Chapter 10
Revocation and variation

Variation pursuant to a trust deed

Current position

10.26Variation and resettlement powers are commonly included in trust deeds. Variation powers usually lie with the trustees, but may be reserved to the settlor or some other person. It is also possible to include a revocation power in a trust deed, although we understand that such provisions are uncommon these days.

10.27The extent of any such variation or resettlement power will depend on the interpretation of the clause and the trust deed itself. The principles applying to the interpretation of contracts are also applied to the interpretation of trusts. The nature of a trust, for example, whether it is a family trust, a superannuation trust, debenture trust, or energy trust, also influences how its provisions are interpreted.252 It is therefore difficult to identify definitive rules from case law that could guide the use of variation clauses. Clauses need to be construed in the context of the type of trust involved and the particular wording employed.
10.28Generally “clear words” giving a power of variation are required. When interpreting a clause the court will “construe each provision according to its natural meaning, and in such a way to give it its most ample operation”.253 A general broad power giving the trustees the fullest possible powers or the powers of a natural person cannot be used by trustees to change or add to their own powers and duties created by the trust deed. These types of general powers are normally interpreted as supplementing the other specific powers given by the deed, but not as intending to convey a power of variation. There is a rebuttable presumption that a variation power cannot be used to extend its own scope or amend its own terms.254 Trustees cannot use variation powers to remove a specific restriction to which they were subject from the very foundation of the trust.255

Recommend no changeTop

10.29As part of our review we considered whether the case law should be stated in legislation and whether legislation should provide guidance on how such clauses should be interpreted. There was no support for either of these possible approaches from submitters over the course of our review.

10.30Given the need for a contextual approach to be taken to the interpretation of variation and resettlement powers, we also see little benefit in trying to include guidance in new legislation. Our view is that variation clauses should continue to be construed on a case by case basis according to the existing principles of interpretation. The existing principles of interpretation are well understood and flexible. We recommend no change in this area. There is also a concern that enacting statutory guidance in this area risks stifling further development of the principles of interpretation. There is merit in allowing a consistent approach to the interpretation of legal documents to be developed by the courts in all areas of law.

252Kelly, Kelly and Kelly, above n 246, at ch 11.
253Kearns v Hill (1990) 21 NSWLR 107 (SC) at 109.
254David Hayton, Paul Matthews and Charles Mitchell (eds) Underhill and Hayton: Law of Trusts and Trustees (18th ed, LexisNexis, London, 2010) at [43.19].
255Re UEB Pension Plan [1992] 1 NZLR 294 (CA) at 301.