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Issue 67 Articles, Issue 67: May 2014

Administrators and the rule in Saunders v Vautier

BY Hearsay
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Sunday 3rd March, 2013
Administrators and the rule in Saunders v Vautier

Introduction

The rule in Saunders v Vautier1  is well known: an adult beneficiary (or a number of adult beneficiaries acting together) who has (or between them have) an absolute, vested and indefeasible interest in the capital and income of property may at any time require the transfer of the property to him (or them) and may terminate any accumulation.2

The facts of Saunders v Vautier illustrate the application of the rule: a testator bequeathed stock to trustees upon trust to accumulate the income until the beneficiary turned 25, at which point they would pay the principal and accumulated income to him or, if deceased, to his estate. When the beneficiary turned 21 (the then age of majority in England) he sought to have the fund transferred to him. It was held that since he had the entire beneficial interest and there was no gift to another in the event of his failing to attain the age of 25, he was entitled to receive the stock including the accumulated income because, as an adult of full legal capacity, he was able to give a valid discharge to the trustees. 

In Anglo-Australian law, the rule has been seen to embody the ‘consent principle’ that Mummery LJ identified in Goulding v James in the following terms:

The principle recognises the rights of beneficiaries, who are sui juris and together absolutely entitled to the trust property, to exercise their proprietary rights to overbear and defeat the intention of the testator or settlor to subject property to the continuing trusts, powers and limitations of a will or trust instrument.3

Traditionally, the rule had no operation unless the beneficiary was ‘sui juris’.4 In English law, a person is sui juris if they can validly contract and bind themselves by legal obligation uncontrolled by any other person.5 The term comes from Roman law in which sui juris was the state of not being in the paternal power of another.6 In Australia, the term has been defined as ‘a person who has attained majority (over 18 years of age), who is of full age and full legal capacity’.7

It can be observed then that an absolutely entitled adult beneficiary cannot extinguish a trust in their favour if they have impaired capacity. 

Guardianship and Administration Act 2000

The Guardianship and Administration Act 2000 (‘the GA Act’) provides for the appointment of guardians and/or administrators for adults with impaired capacity.8 A guardian has powers in relation to the adult’s ‘personal matters’ whereas an administrator has powers in relation to ‘financial matters’.9 Naturally, a guardian and an administrator are usually one and the same person. The powers of an administrator are set out in s 33(2) of the GA Act:

33 Power of guardian or administrator (2) Unless the tribunal orders otherwise, an administrator is authorised to do, in accordance with the terms of the administrator’s appointment, anything in relation to a financial matter that the adult could have done if the adult had capacity for the matter when the power is exercised.

A ‘financial matter’ is defined in schedule 2 of the GA Act as a matter relating to the adult’s financial or property matters including, inter alia, receiving and recovering money payable to the adult, discharging a mortgage over the adult’s property and otherwise preserving or improving the adult’s estate.

Does s 33(2) of the GA Act give an administrator the power to terminate a trust even though the absolutely entitled adult beneficiary is not sui juris? The terms of s 33(2) are obviously very wide. On its face, the section appears to give an administrator the power to do anything in relation to a financial matter that the adult could have done if they did not have impaired capacity. At this point, it should be recalled that in Saunders v Vautier it was said by Lord Langdale MR that a sole, absolutely entitled beneficiary may require payment by the trustee ‘the moment he is competent to give a discharge’.10 A ‘discharge’ is a receipt for the funds paid over and an acknowledgement that the accounts are settled.11 The receipt of funds is patently a ‘financial matter’ within the scope of the GA Act.  It is arguable that as an administrator is capable of giving a discharge to a trustee, and giving a discharge is something that an adult with a mental infirmity could do if they did not suffer from their affliction, s 33(2) authorises an administrator to terminate a trust in favour of a sole, absolutely entitled adult beneficiary with impaired capacity. In other words, the administrator may be able to provide the requisite element of the ‘consent principle’ mentioned above.

There may be sound policy reasons justifying such a view of s 33(2). The GA Act imposes statutory duties on an administrator, such as the duty to act honestly and with reasonable diligence to protect the adult’s interests.12 An administrator must submit a financial management plan to QCAT for its approval13 and keep records to be produced to QCAT upon request.14 An administrator must also keep detailed accounts of administration, which are submitted on an annual basis.15 In light of this considerable supervision,16 it may be preferable to have the financial affairs of an adult with impaired capacity guided by an administrator alone, rather than increasing costs through the additional involvement of a trustee.

Trusts Act 1973

Section 31(2) of the Trusts Act 1973 is relevant to the operation of s 33(2) of the GA Act.  Section 31 is the first provision of Part 4 of the Trusts Act, which is entitled ‘General powers of trustees’. Section 31(2) states as follows:

31 Application of part (2) The powers conferred on a trustee by this part are exercisable by the trustee notwithstanding any lapse of time, or that all the beneficiaries are absolutely entitled to the trust property and are not under a disability, except so far as such powers are expressly revoked by all such beneficiaries by notice in writing to the trustee.

Section 5 of the Trusts Act provides that a ‘person not under a disability’, and any like expression, means a person of full age and full mental capacity.

Is the effect of s 31(2) that a trust cannot be terminated except by notice in writing to the trustee from all absolutely entitled beneficiaries of full age and mental capacity? It is a principle of statutory construction that where there is a conflict between general and specific provisions, the specific provision prevails.17 If there is conflict between s 31(2) which deals specifically with the revocation of a trustee’s powers and s 33(2) of the GA Act which deals generally with an administrator’s powers, the former must prevail.  Thus, if s 31(2) does retain the traditional rule in Saunders v Vautier (i.e. a trust cannot be terminated unless the beneficiary is sui juris), an administrator will not have the power to extinguish a trust pursuant to s 33(2) of the GA Act.

There is good cause for retaining the traditional rule. The very reason a settlor may establish a trust is that he/she has little faith in the integrity or ability of the administrator but great confidence in his/her chosen trustee. Allowing administrators to extinguish trusts may act as a disincentive for some people when they are considering whether to leave money on trust for an adult with impaired capacity.18

There is, however, some doubt as to whether s 31(2) does, in fact, ‘cover the field’ in relation to the extinguishment of trusts by absolutely entitled beneficiaries. The section only refers to the revocation of the powers conferred on a trustee by Part 4 of the Trusts Act. Part 3 of the Trusts Act, which confers investment powers on a trustee, appears to be unaffected by s 31(2). Further and more importantly, a trustee may, of course, be empowered by specific provisions in a trust deed. Indeed, s 4(2) of the Trusts Act provides that nothing in the Act shall preclude a settlor from conferring on a trustee any powers additional to those conferred by the Act. Section 4(4) provides that the powers conferred by the Act on a trustee are in addition to the powers given by the instrument creating the trust; but the powers conferred on the trustee by the Act are subject to the terms of that instrument.  In those circumstances, it is possible that Parliament only intended s 31(2) to deal with the revocation of powers specifically conferred by Part 4; it may not have intended that s 31(2) would be relevant to the termination of a trust as a whole. 

Conclusion

In the absence of a judicial ruling, it is not clear whether an administrator can extinguish a trust in favour of an absolutely entitled, but mentally impaired, adult beneficiary. There are policy reasons for and against granting administrators that power. The Queensland Law Reform Commission is currently undertaking a review of the Trusts Act.19 It may be appropriate for the Commission to address this issue in its final report.

Christopher Crawford Barrister, Brisbane

 

* The comments and suggestions kindly made by Peter Flanagan QC and Daniel Butler are gratefully acknowledged. Any errors that remain are the sole responsibility of the author.

  1. (1841) 4 Beav 115 [49 ER 282]; affirmed (1841) Cr & Ph 240 [41 ER 482].
  2. This statement was approved as the ‘modern formulation’ of the rule by the High Court in CPT Custodian Pty Ltd v Cmmr of State Revenue [2005] HCA 53; (2005) 224 CLR 98, 119.
  3. [1997] 2 All ER 239, 247; approved in CPT Custodian Pty Ltd v Cmmr of State Revenue [2005] HCA 53; (2005) 224 CLR 98, 118.
  4. Berry v Geen [1938] AC 575, 582; Queen Street Hotels Pty Ltd v Byrne [1980] CLC ¶40-611.
  5. P Osborn, A Concise Legal Dictionary (Sweet and Maxwell, 1964) 305; see also Perpetual Trustees (WA) Ltd v Naso [1999] WASCA 80; (1999) 21 WAR 191, 197.
  6. Encyclopaedic Australian Legal Dictionary Electronic, LexisNexis AU, 27 January 2014.
  7. Ibid.
  8. Guardianship and Administration Act 2000 s 12.
  9. Guardianship and Administration Act 2000 s 33.
  10. (1841) 4 Beav 115 [49 ER 282]; cf Newton v Public Trustee [2000] WASC 118, [1].
  11. Chadwick v Heatley (1845) 2 Coll 137; Re Heming’s Trust (1856) 3 K & J 40.
  12. Guardianship and Administration Act 2000 s 35.
  13. Guardianship and Administration Act 2000 s 20.
  14. Guardianship and Administration Act 2000 s 49.
  15. Guardianship and Administration Tribunal Presidential Direction No 1 of 2003.
  16. It should also be noted that an administrator may be ordered to compensate the adult for failure to comply with their duties: see Guardianship and Administration Act 2000 s 59.
  17. Smith v R (1994) 181 CLR 338, 348.
  18. See G Virgo, The Principles of Equity and Trusts (Oxford University Press, 2012) 377 in relation to the protection provided by equity.
  19. See Queensland Law Reform Commission, A Review of the Trusts Act 1973 (Qld) — Interim Report [2013] QLRCWP 71.