A welcome addition to the law of trusts in Australia

A recent decision of the Court of Appeal of Western Australia, Blenkinsop v Herbert [2017] WASCA 87 (Blenkinsop) provides some much needed guidance on the issue of whether a guardian of a discretionary trust is a fiduciary.

Guardians are occasionally appointed under discretionary trust deeds, and often (but not always) the guardian is also the appointor. The guardian is a creature purely of the trust deed and derives no power from legislation. Many trust deeds require a trustee to give notice to the guardian before significant decisions relating to the administration of the trust are to be made, or for the guardian to oversee such decisions in another way.

Prior to Blenkinsop, there was an absence of definitive authority in Australia on the question of whether – and if so, to what extent - guardians owe fiduciary duties to the beneficiaries of the trust over which they are appointed.  The absence of authority on this point made it difficult to advise on the scope of a guardian’s potential liability. That is to say, what is the position when a beneficiary alleges that a guardian has done, or failed to do, something?

In a nutshell, the key learning from Blenkinsop is that the characterisation of a guardian as a fiduciary can only be answered by examining the substance of the guardian’s appointment under the trust deed. This examination will ultimately determine whether or not the guardian’s obligations to the trust beneficiaries are essentially fiduciary in nature.

The facts before the primary court

Two trusts were established by the deceased husband of the appellant.  The relevant factual matrix was as follows:

a)    the appellant, and the second to sixth respondents, were each general beneficiaries of the trusts;

b)    various corporations were the trustees of the trusts;

c)    the second to sixth respondents were the children of the appellant and her deceased husband;

d)    the appellant and the second to sixth named respondents were the joint guardians of the trusts by reason of variation deeds executed in 2011;

e)    by the terms of the trust deeds, in so acting as joint guardians, decisions had to be made by them unanimously; and

f)      under the trust deeds, the trustee had to obtain the consent of the guardian before prescribed (essentially significant) decisions were made - for example, decisions concerning capital advancements, early vesting and amendments to the trust deed.

Primary court’s findings

The appellant brought proceedings to replace the (then corporate) trustees, and to remove the (joint) guardians, of the trusts.  In a separate decision first in time, the primary judge ordered that the trustees of the trusts be replaced with an independent trustee (the first respondent to the appeal). That decision was not challenged on the appeal.

The second (and relevant for current purposes) decision of the primary court concerned that part of the appellant’s application which sought to remove the guardians.

First, the Court considered the issue of jurisdiction. His Honour noted that there was no Australian authority on the question of whether a court may remove a guardian of a trust. Ultimately, he held that he was satisfied that he could do so, but provided that the role of the guardian (or any role howsoever described) was essentially fiduciary in nature and those duties were owed to the beneficiaries of the trust as a whole.[1]

Second, the judge turned his mind to whether the settlor of the present trusts intended that the trust might operate without a guardian, having regard to the identity of the guardians and the stipulation that unanimity was required.[2] Overall, both of these critical questions turned on the proper construction of the trust deeds.

The court at first instance found as follows.

1.    There were numerous factual circumstances which pointed to a conclusion that the trust deeds as varied did not evince an intention that the guardians could only act in the interests of the beneficiaries as a whole rather than having some scope to act in their own interests,[3] and accordingly, the court’s power to remove the guardian had not been enlivened.[4] The court recognised that this conclusion represented a departure from the parties’ positions at trial, which was that the court had power in the circumstances to remove the guardian(s).[5] 

2.    The intention of the trust deeds was that there would be a guardian and accordingly that the trustee’s powers would be so fettered. Although in this case the joint appointment of several persons constituting that guardian and the requirement that they act unanimously was clearly unworkable, it was what was intended by the settlor and therefore his Honour was not satisfied that it could be done without disregarding the intention of the settlor as evinced by the terms of the trust instruments.[6]

The appeal

The appellant appealed the primary court’s decision to refuse to remove the guardians. She relied on two grounds of appeal. The second ground of appeal was the focus of the appeal. 

Ultimately, the Court of Appeal found as follows:

(a)  The Court has, by its inherent equitable jurisdiction to supervise and secure (but not alter) the proper administration of trusts, wide powers to effectuate such outcomes.[7] While there may be circumstances militating for or against the way in which the Court might do so, provided the decision-making power is being exercised to the end of securing the due administration (but not alteration) of the trust, such matters are more likely to go to exercise of discretion rather than jurisdiction[8] and the ways in which courts have previously and elsewhere sought to do so are varied.[9]

(b)  The question of whether a guardian (or any appointee however described) is a fiduciary, is a question that turns entirely on construction of the trust instrument.[10]  Surrounding factual and other contextual circumstances are matters that might be relevant to construction but they are not of themselves determinative.[11]

Based on the approach espoused above, the Court of Appeal found that the guardians in this case were not fiduciaries. x

Key learnings

Blenkinsop is particularly instructive in clarifying the position relating to guardians and the previously murky position as to whether they owed fiduciary duties to the beneficiaries of the trust deed over which they are appointed.  So, following this decision, it can be taken away that guardians (or indeed, any person appointed to do any thing under a trust instrument or any instrument of equity) are not ipso facto fiduciaries. One must look to, and undertake a construction of, the duties and powers of the appointee, and to the factual matrix in which the instrument subsists, in order to determine whether the appointee is in fact a fiduciary.

Edwards Mac Scovell can assist in all matters concerning trust disputes or asset planning. 

[1] Blenkinsop v Blenkinsop Nominees Pty Ltd [No 2] [2016] WASC 61 at [37] and [47]
[2] Ibid at [46]
[3] Ibid at [51]-[55]
[4] Ibid at [47] and [56]
[5] Ibid at [57]-[60]
[6] Ibid at [65] and [67]
[7] Blenkisop v Herbert [2017] WASCA 87at [69]-[89]
[8] Ibid at [75]
[9] Ibid at [76]-[89]
[10] Ibid at [95]
[11] Ibid at [110]