Introduction

In the West Australian case of Dryandra Investments Pty Ltd v Hardie by her guardian Ian Yorrington [2024] WASC 248 (Dryandra case) the trustee sought orders, pursuant to section 90 of the Trustees Act 1962 (WA), that the Court approve and assent to variations to the trust deed of the Dryandra Trust (Trust).

The case involved the:

Trust proceedings related to the Trust where Isobel Hardie (Isobel) held the roles of appointor and guardian; and
the Will proceedings where Isobel’s attorney sought an order pursuant to authorise the making of a codicil to Isobel’s last will to appoint the attorney as Isobel’s successor as guardian of the Trust.

Factual Background:

Isobel, aged 82, held the positions of appointor and guardian of the Trust.

Isobel has dementia making her incapable of fulfilling her duties. Clause 9(c) of the Trust deed provided that the guardian's consent was necessary before the trustee could exercise reserved or restricted powers. These powers included key actions such as the distribution of income and the variation of Trust terms, specifically the vesting date. Isobel was a specified beneficiary of the Trust.

Isobel’s incapacity resulted in the trustee either accumulating the income or distributing it solely to Isobel (and being taxed at 47%). The trustee sought orders under section 90 to approve variations to the Trust deed. These variations aimed to enable Isobel's enduring attorney to assume her powers during her incapacity, and for her legal personal representative to do so upon her death.

Decision

The Court decided that while Isobel’s incapacity did not invalidate her appointment as guardian and appointor, it did render her unable to exercise the powers conferred upon her, effectively leaving the trustee unable to act on critical decisions requiring the Guardian’s consent.

For the Court to vary the Trust deed under section 90 it had to be satisfied that the person on whose behalf the variation was sought had an interest in the Trust. Although Isobel was a beneficiary of the Trust, the Court was being asked to agree to the variation on behalf of Isobel in her capacity as a guardian, rather than as a beneficiary. Therefore, the Court did not approve the variations to the Trust deed under section 90.

However, the Court then considered whether under its inherent supervisory jurisdiction it could appoint a replacement or substitute guardian and appointor. The Court considered that Isobel’s loss of capacity meant that, despite there being a guardian of the Trust, the trustee could not consult the guardian as anticipated by the Trust deed. Further, no one could exercise the guardian’s power of consent to the trustee’s exercise of the reserved or restricted powers.

For those reasons, the Court was satisfied that it could exercise its inherent supervisory jurisdiction and made orders to replace Isobel as guardian and appointor with her attorney. Upon making this order, the orders sought in the Will proceedings were unnecessary.

What if?

If the Dryandra case had been heard in Victoria, the trustee would likely have sought orders under section 63A of the Trustee Act 1958 (Vic) for the Court to approve variations to the Trust deed.

The trustee would have needed to demonstrate that the proposed variations were in the best interests of all beneficiaries, including Isobel, as required by section 63A. However, since the Court in Dryandra determined that Isobel’s role as guardian and appointor was distinct from her role as a beneficiary, similar reasoning under section 63A might have applied in Victoria.

Takeaways

The decision highlights the importance when setting a trust of having contingency plans for incapacity and the appointment of successor guardians or appointors. Doing so is critical to avoiding complex and costly court proceedings.

Daniel Smedley
Principal | Accredited Specialist in Tax Law
M +61 411 319 327 | T +61 3 9611 0105
E dsmedley@sladen.com.au

Edward Skilton
Principal
T +61 3 9611 0145 | M +61 429 077 166
E eskilton@sladen.com.au

Neil Brydges
Principal | Accredited Specialist in Tax Law
M +61 407 821 157 | T +61 3 9611 0176
E nbrydges@sladen.com.au

Kseniia Gasiuk
Associate
T +61 3 9611 0160
E kgasiuk@sladen.com.au