligan (Deceased)128
would have had no chance of a strikeout. In her
lifetime, they had all danced to the tune of the
domineering trustee/life tenant, with disastrous
128 [1998] 1 NZLR 481.
consequences. Between her insistence, and their

submissiveness, they did huge damage to the rights of
the capital beneficiaries: damage for which they were
ordered to make restitution from their personal assets.
Beneficiaries or co-trustees may sorely test the resolve
and the independence of the trustee. Beneficiaries who
are co-trustees can be even harder to deal with.
And keep Lord Nottingham in mind before you

accept a trusteeship
Which brings us back to Lord Nottinghams warning,
cited at the beginning of this paper, that a trustee can
get nothing but Trouble by undertaking a trust.
Trustees had better believe it!
doi:10.1093/tandt/ttl067
Advance Access publication 31 March 2007
Anthony Molloy QC
Shortland Chambers
13/70 Shortland Street
PO Box 4338
Auckland 1140
New Zealand
Tel: 64 9 3091 769
Fax: 64 9 3776 956
Email: apmolloyqc@shortlandchambers.co.nz
...
At trial, if one party raises serious matters that call for
an explanation by the opposite party, which the
opposite party is in a position to give, and no such
explanation is forthcoming, that failure does not simply
stand neutral, but gives some form of positive support
to the allegations.
[His Lordship then reviewed the facts, and continued:]
These are, however, merely speculations, and it is difficult
to see why the court should entertain them when
both the trustees and Mrs Bonsels are in a position
to put any doubts to rest. Both have filed evidence;
neither has addressed this issue. In these circumstances
I am not prepared to say that the appointment
cannot bear the implication that the plaintiffs seek to
draw from it.

Trusts &amp; Trustees 2007 Molloy 75 95

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75

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

Trustee duties to beneficiaries in the exercise

Trustees first duty: know the deed

Second duty: think the deed

Anthony Molloy QC Shortland Chambers, 13/70 Shortland Street, PO Box

The court always will seek to discern the settlors

As the Lord Chancellor pointed out during the

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

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

Trustee duties to beneficiaries

Test where the trust is fixed, and there is

Criterion for validity when the deed confers

Linguistic or semantic ambiguity in description

See Re Gulbenkians Settlement, Wishaw v Stephens [1970] AC 508, 523, per

directs trustees to make some specified provision for

Light on meaning of conceptual uncertainty

Elaborating on their Lordships decision in

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Nor is the problem of the conceptual clarity of the class

Earlier in his reasons,9 Lord Wilberforce had cited,

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

Trustee duties to beneficiaries

Thus, whether or not Lord Wilberforces example

In Morice v Bishop of Durham16 a trust for such objects

Equally between my old friends: problematic for the

In In Re Gulbenkians Settlements, Whishaw v Stephens18

Between such of my old friends as my trustees shall select:

Lord Upjohn then considered, and found equally

In the absence of any dictionary provided by the settlor

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The objection to the capricious exercise of a power may

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

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

Trustee duties to beneficiaries

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

In Antill-Pockley v Perpetual Trustee Company Limited22

Massive potential width of class not to be

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

The deed in Re Mainstys Settlement24 empowered the

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Shared ancestry is not bedevilled by the problems of the

Templeman J held that In Re Gulbenkians Settlements

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

Trustee duties to beneficiaries

Third duty: ascertain whether

Trusts and powers nonetheless not identical

Telling the difference

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

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

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Apart from that, and apart also from:

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

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

Trustee duties to beneficiaries

In a passage in his reasons in Re Mainstys Settlement39

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

exercisable by the trustees at their absolute discretion,

In Mettoy Pension Trustees Ltd v Evans,41 Warner

[1974] Ch 17, 2728.

reasonable trustees will endeavour, no doubt, to give

Which is to say that a trustee would act unreasonably,

Where the deed creates a trust to distribute to, or

Trusts & Trustees 2007 Molloy 75 95

Trusts & Trustees 2007 Molloy 75 95