A Trustee’s Borrowing Power
by R.A. Hughes, Professor, School of Law, University of the South Pacific
 
Introduction
This article examines the borrowing powers of a trustee in the South Pacific and related legal systems. The main focus is on borrowing by trustees in situations where there is neither an express nor a statutory power to do so. The article will leave aside questions of when and on what basis particular borrowing powers might be approved by the courts. Its main concern with therefore be with what may be called unauthorised borrowings and implied powers of borrowing. 
There are statutory powers of borrowing under the trustee legislation of some of the South Pacific legal systems,(1) as well as New Zealand(2) and all Australian States, except Tasmania.(3) These provisions were largely duplicated from section 16 of the Trustee Act 1925 of the United Kingdom. 
The United Kingdom section was designed to rectify the unsatisfactory state of the case law as it developed during the nineteenth century, particularly as regards secured borrowing by trustees.(4) However, the scope of these statutory powers is somewhat restricted under current interpretation(5) and questions may well arise as to whether the trustee is authorised to borrow by virtue of a non-statutory power.(6) Of course, a trustee may borrow apart from the statutory authorisation when there is express authorisation in the trust instrument, although limited by the terms of conferral of power. Also the trustee may borrow when a scheme of borrowing is approved by the court using its inherent jurisdiction or pursuant to the statutory power to vary the terms of the trust.(7) According to general trust law principles, where all the beneficiaries are all of full age and capacity they may authorise the trustee to borrow even where there is no express power to do so. However, there may also be certain circumstances where a trustee may be entitled to borrow in situations other than these. It is these situations which will be examined in the following.
It should be acknowledged first of all that the question of borrowing by trustees generally is likely to be a contentious one. On the one hand, it may be that some form of borrowing by the trustee will be of critical significance for the future operation of a given trust. Borrowing may be the only possible means of raising funds to keep the trust afloat. In the case of commercial trusts, for example, borrowing may be required to provide funds to carry on the commercial enterprise which is undertaken by the trustee. On the other hand, unrestrained borrowing by a trustee may be an activity which could place the trust assets or beneficial interests under the trust in jeopardy. It is therefore likely to be an activity which would be viewed with some caution by the courts as an one which entails some degree of risk. In short, the absence of an adequate power to borrow may lead to the failure of the trust enterprise in certain cases, whilst unrestrained or imprudent borrowing by the trustee might well put the trust assets as risk. In principle either situation is capable of endangering the interests of beneficiaries, if not the trust creditors.
Borrowing - Secured and Unsecured 
Initially, it is appropriate to consider the meaning of borrowing for these purposes. At a general level it has been said that : 
·  "the primary meaning of the word "borrow" is to have the temporary use of a thing which in due course will be returned in specie. The borrowing of money, at least nowadays, involves not the return of identical money but rather it is a contract for the use of money, .... A borrowing is receiving temporarily from another with the intention either of returning the thing received or of giving its equivalent to the lender."(8) 
Accordingly, it has been held that borrowing by a trustee might legitimately include obtaining foreign currency funds by way of loan.(9) But, according to the authorities, borrowing would not include the obtaining of funds by way of commercial bill facilities from a bank, even though that could be said to be a "raising of money" on behalf of a trust.(10)
One relevant issue which arises in relation to trustee borrowing is whether there is a significant difference between the legal treatment of secured borrowing and an unsecured borrowing by a trustee. The empowering provisions under the trustee legislation deal only with a power of borrowing by way of mortgage(11) and, as noted above, many of the authorities on the issue of trustee borrowings have been concerned only with secured borrowings in some form or other. Often the two situations, secured and unsecured borrowings, are not clearly differentiated in discussions about the trustee’s borrowing power.(12) 
It is clear enough that there are special factors involved in a secured borrowing by a trustee. The most significant is that secured borrowing provides the lender with immediate and direct recourse against the assets of the trust. Unsecured borrowing, however, must be accounted for simply as an instance of the trustee’s incurring debts and liabilities on behalf of the trust. In such a case the trustee is personally liable but, in the event that the lender can obtain no satisfaction from the trustee personally, recourse may be had to the trust assets (and sometimes the beneficiaries) only by means of subrogation to the trustee’s rights of indemnity, if any.(13) These differences are perhaps obvious, but a deeper consideration is whether these factors have any particular significance as to the propriety of a particular borrowing undertaken by the trustee. To put it another way, are there different legal criteria for determining the existence of a power of borrowing in secured and unsecured situations?
Indeed, there has been a difference in the way in which the law has approached the two cases. In the case of a secured borrowing, as will be seen below, the trustee must be able to show that there is a more or less direct source of power to borrow, either expressly or impliedly in the trust instrument, by authorisation of the court or by statute. The circumstances when such a power will be implied are somewhat limited. However, the position with respect to unsecured borrowing has generally been put on a different footing. Here the indemnity rights of the trustee, which are in turn available to the creditors by way of subrogation, appear to play a more significant role. Under certain circumstances even an unauthorised borrowing on an unsecured basis will be regarded as legitimate for the purposes of determining the rights of recourse of either the trustee or the lender to the trustee assets or the beneficiaries personally. In other words, in the latter case, the question is usually dealt with in terms of the accountability for trust debts and liabilities in general. 
Unsecured Borrowings
If unsecured borrowings are treated simply as liabilities of the trustee in general, then no power is necessarily required to justify the borrowing. In this regard it has been suggested that: 
·  "(even) though a liability incurred by a trustee may not be authorised by the terms of the trust, the trustee will have a right to reimbursement or indemnity if the trustee, acting in good faith, has conferred a benefit on the trust property. The trustee’s right will extend as far as the benefit conferred."(14) 
The main authority cited for this proposition is Ex parte Chippendale; re German Mining Co.(15) This decision was concerned with a situation where there were two unsecured loans taken out by directors of a joint stock company; in both instances without express power to raise money by borrowing. The two loans seemed to be treated by the court on a slightly different basis. The first loan was for the purpose of the payment of wages and other existing business debts. It was held that, as the moneys were applied necessarily for the benefit of the trust business, the raising of the amounts was within the authority of the trustees.(16)
The correct rationale for this is perhaps that where a trustee has a power to carry on a business there is an implied power to borrow for the purposes of the business, a position which applies also to secured borrowing.(17) In respect of the second amount, which was treated as an amount raised to enable the business to be continued, the judgement proceeded on the basis that, even in the absence a power to borrow, the trustees were entitled to an indemnity from their cestuis que trust personally. This was because the borrowing was bona fide and for the benefit of the trust.
To reiterate, both of the loans obtained were unsecured. The first was an advance made by some of the shareholder/beneficiaries in the company. The second was a loan from a bank ‘secured’ by personal guarantees rather than against the company/trust assets. The judgement did not treat the fact that the loans were unsecured as significant and it is questionable whether, had they been secured against the assets of the company/trust, the position might have been different. Indeed, were that the case one could argue that, in light of other decisions on secured borrowing powers to be discussed below, the continuing authority of Ex parte Chippendale; re German Mining Co. might well be doubted.
The decision in Ex parte Chippendale; re German Mining Co. has in fact had a rather checkered history. It has been approved on various grounds.(18) It was applied shortly afterwards to permit the recovery by a lender of an unauthorised borrowing by directors of a company where the company had derived benefit from the application of the loan funds.(19) But its authority has been called into question in terms of its application to borrowings both by partners(20) and by directors of limited liability companies.(21) In Turner v Webb(22) for example, Nicholson C.J. of the Supreme Court of New South Wales suggested that, in line with other authorities, it was appropriate to limit the application of the decision. He suggested that the judgement of Turner L.J. in Ex parte Chippendale appeared to find, or at least ought to have found, that an unauthorised borrowing by the directors in that case was recoverable only where the borrowing had either increased and preserved the assets of the company. Then he went on "but this qualification must be subject to agreement, and Turner L.J. expressly says so"(23) suggesting that there was some element of Turner L.J.’s reasoning in the judgement which required some degree of acquiescence, knowledge or agreement on the part of the shareholders either to the borrowing per se or to a transcendence of any stated borrowing limit. 
However Turner L.J. appears to have said no such thing. One can appreciate that in Turner v Webb Nicholson J. was concerned with the application of the relevant principles to a partnership situation. Indeed the confusion here and elsewhere regarding the rationale for Ex parte Chippendale; re German Mining Co. has been in some part due to the fact that the former decision sometimes presents itself as authority for the way in which one should account for partnership liabilities, as well as those of limited liability companies, agency relationships and trusts. In the mid-nineteenth century when this decision was handed down these institutions were frequently not as clearly distinguished as they are now. Indeed, this is evident in Ex parte Chippendale; re German Mining Co. itself where the directors of the joint stock company were variously described as directors, agents and trustees.. This was a time when the very notions of ‘company’, ‘trust’, ‘agency’ and ‘partnership’ and the respective principles which were to apply to each institution were interwoven.(24) Later authorities which attempted to apply the principles of this decision to partnerships and limited liability companies, rather than a joint stock unlimited company, may well have sought to impose some limitation on the application of its principles particularly in dealing with borrowing situations. Even so, the reasoning of Turner L.J. did not appear to suggest that the relevant borrowing, even where, as in the second case, it was unauthorised, required any agreement or assent on the part of beneficiaries.
The following seems to be the position with respect to the findings of Turner L.J. on the second unauthorised loan which is of direct relevance here. Firstly, he said that the company was clearly not liable at law, the advances from the bank not being authorised because company directors: "are in the position of agents. Their powers being derived from, and limited by deeds under which they are appointed; and acts done by them beyond the limits of their powers do not bind the companies of which they are directors."(25) This was the outward legal position; one which was determined largely by the factual findings in the case. The issue involved, however, a claim for recovery by the directors in equity of the amount which they had paid out on their personal guarantees in respect of the unauthorised borrowing. Accordingly, Turner L.J. went on to consider the position of the directors in equity. Here he said: 
·  "although the directors undoubtedly stand in the position of agents, and cannot bind their companies beyond the limits of their authority, they also stand, in some degree in the position of trustees; and all trustees are entitled to be indemnified against expenses bona fide incurred by them in the due execution of their trust. There is no inconsistency in this double view of the position of directors. They are agents, and cannot bind their companies beyond their powers. They are trustees, and are entitled to be indemnified for expenses incurred by them within the limits of their trust."(26) 
The loan moneys, he said, were "duly applied for the purposes of the trust reposed in them".(27) Finally, the issue of indemnity right might depend, he said, on the terms of the deed of trust because there was, under some circumstances, a right of exclusion of the trustees' indemnity. Here he added : "But the right of indemnity is incident to the position of a trustee, and if it is sought to exclude that right the provisions for that purpose must, as I apprehend, be clearly expressed."(28)
Of course, one might want now to challenge this particular approach in its application to companies, partnerships or entities other than trusts. Directors and partners may well be fiduciaries but they cannot be considered as trustees pure and simple. Indeed none of the later authorities which were invoked in Turner v Webb so as to limit the scope of Ex parte Chippendale; re German Mining Co. were concerned with trusts as such. Accordingly one would also assume that the decision is still authoritative so far as it relates to the approach to unsecured borrowings by trustees. That conceded, it could also be argued that the perpetration of a difference of approach as between unsecured and secured borrowings is anomalous and that to that extent decisions such as this ought to be overruled. But there are also arguments for the differentiation based on the nature of the rights of recourse of the lender which have been mentioned above. 
Does a Trustee Have An Inherent Power to Borrow on Security?
It is appropriate now to consider the question of secured borrowing. As things stand, there appears to be no power in a trustee to borrow on security independently of a power expressly or impliedly conferred by the trust instrument, or by the court, by statute or by unanimous agreement of beneficiaries who are sui juris. There appears also no basis upon which such a power could be justified merely as an inherent power attaching to the trustee’s office. For one thing, there are difficulties with the concept of an inherent power of a trustee as such. Whilst there are certain instances in which the rights of a trustee, such as the right of indemnity,(29) have been treated as incidents of the trustee’s office, there is some considerable doubt about whether powers can be articulated in this way.(30) Perhaps the courts have been more reluctant to concede powers to a trustee than has been the case with the attribution of rights and duties. At least in the case of a power to borrow against the trust assets, most of the authorities suggest that no inherent power exists.
There were judicial comments in the New Zealand decision In re the Will of John Armstrong deceased(31) which might encourage the belief that a trustee could have an inherent power of borrowing. Having refused an application by the trustees for leave to borrow the court concluded "The [trustee] must, if he desires to carry out the suggested scheme [of borrowing], exercise his own discretion, and do so at his own risk without the sanction of the court."(32) However, those comments appear to be misleading and certainly inconclusive. If it was suggested thereby that the trustee could have proceeded to make a secured borrowing the relevant risk for the trustee, in the absence of the approval of the court, statutory authority or of the existence of an express power, would surely have been the commission of a breach of trust for acting outside the scope of authority of the trust instrument. Perhaps the intention was to say that the trustee might enter into an unsecured borrowing for the benefit of the trust. If so, the trustee, in order to recoup the expenditure on loan repayments, would need to fall back on the principles of indemnity, discussed above. 
Whatever the reasons behind these comments, none of the other relevant authorities concerned with secured borrowing have proceeded on the basis that there is such an inherent power. They have all been concerned with attempts to justify the existence of a power of secured borrowing by reference to the existence of some other power; such as a power of sale, a power of management, a power to carry on business or some combination of these. They proceed on the assumption that there is no power in the trustee to mortgage unless the trustee can be said to be carrying out his or her trust in terms of other stated powers, duties or functions. In other words, they are cases of implied power rather than inherent power.(33) 
The relevant decisions here include Stroughhill v Anstey(34) and Devaynes v Robinson(35) decided in the middle of the last century. Both of these decisions clearly suggest that without an express power of borrowing the trustee would be forced to establish an implied power based on the existence of other provisions of the trust instrument; for example, the existence of a power of sale accompanied by other circumstances.(36) Similarly, in Walker v Southall,(37) North J. proceeded on the basis that without an express power, and in the absence of "special circumstances", there was no power in an administrator of a testamentary trust to mortgage the trust assets. It was claimed, rightly, that Stroughill and Devaynes were authorities for the limited proposition that a power of mortgage would only be implied from the existence of a power of sale where there were additional "special circumstances" which were shown to exist. However both the nature of the existing power and the determination of what might count as appropriately special circumstances remains somewhat unclear. Thus it is appropriate to consider the question of an implied power in more detail.
Implied Power to Borrow on Security
There is a view that situations of implied power ought to be treated as exceptions to a general rule which prohibits the mortgaging of trust assets in the absence of an express or statutory power.(38) However, and admitting that the point is a minor one, it is suggested that they are better treated as cases where a power is deemed to exist by implication from other existing powers, rather than exceptional cases. In other words, they are better considered as instances where the exercise of a power to borrow will be treated as within the scope of exercise of an express power. This approach brings out the key role which the construction of the trust instrument brings to the fore in such cases. There are generally three types of power which have been taken to justify an implied power of borrowing on security. These are a trust for sale, a power of sale, a power to carry on business and a power of management. On the basis of the authorities, however, is questionable whether these are entirely distinct cases in that at least the latter two have usually been taken as sufficient to imply a power to borrow where a combination of these powers has been present.
 The first situation concerns the existence of a trust for sale or of power of sale. In this context, there has been some confusion generated by some of the earlier decisions. These decisions appeared to suggest that the existence of either a trust for, or a power of, sale (the two being not always clearly differentiated) was sufficient to ground an implied power to mortgage the trust assets. In Mills v Banks,(39) decided in 1724, for example, the court had said: "The trusts declared concerning the same empower the trustees to sell the premises for raising the money [for the legatee] and a power to sell implies a power to mortgage, which is a conditional sale." Later in Haldenby v Spofforth(40) it was said concerning this passage in Mills v Banks : "This I conceive to mean, that where it is intended to preserve the estate, there, under a direction for sale, a mortgage will sufficiently answer the purpose"(41) Similarly in Ball v Harris,(42) referring to the same passage, it was suggested that it was "untenable" that the right or power of the trustees to sell did not also authorise a mortgage.(43)
However, when these authorities came to be interpreted in Stroughill v Anstey(44) in 1852 the import of the passages was considerably curtailed. Stroughill v Anstey concerned a testamentary trust for sale rather than a power of sale; that is, the trustees were obliged to sell, although with a discretion as to the time of sale. There was no express power to mortgage. Some sixteen years after the death of the testator the trustees purported to mortgage the trust estate. The court held that the mortgage was invalid, although, at the same time, the decision left some scope for conjecture about the circumstances under which a power of mortgage might be implied where there was a trust for sale. The Lord Chancellor, surveying the prior authorities mentioned above, suggested that, despite their strong language to the contrary, they were not to be taken as authority for the proposition that the mere existence of a trust for sale would always provide the trustee with a power of mortgage. Rather, he said, they only supported the following proposition; namely, that where there is a trust for sale which could be taken as an attempt to raise a particular charge against the assets of the estate, for example, for the payment of debts, then it might be legitimate to raise those funds by way of mortgage rather than sale of assets.(45) In this vein he said: 
·  "..although a direction for sale does not properly authorise a mortgage, yet where the circumstances would justify the raising of a particular charge by a mortgage, it must be in some measure in the discretion of the Court whether it will sanction that particular mode or not. It may be the saving of an estate, and the most discrete thing that can be done ... I think it impossible for the Court to lay down, that in every case of a trust for sale to raise particular sums, a mortgage might not under the circumstances be justified. As a general rule, however, there can be no difficulty in saying that a mortgage under a mere trust for conversion out and out is not a due execution of that trust."(46) 
Following Stroughill v Anstey, both Devaynes v Robinson(47) and Walker v Southall(48) suggested that again that there mere existence of either trust for sale or a power of sale alone is not enough.(49) As stronger view was put in York v Fraser(50) in relation to a trust for sale. There it was said that "(where) a testator has directed an out and out sale of his estate and has disposed only of the proceeds of that sale, then there must be a sale, and a mortgage is not within the provisions of the will."(51) Such a view would seem to imply that wherever there is a trust for sale, as opposed to a power of sale, the trustees cannot mortgage. This seems not to rest on any notion of conversion, but merely that the direction of the settlor to sell the property must be complied with.
However, despite the strength of the language in York v Fraser, both Stroughill v Anstey and Devaynes v Robinson appeared to countenance exceptions even where there was an obligation on the trustee to sell. In the former it was suggested that such an exception might apply where the direction to sell could be interpreted as an intention on the part of the seller to raise the moneys to meet a particular charge out of the sale.(52) The latter suggested that there was a "general rule" which forbade a trustee under a trust for sale from borrowing(53) but declined to consider the question as to whether there were peculiar circumstances which might nonetheless permit the trustees to borrow.(54) It held that the raising of moneys by way of mortgage merely to pay testamentary legacies would not be sufficient,(55) although the judgement failed to indicate why the raising of a charge to meet such a purpose should be treated any differently from any other purpose. If the settlor’s intention to raise a charge to pay something or other were the real issue then one would have thought that main concern was not so much any disqualifying features pertaining to the payment of legacies, but with whether the purpose was within the scope of the settlor’s intention. Nor, apparently would it be sufficient to show that the borrowing in question would be more advantageous to the trust than a sale especially where the advantage might be viewed as speculative.(56)
One of the issues which arises from this is whether, in considering the question of an implied power to mortgage, there is a significant difference between cases where a trustee has a discretionary power of sale and those where there is a trust for sale obliging the trustee to sell at some time. Walker v Southall was different from Stroughill and Devaynes in that it concerned a discretionary power of sale rather than a trust for sale. Even so, it was held, on the basis of the earlier authorities mentioned above, that the mere existence of a power of sale would not be sufficient to imply a borrowing power. It seemed to suggest that a mortgage might be justified "by evidence of special circumstances which justified the raising of the money in that way."(57) Just what would count as "special circumstances" was left unclear although reference was made to a need to show "that the trust estate would in any case have received any benefit from [the] mortgages."(58) To the contrary the existence of trustee’s power of sale without more seems to have been taken as enough to permit the trustees to mortgage in the 1867 decision of the Supreme Court of New South Wales in Re Bingham’s Settlement(59) although the grounds for that decision are not altogether clear.(60) 
Later in In re Pearce,(61) a decision of the Supreme Court of South Australia a distinction appeared to be drawn between the existence of a trust for sale and a power of sale. In that case the trustees had a power to sell in case the assets were "depreciating or seemingly likely to depreciate or not proving reasonably remunerative." There Richards J. said: 
·  "A power for sale, as distinct from a trust to sell, may imply a power to mortgage; but it depends upon what is the purpose of the power. See Stroughill v Anstey. There is nothing in the purpose of the power in this case which implies power to mortgage.... There is no evidence before me showing that any of those circumstances exist to any of those properties; and even if they do, it is difficult to see how the purpose of the power would be served by mortgaging the property."(62) 
One difficulty with this is that Stroughill v Anstey does not clearly support the claim that there is a significant difference between a situation where the trustee has a power of sale and that where he or she is subject to a trust for sale. Support for this differentiation could be gleaned from Haldenby v Spofforth, referred to in Stroughill v Anstey, to the effect that a mortgage might be allowed even in the case of a trust for sale where the settlor had expressed an intention "to preserve the estate".(63) Arguably where there is a power of sale a trustee in effect has a power of postponement. Certainly Stroughill v Anstey involved a trust for sale situation which is also, in the judgement, sometimes described as a "power of sale" or "a power of sale out and out".(64) But the reasons for judgement did not clearly distinguish between a situation where the trustee must sell and one where the trustee has a discretion as to sale and it seemed to have otherwise restricted the import of Haldenby v Spofforth in this regard. In this regard, the later authority of Walker v Southall - which was concerned directly with a power of sale, and which seemed to assimilate the two instances, trust and power, in line with Stroughill v Anstey itself - appears to suggest that there is a need to prove special circumstances even where there is a discretionary power of sale. Similarly, in Castling v Major(65) the Supreme Court of Queensland did not seem to treat a power of sale situation any more leniently as regards implying a power to borrow than might have been the case with a trust for sale.
The issue raised by In re Pearce therefore appears unresolved. One can imagine that where the trustee has a discretion whether to sell or not the courts might be more likely to infer an intention on the part of the settlor to permit the trustee to raise funds by means such as borrowing against the assets. This is on the basis that the settlor has not given an express direction as to the manner in which funds are to be raised and might, in the absence of other factors, be assumed to have intended the trust to continue. Where the settlor has set up a trust for sale, however, the courts will be reluctant to permit the trustees to undertake a course of action that is contrary to the settlor’s express direction. However this is far from saying that the mere existence of a power of sale will be enough on its own to sanction borrowing. The authorities appear to be to the effect that it is necessary even in this regard to show that the borrowing on security of the trust assets can be treated as a carrying out of the trust by the trustees. Presumably this is what is meant by the reference in Walker v Southall to the need to show "special circumstances".
It remains to consider what might count as appropriately special circumstances. Generally the courts have taken a restrictive view of what might sanction a trustee’s secured borrowing, but with concepts such as this it is difficult to draw clear dividing lines. From a negative perspective, a number of factors have been denied the status of "special circumstances" in this context. These include the need to pay legacies,(66) the need to spend money on improvements,(67) the payment of advances to children,(68) the need to repair trust property in order to prevent a sacrifice of the property,(69) the property being subject to depreciation or not sufficiently remunerative,(70) where there are other means of carrying out the trust which are sanctioned by the testator(71) and where it is not advantageous to sell the property as yet.(72) 
It is also doubtful that the trustee subject to a trust for sale will be conceded a power of secured borrowing where there exists a power of postponement of the sale, statutory or otherwise. Where there is a trust for sale with a power of postponement it could be argued that this is approximate to conceding the trustees a discretionary power of sale. That is not quite the case because there remains the overriding obligation to sell. However, it is doubtful in any event, on the established authorities, whether this would be enough without proving special circumstances above and beyond that factor. In Harkness v Harkness(73) there was a trust for sale and a power of postponement, but the decision to permit the trustee’s borrowing appears to have proceeded alone on the basis that the trustee was empowered to carry on the testator’s business.(74)
There have been several authorities which have conceded the trustee a power of secured borrowing where there exists a power to carry on business, which might be itself either express or implied.(75) In many instances, the trustees have also had either a trust for sale or a power of sale, but this seems not to have been an influential factor in the decisions.(76) In Kearney v Devitt,(77) Southwell v Martin(78) and Harkness v Harkness(79) it seemed to be significant that the trustees of a deceased estate were carrying on a business formerly conducted by the deceased and that the deceased had also borrowed on security of the business assets during his lifetime. Indeed in the last of these Simpson C.J. appeared to suggest that the borrowing power might not have been implied had the deceased person not also mortgaged these assets. But such a view does not accord with other authorities which have treated the existence of the power to carry on business alone as sufficient to concede an implied power to the trustee.(80)
The implication of a power of secured borrowing on the basis of an existing power to manage, treated as an isolated case, is a little more problematic.(81) This is because most of the authorities here seem to have involved instances where the power to manage was coupled with what was, in effect, either a power to carry on business, on the one hand, or a power of sale with a power of postponement, on the other. In the latter case, it seems that this might encourage the court to imply, as a matter of construction of the trust instrument, a power to carry on business.(82) At least one can say that there appears no instance where a power of management alone has been put forward as a sufficient basis to imply a power of secured borrowing on the part of trustees.
Whatever the case, it might be asked whether these three situations involve special or individual cases that warrant the implying of a power to borrow, or whether they are expressive of some more general approach. In other words, are these the only circumstances in which a power of implied borrowing on security of the trust assets will be taken to exist, or is it possible to generalise the principles underlying them in order leave open the possibility of a power being implied in other circumstances? A conservative view would suggest that the latter approach requires some caution. Clearly, an implied power of mortgage will not be inferred lightly and the trustees would be much better advised to seek the approval of the court prior to borrowing if a doubt exists. 
There have been some instances, mentioned above, where the courts have put forward, as the basis for imply a power, notions such as the expressed intention of the settlor to preserve the trust estate whilst at the same time providing for the raising of funds to enable it to be preserved, whether pending sale or during the course of carrying on of a business. However, the mere continuity of the trust does not seem of itself to be a sufficient rationale for implying a borrowing power. Something more seems to be required although just what that is remains an open question. There have also been rather vague references to a requirement of showing that the mortgage would benefit the estate, although in what sense this is so is unclear. 
Concluding Comments
Based on the discussion above one can draw tentative conclusions in relation to the trustee's borrowing power. These are:
(1) It seems clear enough that in respect of an unsecured borrowing a trustee is empowered to borrow even without an express power of borrowing, without authorisation by the court and quite independently of a statutory power such as that provided by the trustee legislation. The position here depends upon the continuing authority of Ex parte Chippendale; re German Mining Co. which has not to date been overruled, at least in so far as it applies to the powers of trustees in relation to unsecured borrowing situations. The requirement in relation to an unauthorised unsecured borrowing is that it be for the benefit of the trust and of bona fides on the part of the trustee. Oddly, perhaps, no particular requirements are imposed which would in principle limit the extent of the borrowing by the trustee on an unsecured basis.
(2) With respect to secured borrowing, the trustee may have an implied borrowing power independent of either statute, express power in the trust instrument or authorisation of the court. The existence of that power will depend on a number of factors and the following comments are related exclusively to the question of such an implied power to borrow on security of the trust assets.
(3) On the basis of the authorities discussed above, the question of construction of the trust instrument is of particular importance with special emphasis on the specific powers, duties and functions of the trustee. The courts look to these powers to attempt to find a basis upon which the borrowing might be treated as for the purposes of the trust. Such an approach reflects largely the nineteenth century approach to questions of trustee powers and duties; an approach which has been criticised in terms of being outmoded particularly in so far as it ignores the so-called ‘economic realities’ of the trust.(83) In so far as that criticism holds, it could well be time for the approach to be reconsidered.
(4) As current authorities stand, the existence of a trust for sale will not alone be sufficient to imply a power of secured borrowing. The reason for this is that a trust for sale implies that funds were to be raised by way of sale rather than mortgage. Furthermore, in such a situation one cannot argue that the settlor intended that the estate be preserved. 
(5) Where there is a trust for sale accompanied "special circumstances", however, a power to borrow may be implied. Mere advantage or convenience to the trust estate, to the beneficiaries or in the administration of the trust estate on the part of the trustees would not amount to special circumstances. Raising funds by borrowing to pay legacies, to make improvements, to repair the trust property or to delay the sale of the property for future advantage of the trust or the beneficiaries will not be regarded as sufficiently special. The reference to special circumstances may well mean no more and no less than a requirement that the proposed borrowing has to be shown to be a due execution of the trust or a carrying out of the testators intention. The existence of other clear powers of raising of finance to effectuate the purposes of the trust will act as a disqualifying aspect and defeat argument as to the existence of special circumstances.
(6) The position with respect to discretionary powers of sale is unsatisfactory. Whilst there are some authorities which appear to differentiate this position from that of a mandatory trust for sale, and thereby to treat it more leniently so far as implying a power is concerned, it is suggested that these are against the general trend of the main authorities. The safest position is to suggest that in the case of a power of sale special circumstances must also be shown. This is consistent with In re Pearce which suggests that it must be shown that the mortgage would be for the purposes of the trust. It is suggested that Re Bingham’s Settlement which suggests that a power of sale alone would be enough to imply a power of secured borrowing is probably incorrectly decided. Unfortunately In re Pearce is probably also incorrect in so far as it puts for a basis for differentiation of the two cases, holding that a trust for sale can never justify a power of borrowing but that a power of sale can. Stroughill v Anstey and the other earlier authorities mentioned above do not support that proposition.
(7) The existence of a power, express or implied to carry on business will justify a mortgage of the assets of the trust but only ass regards those which are ventured in the carrying on of the business itself. the justification for this is not so much the fact that there is an intention to prolong the administration of the trust, but that borrowing against the assets of the business is treated as an integral aspect of the carrying of business itself. The suggestion in Devitt and Kearney and Harkness v Harkness that the power of borrowing will only be implied where the settlor or the deceased had also mortgaged the business assets prior to the creation of the trust appears to lack any particular justification.
(8) A power to manage should not be treated as a sufficient basis to imply a power to borrow against the trust assets. The term management is itself so vague as to encompass any aspect of administration of the trust by trustees and is therefore liable to be misleading. This is better treated as merely an instance of those cases where there is a power of carrying on of business or perhaps of postponement pending sale, for the reasons stated above.
(9) There is nothing specific in the authorities which treats of the extent of the borrowing engaged in by the trustee as of any particular relevance in determining the propriety of a particular borrowing.
 
NOTES
(1) Trustee Act Cap. 65 s. 39 (Fiji); Trustee Act 1975 s. 21 (Samoa) The Fiji 1. Trustee Act Cap. 65 s. 39 (Fiji); s. 14 Trustee Act 1975 (Samoa). The New Zealand legislation applies in the Cook Islands and Niue; see below. The Fiji provision is reasonably typical. It is: 
"39 (1) Where a trustee is authorised by the instrument (if any) creating the trust or by or under the provisions of this or any other Act to pay or apply capital money subject to the trust for any purpose or in any manner, he shall have and shall be deemed always to have had the power to raise the money required by sale, conversion, calling in, or mortgage of all or any part of the trust property for the time being in possession; and where the trustee, in the exercise of his powers in that behalf, purchases any property for the trust, he shall have and shall be deemed always to have had power to make the purchase on terms of deferred payments or mortgage of that property"
There are certain other differences between provisions of the jurisdictions, but these are not of immediate relevance for the purposes of this article. There are also other powers of secured borrowing by trustees under particular enactments but these are also of no relevance to issues examined in this article.
(2) Trustee Act 1956 s. 21 (NZ); The New Zealand Act applies in the Cook Islands by virtue of section 639 of the Cook Islands Act 1915 (as amended) and in Niue by virtue of section 703 of the Niue Act 1966
(3) Trustee Act 1925 s. 38 (N.S.W.); Trusts Act 1973 s. 45 (Qld.); Trustee Act 1936 s. 28(b) (S.A.); Trustee Act 1958 s. 20 (Vic.); Trustee Act 1962 s. 43. (W.A.) 
(4) These authorities are examined below.
(5) The legislation has not been extensively interpreted. The scope of the provision was severely restricted by the decision in In re Suenson-Taylor’s Settlement [1974] 1 W.L.R. 1280 a decision of Foster J. sitting alone. Foster J. held that the section 16 was enacted to overcome the effects of the decisions in Devaynes v Robinson, Walker v Southall and Drake v Whitmore, referred to below, by providing the trustee with a power to borrow against trust assets in certain circumstances. But it was said that following the provisions of the section, the power of borrowing could only be exercised where the trustee could ‘’show a purpose or manner for the application of capital monies authorised by the trust instrument or by law.’’ ibid. at 1283. Hence the provision would not permit borrowing for the purposes of acquiring further assets by way of a ‘gearing exercise". According to Foster J. " If trustees are proposing to use section 16 to raise money, not to preserve assets or to advance capital but to purchase further and additional assets, in my judgement section 16 does not assist them." ibid. 
(6) There is also a view that the U.K. Trustee Act did not itself purport a codification of the law relating to trustees and therefore did not displace the law as it existed at the time of enactment. If that is so section 16 in the United Kingdom and its corresponding Australian provisions may not exhaust the trustee’s secured borrowing powers whatever they might be under case law.
(7) On the inherent jurisdiction of the court see Cousins v Cousins (1906) 3 C.L.R. 119. The power to vary or add to the powers contained in the trust instrument is mostly conferred on the basis of expediency although this is not so in respect of the Northern Territory. The relevant provisions are: Trustee Act ss. 85 and 86 (Fiji); Trustee Act 1975 s. 41 (Samoa); Trustee Act 1956 ss. 64 and 64A (NZ); Trustee Act 1925 s. 81 (N.S.W.); NT s. 50A; Qld. Trusts Act 1973 s. 46; Tas. s. 47; S.A. Trustee Act 1936 s. 59B; Vic. Trustee Act 1958 s. 63; W.A. Trustee Act 1962 s. 89. See generally Riddle v Riddle (1952) 85 C.L.R. 202.
(8) Young J. in Ishac v Aust. Securities Pty. Ltd. (No.9), Supreme Court of N.S.W. unreported 5th June, 1992 (No. 3511 of 1990); citing State v School District No. 4 (1882) 12 N.W. 812 and F. And M. Schaefer Brewing Co. v Forbes Food Division (1977) 376 A (2d) 1282, 1287.
(9) Ishac v Aust. Securities Pty. Ltd. (No.9), ibid. and Re Chesterman [1923] s Ch. 466 at 473
(10) See Seventy-Sixth Emotion Pty. Ltd. v Australia and New Zealand Banking Group Ltd., Supreme Court of Victoria, per McDonald J., unreported 28th May 1992, at p. 56.
(11) See below. 
(12) This is to some extent true of Ford and Lee who do not significantly differentiate between the two cases. Ford H.A.J. and Lee W.A. Principles of the Law of Trusts in Australia, Law Book Co., Sydney, 1990, pp. 583-584.
(13) But only to the extent of the trustee’s rights of indemnity. 
(14) Ford and Lee, above, p. 640
(15) (1854) 43 ER 415. 
(16) at p. 423. 
(17) See below 
(18) Amongst others, in McLean v Burns Philp Limited [1885] 2 N.S.W.L.R. 623 it was approved as authority for the proposition that a trustee’s right of indemnity against beneficiaries could be excluded by the trust instrument. In Behm v Bartels (1988) 14 N.S.W.L.R. 432 at 434 (affirmed on appeal (1990) 19 N.S.W.L.R. 257) it was taken as authority for the proposition that interest could be allowed on special advances. 
(19) In re The Norwich Yarn Co. 22 Beav. 143 and Troup’s Case 29 Beav. 353.
(20) Turner v Webb (1942) 42 S.R. (N.S.W.) 68. 
(21) See In re Cork and Younghall Railway Co. L.R. 4 Ch. 748; In re National Permanent Benefit L.R. 5 Ch. 309; In re Wrexham Mould and Connah’s Quay Railway Co. [1899] 1 Ch. 440 at 449 
(22) ibid. 
(23) ibid. p. 79 
(24) The point has been made by Gummow J. in Elders Trustees and Executor Co. Ltd, v E.G. Reeves Pty. Ltd., [1987] 78 A.L.R. 193, at 230 
(25) Ex parte Chippendale ibid. p. 427. 
(26) ibid. 
(27) ibid. 
(28) ibid. 
(29) Ford and Lee, above, p. 628. 
(30) There is however some lack of clarity on this issue. The authors of Halsbury’s Laws of England speak at one point, for example of the exercise of "inherent powers" of a trustee. Halsbury’s Laws of England, Butterworths, London, 1984, Vol 48, para. 839 Elsewhere in the same volume there is the suggestion that all lawful powers of a trustee are confered by the trust instrument or by statute. ibid. para. 837. In any event no examples of inherent powers are discussed. On the contrary the authors of the section on ‘Trustees’ in The Laws of Australia speak only of "(powers) .. conferred upon trustees by the trust instrument..statute .. or by the court." The Laws of Australia, Law Book Co., Sydney, Vol. 15, para 140. See also Ford and Lee, above, p. 529
(31) (1907) 26 N.Z.L.R. 1101 
(32) At p. 1104 
(33) See, for example, Meagher R.P. and Gummow W.M.C. Jacobs’ Law of Trusts in Australia, Butterworths, Sydney, 1977, p. 442 citing Stroughhill v Anstey (1852) 1 De G.M. and G. 635; 42 E.R. 700 and Devaynes v Robinson (1957) 24 Beavis 86; 53 ER 289. In re Symon: Public Trustee v Symon and Others is also cited but it is difficult to see how this decision supports the particular point.
(34) above.
(35) above.
(36) But certainly not on the basis of the mere existence of a power of sale alone. In Drake v Whitmore (1852) 5 De G. & Sm. 619 the converse was applied: namely, that a power to mortgage would not be sufficient to infer a power of sale in the trustee. It has been said that the decisions in Devaynes v Robinson, Walker v Southall and Drake v Whitmore, were the reasons for the enactment of section 16 of the (U.K.) Trustee Act 1925 discussed below. In re Suenson-Taylor’s Settlement [1974] 1 W.L.R. 1280 at 1283.
(37) (1887) 56 L.T. 882 
(38) Meagher and Gummow, ibid. 
(39) (1724) 3 P.W. 1.
(40) 1 Beav. 390 at 395; 18 E.R. 991 at 993. 
(41) at p. 395. 
(42) 4 Myl.&Cr. 264. 
(43) at 267 
(44) above.
(45) "..generally speaking a power of sale, a power of sale out and out, for a purpose or with an object beyond the raising of a particular charge does not authorise a mortgage, but that where it is for raising a particular charge and the estate is settled or devised subject to that charge, there is may be proper under the circumstances to raise money by way of mortgage, and the Court will support it as a conditional sale, as something within the power, and as a proper mode of raising the money." at p. 704. 
(46) at p. 703. 
(47) above.
(48) (1887) 56 L.T. 882. 
(49) See also Snaith v Dove (1873) 4 A.J.R. 279 (Vic. Sup. Ct.) which cited Stroughill v Anstey above, Devaynes v Robinson, above, as well as Haldenby v Spofforth 1 Beav. 390 and Page v Cooper 16 Beav. 396 in support of this proposition.
(50) (1894) 11 W.N. (N.S.W.) 12. 
(51) ibid. citing Stroughill v Anstey with approval. 
(52) ibid. p. 704. 
(53) ibid. p. 291. 
(54) at p. 292. 
(55) at p. 292.
(56) Snaith v Dove (1873) 4 A.J.R. 279. 
(57) ibid. at p. 883. 
(58) ibid. 
(59) (1867) 6 SCR (N.S.W.) Eq. 97. 
(60) Only Mills v Banks and Ball v Harris were cited in counsels argument but no grounds for decision were given in the report.
(61) [1936] S.A.S.R. 137. 
(62) at p. 151. 
(63) above note 
(64) at p. 704, for example 
(65) (1888) 3 Q.L.J.R. 64
(66) Devaynes v Robinson, above, at p. 292. 
(67) Walker v Southall, above.
(68) ibid. 
(69) Castling v Major, above.
(70) In re Pearce, above. 
(71) Snaith v Dove, above 
(72) York v Fraser, above. 
(73) (1903) 20 W.N. (N.S.W.) 269. 
(74) Discussed further below. 
(75) Devitt v Kearney 13 L.R. Ir. Eq. 45; Re Beal (1898) 23 V.L.R. 569; Umphelby v Grey 24 V.L.R. 979; Southwell v Martin (1901) 1 S.R. Eq. (N.S.W.) 32; Re Hammond (1903) 20 W.N. (N.S.W.) 123; Harkness v Harkness (1903) 20 W.N. (N.S.W.) 269; Re Davis; Tuxford v Davis (1906) 23 W.N. (N.S.W.) 237; In re Hall (1955) Tas. S.R. 118. In Southwell v Martin and Re Hammond, above, the power to carry on business was implied.
(76) Re Beal, above; Umphelby v Grey, above;
(77) above.
(78) above.
(79) above.
(80) For example, Re Hammond, above, Humphelby v Grey, above, and In re Hall, above.
(81) It is suggested as an independent basis for the implying of a power of mortgage by the authors of the Laws of Australia, above on the basis of Re Bloxsome’s Will (1889) 6 W.N. (N.S.W.) 84, Re Beal, above, and Harkness v Harkness, above. However, none of these entirely support this claim. Re Bloxsome’s Will appeared to involve a power of sale with a power to manage during postponement. In Harkness v Harkness, above, the power of management was simply an aspect of the trustee’s power to carry on a business formerly carried on by the deceased. In Re Beal, above, the power to manage was one of a wide range of powers to be exercised during a period of postponement by trustees for sale. Indeed the wording of the trust instrument in that case provided strong grounds for implying the existence of a power of mortgage in any event.
(82) As was the case in Southwell v Martin and Re Hammond, above. 
(83) Ford and Lee, above, p. 302ff.