Property of a Discretionary Trust – Mere Expectancy or Legal Right?

It is a well established principle of the law that beneficiaries of a discretionary trust have only the right to be considered in the distribution of the trust property, and do not have a recognised legal or beneficial right to the property.[1] However, the recent case of Swishette Pty Ltd v Australian Competition and Consumer Commission [2017] FCAFC 45 tested this principle, and required the Full Court of the Federal Court of Australia to determine whether the Australian Competition and Consumer Commission (“ACCC”) could have an order made in their favour on the basis that property of a discretionary trust was the property of a beneficiary.

Section 239 of the Australian Consumer Law is a remedial provision that allows the ACCC to bring an application on behalf of an aggrieved party without the latter having to be joined to the proceeding. The ACCC exercised their power to do so in the case of Swishette, and brought an application seeking a direction in relation to the proceeds of a sale that were held on trust by the ACCC pursuant to a freezing order. The primary judge made an order that one of the respondents, Mr Laski (as the sole director of Swishette Pty Ltd), give to the ACCC the direction it sought in respect of the trust property.

The applicant, Swishette Pty Ltd, carried on the business of acting as trustee of a discretionary trust of which Mr Laski was a beneficiary (but he was not the only beneficiary). Mr Laski was also the appointor of the trust. By ordering Mr Laski to give the direction to the ACCC in relation to the trust property, the primary judge held that he had a legal right to the property, as opposed to a mere expectancy.

On appeal, the Full Court accepted the applicant’s submission that the primary judge did not have the power to make the order, and reiterated that beneficiaries to a discretionary trust have only a mere expectancy coupled with a right to due administration.  The order made was therefore beyond the scope of the section 239 of the Australian Consumer Law, and meant that the primary judge had fell in error.

[1] Gartside v Inland Revenue Commissioners (UK) [1986] AC 553; Re Rule’s Settlement [1915] VLR 670.

michael springer

Michael Springer

Special Counsel

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