The Western Australia Court of Appeal, in the decision of Mercanti v Mercanti, has held that a variation of a discretionary trust deed to remove and appoint an appointor and guardian of the trust was valid.
The Court found that the power to vary the ‘trust terms and conditions’ of the trust deed was wide enough to appoint/replace the appointor/guardian. Additional arguments that the removal of the appointor and guardian and the subsequent replacement of the trustee amounted to equitable fraud or fraud on a power were also rejected by the Court.
The proceedings at trial level also involved a second discretionary trust which had a more limited variation power to vary “trusts”. The Court at first instance found that the variation power for that second trust did not permit the variation of the trust deed to change the appointor/guardian. This finding was not appealed and therefore that decision stands.
This case serves as another good reminder that before exercising a power of variation, the trustee must ensure the power is sufficiently wide to allow for that exercise to validly occur.
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