Introduction

The relationship between trustees and beneficiaries requires good faith: trust is in the name. The law around this issue has recently evolved, and can certainly be a little confusing. We are here to clarify the recent amendment to section 249E of the Crimes Act 1900 (NSW), which introduces a requirement of corrupt intent for offences involving benefits to trustees – addressing previous concerns about routine trustee transactions being inadvertently criminalised. This change clarifies the law around corrupt benefits for trustees, removing the need for consent from beneficiaries or the Supreme Court in good faith transactions.

In this comprehensive guide, readers will gain a clear understanding of how the new law impacts trustees, the definition of corrupt intent, and practical considerations for compliance with the amended section 249E.

Understanding the Amendment to Section 249E

Historical Background of Section 249E

The original section 249E of the Crimes Act 1900 (NSW) criminalised benefits offered or received as inducements or rewards for appointing a new trustee unless every beneficiary or the Supreme Court consented. Despite referencing “corrupt benefits,” it lacked a corrupt-intent element. As a result:

• Trustees retiring with routine indemnities risked prosecution even without dishonesty.
• Third parties offering benefits to influence appointments faced liability regardless of intent.

The issue came to a head in the 2022 BT Funds Management case, which suggested section 249E might apply to successor fund transfers. In the subsequent MLC Investments case, the NSW Supreme Court confirmed that corrupt purpose was not required and that indemnities still counted as inducements. Although exceptions existed—consent of all beneficiaries or the Court—obtaining such consent was often impractical and costly.

Overview of the New Amendment

The Crimes Amendment (Corrupt Benefits for Trustees) Act 2023 (NSW), effective 20 September 2023 and retrospective, replaces section 249E to require corrupt intent. Key points:

• Offence: corruptly giving or offering a benefit to a trustee, or a trustee corruptly receiving or soliciting a benefit, as an inducement or reward for appointing a trustee.
• Penalty: up to seven years’ imprisonment.
• Removed the need for beneficiary or Court consent; liability now depends solely on corrupt intent.
• “Corruptly” is guided by the amendment’s notes, encompassing dishonest conduct.

This reform ensures that routine, good-faith retirement and appointment transactions are not criminal offences unless dishonesty is present, reducing administrative and financial burdens on trustees. It also allows them to act in the best interests of beneficiaries without fear of inadvertent criminal liability.

Defining Corrupt Intent Under the New Law

Explanation of the Term Corruptly

In the context of the new section 249E of the Crimes Act 1900 (NSW), the term “corruptly” refers to conduct involving dishonesty, a key element in many fraud offences, when offering, giving, receiving, or soliciting a benefit. In particular, it covers behaviour where a benefit is provided or sought as an inducement or reward for appointing a trustee, done in a manner that would be regarded as corrupt by generally accepted standards of conduct. Although the Crimes Act does not explicitly define “corruptly,” the explanatory notes to the Crimes Amendment (Corrupt Benefits for Trustees) Act 2023 clarify that dishonesty is a key element.

For example, corrupt conduct includes:

• offering a benefit as an inducement or reward to improperly influence the appointment of a trustee
• a trustee soliciting or receiving such a benefit with dishonest intent

Implications of Adding Corrupt Intent

The inclusion of corrupt intent as an element in section 249E marks a significant shift from the previous version of the law, which did not require proof of corruption or dishonesty. Specifically, routine trustee transactions involving benefits are no longer automatically criminal offences if they occur without corrupt intent. Such transactions include:

• indemnities
• retirement arrangements

Moreover, this amendment alleviates the previous legal uncertainty and practical difficulties faced by trustees, particularly when obtaining consent from every beneficiary or from the Supreme Court was impractical or costly.

For example, a retiring trustee receiving a standard indemnity from an incoming trustee in good faith would not be guilty of an offence, provided there is no corrupt intent. Conversely, if the indemnity is offered or solicited as a dishonest reward to influence the appointment, that conduct breaches the new section 249E and could attract penalties, including imprisonment for up to seven years.

In this way, the amendment balances protecting the integrity of trustee appointments with enabling trustees to carry out routine transactions without undue legal risk.

Impact on Trustees in NSW

Effect on Trustee Transactions

Previously, trustees needed to obtain consent from each person beneficially entitled to the trust property or from the Supreme Court before engaging in transactions involving benefits as inducements or rewards for trustee appointments. This requirement often proved impractical—especially for trusts with many beneficiaries—and created a real risk of criminal liability in routine, good-faith dealings.

With the amendment to section 249E of the Crimes Act 1900 (NSW), corrupt intent is now a necessary element of the offence. Consequently, trustees can conduct routine transactions in good faith without securing consent from individual beneficiaries or the Supreme Court. Instead, the law focuses solely on those who corruptly offer, give, receive, or solicit benefits related to trustee appointments.

This change restores practical certainty by alleviating administrative and financial burdens on trustees and their legal advisors. For example, an outgoing trustee seeking an indemnity from an incoming trustee as part of a retirement arrangement will no longer risk committing a criminal offence—provided the transaction is conducted honestly and without corrupt intent. Ultimately, the amendment facilitates smoother trustee transitions and appointments.

Considerations for Trustee Retirement and Appointment

Despite the relief provided by the amendment, trustees must remain cautious during retirement and appointment processes. The inclusion of corrupt intent as an element means any benefit offered, given, received, or solicited must not be corruptly motivated. Key practical considerations include:

• Assessing the Nature of Benefits: Trustees should carefully evaluate whether any benefit could be perceived as an inducement or reward linked to a trustee appointment. Even indemnities or reimbursements may fall within this scope if offered corruptly.
• Maintaining Good Faith: All transactions related to retirement or appointment must be conducted transparently and honestly, with the beneficiaries’ best interests as the paramount concern.
• Legal Advice and Documentation: Engaging legal professionals early in the retirement or appointment process helps navigate the complexities of the amended section 249E. Proper documentation and clear evidence of good faith can mitigate risks.
• Risk of Criminal Offence: A trustee who corruptly solicits or receives a benefit—or a person who corruptly offers or gives a benefit as an inducement or reward for a trustee appointment—may face a maximum penalty of seven years’ imprisonment, a term which would be determined at a sentencing hearing.
• Court Consent May Still Be Relevant: Although routine transactions no longer require consent, complex or unusual arrangements might still necessitate court approval to avoid breaching the law.

To illustrate, consider a scenario where an outgoing trustee is offered a substantial payment by a prospective trustee as a reward for stepping down. If this payment is made corruptly, both parties could face criminal charges under the amended section 249E. Conversely, if the payment is a bona fide indemnity for expenses incurred—transparent, documented, and agreed upon without corrupt intent—it would not constitute an offence.

Guidance on When Court Consent is Required

Identifying Scenarios Requiring Court Consent

Court consent is necessary in situations where a benefit offered, given, received, or solicited could be seen as an inducement or reward linked to the appointment of a trustee, and where such benefit might influence the trustee’s decision-making. Under section 249E of the Crimes Act 1900 (NSW), it remains an offence to engage in these transactions without the consent of either each person beneficially entitled to the trust property or the Supreme Court—unless the benefit is received or given corruptly under the new amendment.

Key scenarios that typically require court consent include:

• Complex or Unusual Benefit Arrangements: When benefits go beyond routine indemnities or reimbursements and could be perceived as rewards influencing trustee appointments.
• Indemnities and Implementation Expenses: As seen in the MLC case, indemnification provisions and implementation expenses related to trustee appointments or managed investment schemes may require court approval.
• Successor Fund Transfers (SFTs): Although the Host-Plus v Maritime Super case clarified that section 249E does not apply to SFTs because they do not involve the “appointment” of a trustee, the BT case highlighted the need for court consent in certain SFT-related benefit arrangements.
• Large or Financially Significant Benefits: Benefits that could affect the impartiality of trustees or the best interests of beneficiaries, such as substantial payments or indemnities, often trigger the need for court consent.
• Situations Where Consent of Beneficiaries is Impractical: When a trust has many beneficiaries, obtaining individual consent may be unworkable, making court consent the practical alternative.

The Supreme Court will generally grant consent if it is satisfied that the transaction is in the best interests of the beneficiaries and does not provide an inducement to act other than in their best interests. For example, in the BT case, the court consented to the trustee soliciting and receiving transaction costs and indemnities because these were intended to benefit the fund members and did not compromise trustee impartiality.

Practical Approaches for Avoiding Breaches

To ensure compliance with the amended section 249E and avoid inadvertent breaches, trustees should adopt the following practical measures:

• Early Legal Consultation: Engage lawyers experienced in trust and criminal law early in the transaction process to assess whether court consent is required.
• Careful Assessment of Benefits: Evaluate all benefits involved in trustee retirement, appointment, or asset transfer transactions to determine if they could be construed as inducements or rewards.
• Transparent Documentation: Maintain clear and thorough records demonstrating that benefits are provided in good faith and in the best interests of beneficiaries.
• Seek Court Consent When in Doubt: If there is any uncertainty about whether a benefit arrangement requires consent, trustees should proactively apply to the Supreme Court for approval to mitigate the risk of criminal liability.
• Avoid Corrupt Intent: Ensure that no benefit is offered, given, solicited, or received with corrupt intent, as this is now a key element of the offence under the amended law.
• Consider the Nature of Indemnities: Recognise that indemnities, while common, may still be caught under section 249E and require consent if they could be seen as rewards.
• Plan for Beneficiary Consent Challenges: When beneficiary consent is impractical, rely on court consent to provide legal certainty and avoid delays or disputes.

By following these approaches, trustees can navigate the complexities of the new legal framework, reduce administrative burdens, and protect themselves from potential criminal offences under section 249E of the Crimes Act 1900 (NSW).

Insights from Recent Legal Cases

Review of the MLC Case

The Application of MLC Investments Limited [2022] NSWSC 154 (MLC case) clarified important aspects of section 249E of the Crimes Act 1900 (NSW). This case confirmed that indemnities and other benefits offered or solicited as inducements or rewards for the appointment of a trustee fall within the scope of section 249E.

Specifically, the court found that:

• Implementation expenses and indemnification provisions proposed for the incoming trustee were caught as “rewards” or inducements under section 249E
• The court declined to declare that indemnities could not be considered rewards, reinforcing that such benefits may trigger criminal liability if given without proper consent
• The test for intent under the previous section 249E did not require dishonesty but focused on whether the benefit was intended as an inducement or reward for the trustee’s appointment

Additionally, the MLC case highlighted ongoing uncertainty regarding successor fund transfers (SFTs), as it did not resolve whether SFTs fall within the meaning of “appointment” under section 249E. This uncertainty leaves trustees involved in SFTs needing to carefully consider the application of the law in these contexts.

Review of the BT Case

The BT Funds Management Limited as trustee for the Retirement Wrap Superannuation Fund [2022] NSWSC 401 (BT case) was a pivotal decision that brought section 249E into focus for superannuation trustees.

Key points from this case include:

• The court granted consent for the trustee to solicit and receive transaction costs, special losses payments, and indemnities from prospective successor trustees, which without consent could have breached section 249E
• The decision acknowledged that obtaining consent from each beneficiary was impractical, especially in large funds, making court consent essential for such transactions
• The court emphasised that consent would generally be granted if the conduct was in the best interests of beneficiaries and did not induce the trustee to act contrary to those interests
• The case raised concerns about whether section 249E applied to successor fund transfers, prompting further legal scrutiny

Following the BT case, the Host-Plus Pty Ltd v Maritime Super Pty Ltd [2023] NSWSC 725 decision provided important clarification. It established that section 249E does not apply to SFTs because these transfers do not involve the “appointment” of a trustee. This distinction offers some relief to superannuation trustees involved in SFTs, reducing the need for court consent in those specific transactions.

Together, the MLC and BT cases have significantly influenced how section 249E is interpreted and applied in New South Wales, particularly regarding benefits offered to trustees and the necessity of court consent in complex trustee transactions.

Conclusion

The amendment to section 249E of the Crimes Act 1900 (NSW) introduces a critical element of corrupt intent, clarifying that only those who corruptly offer, give, receive, or solicit benefits as inducements or rewards in trustee appointments commit an offence, with penalties determined at a sentencing hearing. This change removes the previous requirement for consent from each beneficiary or the Supreme Court in routine, good faith trustee transactions, reducing administrative burdens and legal uncertainty for trustees in New South Wales.

Navigating these changes requires a clear understanding of what constitutes corrupt conduct and how to structure trustee appointments to avoid liability. If you are a trustee seeking to ensure your actions comply with the new law, contact the expert criminal lawyers at Daoud Legal: Sydney Criminal Defence & Traffic Lawyers for specialised guidance on your responsibilities. Our team can help you understand the nuances of the amended legislation and protect your interests.

Frequently Asked Questions