Variation of Trusts

Subtitle
Introduction
• The court has no power to sanction a departure from the terms of a trust, the trustees
must follow the terms laid down in the trust instrument.
• A trustee must administer the trust according to its terms. Any deviation is a breach of
trust for which the trustee will be personally liable at the instance of an injured party.
• Exception – when beneficiaries sui juris (of full age) may deal with his equitable
interest under the trust and may consent to the trustee dealing with the trusts funds in
a way which affects his interest.
• Beneficiary is sui juris may legitimately decide to bring the trust to an end. The
principle is stated in the case of Sauders v Vautier (1841) 4 Beav 115
Meaning of variation of trusts:

• Changes that can be made on the trust instruments by the courts, beneficiaries or even trustees acting under the
directive of the courts.

• Example: court may allow a trustee to enter into some business transaction which was not authorised by the
settlement.

• It is confined to case of emergency where circumstances have arisen which could not have been foreseen or
anticipated by the author of the trust, and the consent of the beneficiaries cannot be obtained ie they are infants.

Re Collins (1886) 32 Ch D 229

Section 59 of the Trustees Act 1949

POSITION IN MALAYSIA
• Variation has been held to an arrangement designed to alter existing terms of a
trust deed, but not a scheme to completely replace the existing trust
• Even though court does not have any inherent general power to vary the terms
of trust deed, but in certain situations the court might approve the variation.
Chapman v Chapman
Held:
•It may in its inherent jurisdiction, approve of variation includes: where a
beneficiary makes an application to vary a deed of trust to alter the nature of an
infant’s property interests; to pay maintenance out of accumulated income; to
endorse a transaction with trust property in order to ensure the survival of the
trust, or to carry into effect a compromise for future beneficiaries
• In Malaysia, there are four methods on how a trust can be varied which are;
express power to vary (instrument), principle laid down in the case
of Saunders v Vautier, inherent jurisdiction and provision under Section 59 of
the Trustee Act 1949.
• As regards to the express power to vary a trust as a method of variation, in the
case of Re Harari’s Settlement Trust the court held that the clause regarding
investment powers should be given its ordinary meaning without restriction.
The issue before the court is pertaining to the effect of a clause in the trust
instrument, to make such ‘investments as the trustee may think fit’.
• On the other hand, the other method of variation adopted in Malaysia is based
on the case law as was decided by the court in the case of Saunders v Vautier
• In this case, it was established that if a beneficiary with full legal capacity is
entitled to all the beneficial interest in the trust, he or she may apply to have
the trust terminated and the assets transferred, even though the trust
instrument call for final payment of the capital to be delayed and this had been
expended to the situation where there are several beneficiaries who together
are entitled to all the beneficial interest, are in agreement about the
termination of the trust, and have full legal capacity.
• In this case, the testator, Vautier’s uncle, had left East India Stock in Trust for
his nephew with the conditions that the dividends were to be retained and
subsequently, accumulated dividends and shares had to be transferred to the
petitioner when he obtained 25 years old. Before Mr. Vautier reached the age
of 25, he was about to get married and need the fund in order for him to
establish his own business. The Lord Chancellor had clearly decided that as
Mr. Vautier had obtained the aged of majority (21 years old), thus, he was
entitled to have trust terminated.
• The other method of variation in Malaysia is through the inherent
jurisdiction. This can further be break down into four small parts which are
emergency.
• In Re New [1901] 2 Ch 534 Romer LJ explained the situation where the
variation as regards to emergency arise when something not forseen or
anticipated by the settlor, and alteration is considered to be in the best
interests of the trust as a whole.
• Salvage, maintenance of beneficiary and compromise. Maintenance and
Compromise can be regard as the exceptions to the rule that the variation can
only be made as it relates to administration of trust as these two inherent
jurisdictions involved the remolding of beneficial interests. As regards to the
maintenance of beneficiary,
• In Re Jackson (1882) 21 Ch D 786 the court held that salvage arise when the
situation is more extreme than emergency. In Conway v Fenton (1988) 40 Ch
D 512 the court had explained that the jurisdiction is very narrow and useful
where expenditure is necessary to save building from being collapse.
• Re Collins the court allowed the trust to be vary as to allocate some money for
the maintenance of beneficiary. Besides, Section 57 of the Trustee Act
1949 has also expressly allowed this variation. In Chapman v Chapman
dispute between beneficiaries occurred, thus, the court allowed the remolding
of beneficial interest under the compromise.
 
The Local View on the Power of Court
• In relating to the power of the court, in the case of PP v. Tan Kah Pin The
Accused was charged under section 15(1)(a) of the Films (Censorship) Act
1952 whereby it is an offence to exhibit any film without a certificate of
approval. Counsel for the Accused raised a preliminary objection on the
ground that there was no regulation to prescribe the issue of the certificate.
The learned Magistrate accepted the argument of Counsel and discharged the
Accused. The prosecutor appealed against the discharge, contending that the
Magistrate by doing so, had indirectly declared section 15(1)(a) of the said
Act void and therefore acted in excess of jurisdiction.
• Therefore, the ration laid down in the above case is that, The court has no
authority to limit a statute or put upon the words of a statute a limitation not in
accordance with the ordinary meaning of the word.The courts function is to
ascertain the plain meaning of the words used in the statute. It must also bear
in mind that the court’s duty is to give effect to these words even if no
subsidiary legislation exists providing for the application of such a certificate.
Otherwise, the Act would be rendered ineffective and pointless.
Application of Section 59 Trustee Act 1949
• On contrary, in the field of Equity and Tust, the variation of trust conferred to the
court is applicable in Malaysia is provision under Section 59(1) of the Trustee Act
1949.
• In Re Estate of Yong Wai Man ; Ex parte: Yong Khai Min,This was an application by
the administrator of an estate for the money of the said estate which had been held in
trust for three minor beneficiaries to be reinvested. Counsel for the administrator
proposed that a sum of RM200,000 be reinvested in MBF First Fund or such other
unit trust fund as the administrator deemed fit with power to sell and reinvest from
time to time and the balance to be put in a financial institution that offered the highest
interest rate to earn deposits to meet the living and education expenses of the
beneficiaries.
• In deciding the application, it was necessary for the court to determine what
an administrator could do with the assets of an estate with infant beneficiaries.
The court declined to exercise its discretion under section 59 of the Act to
permit the administrator to invest in the MBF First Fund as it did not qualify
as an approved investment under section 5(3) of the Act which required the
company, inter alia, to have been paying dividends for the past five years.
• Likewise, in the case of Ramasamy & Ors. V Thayalan S.K. Psalaniyandy &
Ors, This is an application by Trustees for orders under section 59 of the
Trustee Act 1949. The case dealed with an agricultural land. The first trustee
used funds advanced by some twenty-five people who then increased the
number of participants in the scheme to sixty-three. It is alleged that the first
Trustee procured his name alone to be registered as the apparent beneficial
owner.
• Plaintiffs application allowed without prejudice to any claims that the
beneficiaries may have against the trustees.The costs of the application to be
taxed and payed by the defendants. The major discussion in the above
circumstances it is the opinion of this Court that it must step in to save the
situation subject to the protection of the rights of the recalcitrant beneficiaries
but only so far as is practicable, section 59 comes in to mitigate the losses to
assure justice and fairness is done.
• Similarly, in the old case of Tan Tat Hock v Chow Hon Thiam,  this is an
appeal case relating to a former married couple, whereby the appellant’s
counsel invoked sectin 59 of the Trustee Act, to appeal to court to practice
inherent jurisdiction in the issue. The facts dealed with a property whereby the
appellant contended that the proceeds of sale shall thereafter be distributed in
equal shares between the husband and the wife. However, the husband later
made a declaration and undertake and agree to pay one-half of the proceeds of
sale of the said property to appellant when the same is sold or otherwise
disposed of by both of us jointly. He also agree not to sell or dispose of this
property without the written consent of the wife.
• The cousel cited the English case of Re Beale’s Settlement Trust Huggins v.
Beale whereby Maugham J observed that,
• “In my opinion, the court has Jurisdiction under section 30 of the Law of
Property Act, 1929, and section 57 of the Trustee Act 1925, to direct a sale by
trustees for sale where the necessary consent cannot be obtained by reason of
the refusal of the person who is the one to give it.”
•  
• However, the court was in the opinion that there is unjust and it served no
purpose of emergency and necessary of practicing the general inherent
jurisdictin as stipulated in section 59 of Trustee Act 1949 because the issue is
unlikely a legal matter but more on personal grudges, the court then dismissed
the case.
• Furthermore, in the case of British & Malayan Trustees Ltd v Abdul Jalil bin
Ahmad & Ors, The plaintiffs are the trustees of a settlement. They applied for
an order authorizing the sale of land and premises belonging to the trust. The
reasons for this were that the rental income from the property produced a very
low rate of return, there were rising maintenance costs of the property, and as
the property was relatively underdeveloped, there was also a strong possibility
of compulsory acquisition. The plaintiffs were thus of the opinion that the
property should be sold and the proceeds reinvested in first-class residential
and/or commercial property. The second, third, seventh and eighth defendants
opposed the making of the order. The issue was whether the court has power
to order the sale of the property under section 4 of the Settled Estates Act.
• The court could rely under section 59 of the Trustees Act confer on the
trustees power to dispose of trust property, but this power was limited
by section 2(2) of this Act. Clauses 7 and 16 showed a contrary intention
expressed in the trust instrument such that the power of the court to order a
sale under section 59 of the Trustees Act could not be invoked.Therefore, it
must understood that the court can never varied a trust if it is againts the
statutory order.
• Section 59 (2) of the Trustees Act also conferred the power to the court on the
below matters: (a) authorize the trustees to make any investments in or upon
titles to immovable property which are not authorized by paragraph 4(1) 1)(c)
(c); (b) authorize any trustees who are chargees of land to buy in any such
land at any auction of such land held under an order of Court or in exercise of
a power of sale vested in the trustees; (c) authorize the trustees to raise any
funds for the improvement of lands or houses which are vested in or belong to
the trust; or (d) authorize the doing by the trustees of any act which appears to
the Court to be beneficial to the trust estate or to the beneficiaries.
•  
• Further more, under Section 59 (3), the Court may, from time to time, rescind
or vary any order under this section, or may make any new or further order
and Section 59(4) also allowed an application to the Court under this section
may be made by the trustees, or by any of them, or by any person beneficially
interested under the trust.
• We could concluded that the application of Section 59 of the Trustee Act
1949 is meant to serve an equitable purpose. In the following chapter, the
method of variation will further being explained together with other
commonwealth jurisdiction in order to determine whether the said section is
equitable and fair after taking into view the different judicial approach
adopted in other common law jurisdictions.
Tutorial question
Critically discuss the actual purpose and practical application of section 59 of the
Trustee Act 1949 in Malaysia with relevant case law support.