Varying trust deed schedules – Mercanti v Mercanti

Mercanti v Mercanti [2016] WASCA 206 was a decision of the Western Australia Court of Appeal which is relevant when assessing whether a trust deed’s power to vary is sufficiently broad to permit a variation to the schedule of the deed.

The case involved purported variations made to two trusts, the MMF Trust and the FW Trust.

By way of background, each of the trusts had a corporate trustee and was controlled by Michael Mercanti, a Perth businessman.

Michael’s son Tyrone was involved in the operation of a business operated by one of the trusts and as part of a family succession plan, deeds of variation were executed which removed Michael and nominated Tyrone as the appointor of both trusts and the guardian of FW Trust.

After a family dispute, Tyrone purported to exercise his powers as appointor of both trusts to remove the existing trustees and appoint a new trustee controlled by his wife.

Michael commenced proceedings which challenged the validity of the deeds of variation (and in turn, the changes of trustee) in 2013 and after a string of appeals, the final decision was handed down in 2016.

In reaching its decision, the Court held that a trustee does not have any implied power to vary a trust deed and therefore any variation needs to be determined whether reference to the construction of the variation power in the original trust deed.

In both instances, the relevant provisions being varied included schedules to the original trust deed which contained the name and further clauses relating to the appointor.

In respect of the MMF Trust, the Court concluded that the scope of the variation power was sufficient to permit the variation, including a change to the schedule.

The validity of the deed of variation and subsequent change of trustee for that trust were therefore upheld.

Conversely, in respect of the FW Trust, the Court held that the deed of variation exceeded the scope of the variation power granted to the trustee under the original trust instrument for that trust, meaning that both the deed of variation and subsequent change of trustee had no effect.

The case highlights the need to critically examine the terms of any variation power, before relying on that power to amend a trust instrument.

It also illustrates that there is no ‘one size fits all’ approach to trust amendments and that a variation which is valid in respect of one trust may be ineffective in respect of another trust, where the second trust contains a different power to vary.

If you have any queries in relation to an existing or proposed trust variation, please contact Patrick Ellwood on 0400 503 111 or patrick@cloverlaw.com.au.