Clark v Inglis

Clark (the appellant) brought proceedings against Inglis (the respondent), the trustee of a discretionary trust, concerning the trustee's distribution of trust income. The dispute centred on whether the trustee had validly determined the trust's income for a particular financial year, specifically whether unrealised gains on investments could be treated as income for the purposes of distribution. The matter was heard in the Court of Appeal of New South Wales.

The primary legal issue before the court was the construction of the trust deed and, in particular, the meaning of the term "income" as it applied to the trustee's powers and obligations. The court was required to determine whether the trustee was entitled, under the terms of the trust deed and in accordance with applicable accounting principles, to treat unrealised gains on investments as income of the trust for the purpose of making distributions to beneficiaries.

The Court of Appeal held that the trustee was entitled to treat the unrealised gain on investments as income. The court reasoned that the trust deed did not define "income" in a way that excluded unrealised gains. Furthermore, the court found that it was permissible, according to commercial accounting standards and principles, for the trustee to treat such gains as income. The court noted that the annual financial accounts, which reflected this approach, had been acquiesced in by the beneficiaries, further supporting the legitimacy of the trustee's actions.

The appeal was dismissed.