Recent NSW Case: in Beck v Henley [2014] NSWCA 201

A recent NSW Court of Appeal decision  - Beck v Henley [2014] NSWCA 201 – provides an interesting discussion and application of the Rule in Saunders v Vautier.   If the conditions for the application of the rule apply – the beneficiaries of a trust are, collectively, able to terminate the trust irrespective of the terms of the trust and irrespective of the purposes of the trust. This is a right vested in the beneficiaries and the trustee is under a duty to wind up the trust.   The main precondition for the rule to apply is that the beneficiaries have an absolute and indefeasible interest in the trust property.

The case demonstrates that the rule will still apply where not all beneficiaries wish to terminate the trust so long as the trust property is divisible and the allocation of the trust property will not prejudice those beneficiaries who wish to continue the trust.  Simply because the trust’s operating expenses will be spread over fewer assets it will not constitute prejudice sufficient to preclude a partial winding up.

The Rule in Saunders v Vautier clearly applies to fixed trusts.  For example, in a limited recourse borrowing arrangement where the acquired asset is held by a custodian on holding trust for the trustee of the superannuation fund, the trustee as the only beneficiary and the trustee of the superannuation fund has an absolute and indefeasible interest in the acquired asset.  Consequently, the trustee can terminate the holding trust (irrespective of the terms of the holding trust deed) at any time. 

The Rule can apply to discretionary trusts if all the potential beneficiaries are adults, if they all agree and they are collectively entitled to an absolute and indefeasible interest in the trust property.

However, can the members of a self managed superannuation fund use the Rule to terminate the existence of the superannuation fund?   It seems that the members could terminate the superannuation fund by applying the Rule only if they were the only beneficiaries and all members were adults – as members under the age of 18 cannot consent.  The members will be the only beneficiaries if the governing rules of the superannuation fund provide that on the death of the member the death benefit can only be paid to the estate of the deceased member.