Trustee Duties

1. Duty to act solely in accordance with the terms of their authority as defined in the trust deed, including a duty to invest the trust property
   • e. the trustees must do as they are instructed in the trust deed. Can’t give property to someone who is not the beneficiary or ignore the limitation on their power, otherwise such a transaction is invalid.
   • However if the trustee sells to a third party bona fide purchaser then the beneficiaries can’t do much except sue the trustee because they can’t get the property back.
   • Fox v Fox 1870- executors in a will were about to distribute the assets in a way contrary to the will and disgruntled relatives went to the court and commanded them to distribute the will in the way the testator had written it.
   • Buttle v Saunders 1950- from this case it is clear that maximising financial returns for beneficiaries is an important duty. Despite the trustees having got into a deal in principle with someone else, one of the beneficiaries was offering a higher purchase price deal and the court said the trustees had to go with it otherwise they would be in breach of their duty.

2. Fiduciary duty of undivided loyalty
   • Trustees can’t put themselves in a situation where their personal interests are in conflict with the beneficiary’s interest
   • A beneficiary and trustee can’t enter into a contract together
   • There must be an beneficiary
   • David Hayton- there is an irreducible core duty owed by the trustees to place the beneficiaries in a position to enforce the trustee’s performance of the trust by providing them with the information they need to do that.

3. Duty to tell the beneficiaries that they are beneficiaries and to keep acocunts and trust documents for their inspection, but not to provide them with reasons for the exercise of discretionary powers to distribute trust capital or income.
   • *Re Londonderry’s Settlement 1965
     • Basically the case outlines the principle that although the beneficiaries are entitled to see trust documents, this isn’t always the case especially in the context of a discretionary trust as it goes against the very principle of the settlor’s intentions in giving away that discretion in the first place.
     • In a discretionary trust, trustees don’t have to tell beneficiaries the reasons for their decisions- because it goes against the whole point of having discretion as a trustee in the first place, and the courts also said it would stir up a lot of family bitterness.
     • Trustees in a discretionary trust shouldn’t be questioned unless there is suspicion that they’ve acted bona fide.
     • The very point of appointing trustees power is to give them discretion and if they’re to face an inquisition about every decision made this would make an already hard role even more burdensome.
     • Also judges raised point that allowing questioning of such decisions might air the dirty laundry and cause family strife.
     • In this case the beneficiary was asking to see documents which had info of another beneficiary – beneficiary seeking the info wasn’t allowed to see it because it wasn’t their beneficial interest property but that of another.
   • Re Murphy’s Settlement 1998

• Armitage v Nurse 1998
  • Justice Millet- there is an irreducible core that trustee’s duties can’t be excluded because if there are no rights to enforceable then there isn’t a trust and you’ve just made a gift to the trustee.
  • What about charitable purpose trusts?– the registration and the accounting requirements maybe place a kind of duty on trustees as they have to inform the AG about the existence of the trust and handling of the trust property
• Schmidt v Rosewood Trust 2003
  • Case confirms that there is no reason why the object of a power shouldn’t have the same right as beneficiaries to require disclosure of documents, obviously subject to the discretion of the court to intervene upon proceedings
  • Lord Walker rooting the court’s power to order trustees todisclose terms in the courtswhich is in theirequitable discretion to supervise the activities of trustees.
    • It’s not right to draw a line between beneficiaries of a trust and objects of a power, what matters is the strength of the C’s benefit, which will turn on whether it was intended by the settlor they receive a significant bounty.
  • In this case, A fact which seems to be clear in rosewood and this case concerned a Russian business man with shady friends, he got a load of assets in a trust in the Isle of Man, he gave the trustees powers of appointment to benefit him. He died and his son was the administrator of the estate and he brought an action for the trustees to disclose the terms of the trust deed, but they weren’t prepared to do that because he wasn’t a beneficiary they had no obligation to tell him what was in the trust deed. Lord Walker said no I’m gonna order you to tell him because he is the person whom the father most plausibly meant for them to take the benefit.

4. Duty of care (including a duty of care when investing trust funds)
   • Speight v Gaunt 1883- general rule= a trustee sufficiently discharges his duty if he takes cautions which an ordinary prudent man of business would take in managing similar affairs of his own. How much precaution would a reasonable business man take when entering into this type of transaction for himself- that’s the question you ask
   • Bartlett v Barclays Bank Trust 1980- example of how this plays out in practice
     • The trust property included a majority shareholding in a private property development company, the trustee was the trust department of Barclays bank, and the directors of this development company made some poor decisions which lost the company a lot of money. The beneficiaries of the trust where unhappy about that and they say that the trustee (Barclays) as a majority shareholder of the company had the power to supervise from inside the activities of the directors of the property company. They never exercised this power they just left the directors to their own devices.
     • Lord justice Brighton says- an ordinary prudent man of business looking after his own affairs would’ve made the directors keep him in the loop and police it, the trustees failed to do this therefore they breached their duty and were liable and therefore had to pay compensation. The remedy was an order of equitable compensation, it’s not readily distinguishable from the common law tort of damages, but it’s basically the same.
   • Nestle v National Westminster Bank 1993
     • First instance Hoffman j- modern trustees acting within their investment powers are entitled to be judged by the modern standards of modern portfolio risk theory
     • The theory- don’t put all your eggs in one basket. The best investment practice is to put some of it into high risk investment and some of it to low risk and middle risk investments.
     • = if a trustee pursues that strategy and puts some of it in a high risk investment, not a negligent thing to do if they balance it off with the low risk investments.
     • Facts: in 1922 Mr Nestle put £50k on trust for various members of his family. 60 years later his granddaughter became absolute beneficial of the fund, at that point the fund was worth £270k, the value had increased and had increased by a factor of five. Equity price index by 500 and cost of living was up by 20k. If the trustees back in the 20’s had put the money in an investment track fund, if they’d done that the fund would’ve been worth 2mill i.e. ten times more than it actually was. The trustees in this case forgot about it and didn’t do anything about it instead of keeping the investments under review every six months or at least once a year. They reviewed it far less than that. In that time period they only changed one thing
     • CoA looks at these facts, no one will be using the national Westminster bank, they’ve been incredibly slack. But the trustees weren’t liable to pay Miss Nestle any compensation because apart from proving breach of duty, you have to prove that the breach caused you a loss. The C was unable to show the tee’s lack of care caused her any loss, she couldn’t show that the trustees made decisions that no reasonable trustees would have made. Not fair to judge trustees with the benefit of hindsight.
     • Can’t judge investments with benefit of hindsight; have to show that the trustee took action that no reasonable trustee would take.
     • Effect of this judgement = where trustees don’t do anything at all you can’t pin any liability you have to show they took positive action or unless you can show no reasonable trustee would’ve acted in such a way.

Trustee Act 2000 s 1 and Sched 1; also ss 3, 4, and 5

• Wide investment power, that’s the laws default rule. Its open to settlors to write into the trust to restrict the trustees power. And that will effectively disapply this section

5. Duty to maximize financial returns when investing the trust funds
   • Not every asset held on trust is one that the trustees should invest e.g. allowing beneficiaries to live in a house for free.
   • Cowan v Scargill 1984
     • Fund of money held on trust to provide coal miners with pensions, the time when the pension was set up the coal industry was nationalized, and owned by the coal board. There were ten trustees. Five from the coal board and the other half from the union. Pension works by employers and employees putting in money.
     • The case is about the attempt of Scargill to get the trustees to adopt an investment policy that would exclude certain types of investment from consideration by the trustees e.g. no investment overseas, in other types of energy companies, and the point of all that was that it wouldn’t be right that the trustees of the investment of the pension fund overseas like in south Africa or oil and gas. Miners have an interest in the coal industry and keeping it going so it’s crazy to even think of putting the money in interests which don’t serve the beneficiaries
     • The beneficiaries are people who used to be miners and the families
     • Megarry J- Do as well as you can for the beneficiaries and it would be a breach to fail just because of a worry for political or moral reasons
   • Harries v Church Commissioners 1992
     • Bishop of Oxford wanted the court to tell the church commissioners should bind themselves to ethical investment policies, court refused.
   • Basically it seems that if the beneficiaries purport to bind the trustees from making certain decisions due to their own political/moral/ethical ideas of investment policies the courts may refuse to side with the beneficiaries in the case, as the trustees do have a duty at the end of the day to maximise profits so it kinda makes sense…

6. Duty to consider all and only relevant matters when exercising a discretionary power
   • Pitt v Holt 2013
     • Brain damaged in an accident, wife becomes his mental health receiver i.e. she’s managing his affairs on his behalf, her duties subject to the same rules as trustees in exercising her duties. As a result of the accident Mr Pitt had received a large chunk of money, Mrs Pitt takes advice from a firm of solicitors on what should do, they say she should put it on trust for Mr Pitt, then the trustees can use it to pay his medical bills and upkeep, and if he dies the money goes to her and the kids. Unfortunately solicitors draft up the deed in such a way that there is a significant charge on inheritance tax on Mr Pitt’s death, they could have written a clause to avoid this, the solicitor who drafted the document overlooked this fact
     • The rule in Re Hastings in relation to Pitt v Holt
       • The rule is only triggered when the trustee’s failure was one which constituted a breach of duty. Mrs Pitt didn’t commit a breach of duty as she acted in good faith as she took advice from appropriate legal advisor which turned out to be wrong. The rule in Hastings doesn’t apply as she wasn’t in breach of duty despite not taking everything into account. (revenue didn’t charge the tax behind the scenes)
       • The effect of the decision= the revenue wasn’t happy, and the insurance and solicitors firms aren’t happy
       • Rule in Hastings surprise- walker describes it as fiduciary duty but that’s difficult. Usually when you have a fiduciary duty avoid conflict of interests between own and beneficiaries interest. Hastings cases aren’t like that, the problem isn’t that the trustees are trying to do something in their interest but the problem is they’ve overlooked a factor in making their decision, they’re being simply careless.
       • What should trustees take into account- tax law, wishes of beneficiaries and their circumstances
       • No guidance however on what the trustees should taken into account when exercising their powers. McPhail v Doulton- trustee doesn’t need to acquaint themselves with every single beneficiary – so the power to take matters into account is going to vary.
       • Under that rule, where trustees exercise discretion under a misapprehension as to the extent or consequences of their actions, the exercise or purported exercise of discretion can be set aside on the ground that the trustees have not given proper consideration to the exercise of their discretion. There is no need to identify any breach of fiduciary duty in the sense of fault or want of care and skill before an exercise of the discretion can be set aside.

Compare the doctrine of fraud on a power applied in e.g. Vatcher v Paull [1915] AC 372 and Wong v Burt [2005] 1 NZLR 91

• If the bens of the trust are A and B, but the trustees think it’s a good idea to give it to C, they can’t do that as it’s beyond their power. Or they can’t give it to B and agree in advance they’ll give it to C. appointment to B is void as its appointment to a non-object and not for a proper purpose.
• g. in Wong v Burt- A puts money on trust for the children of one of his daughters but not for the children of his other daughter. The trustees also have a power to appoint property to the settlor’s widow. The widow thinks it’s wrong for the settlor to exclude one set of grandchildren over the other and so gets the trustees to appoint the fund in her favor and she hands it over to the other grandchildren= trustees committed a fraud on the power of appointment.

• Fraud on the power- doesn’t necessarily have to involve deceit. It essentially a reference to equitable fraud, so takes into account any behavior the court thinks is unconscionable
  • Vatcher v Paull- Lord parker makes this point clear- the term fraud doesn’t necessarily mean fraud or any conduct which could be termed dishonest or immoral, it merely means the power has been exercised for a purpose or beyond the scope of the power
  • All that matters is the trustees reasons for exercising the power- and if it’s not consistent with the intention of settlor= fraud on the power.
• The rule in Re Hastings Bass= where a trustee acts under a discretion given to him by the terms of the trust, the court will interfere with his action if he wouldn’t have acted as he did, had he not failed to take into account consideration which he ought to have taken account
  • The rule basically saying if trustee exercises his power and it later transpires he overlooked a matter which he should’ve taken into account then it can come back into court and that the exercise of his discretion is void and should be set aside.

7. Duty to act jointly unless the trust is a charitable or pension trust (or there is a contrary provision in the trust deed.)
   • Trustees should take account of each other
   • Luke v South Kensington Hotel 1879

8. Duty to segregate and protect trust property and to keep it in the trustees’ joint names unless otherwise authorised (e.g. to use nominees)
   • Trustees must keep trust funds and their own funds separate, as evidential uncertainty would arise, you wouldn’t know whose money it is.
   • Lewis v Nobbs 1878

9. Duty to act personally unless delegation is authorized
   • If somebody chooses you as trusteeits because they want YOU as trustee so not allowed to delegate powers. They could have just chosen someone else if they didn’t want you. This was fine for trust funds but the moment trust property and liquid assets get involved e.g. shares, bonds, securities and money in bankaccount- trustees need to have people they can delegate to the special kill of making investment decisions=
     • practical pressure on Parliament to change the rules to say trustees could appoint an agent who could make decisions for them.
   • Law Commission, Trustees’ Powers & Duties (Law Com No 260)
   • Trustee Delegation Act 1999, inserting new Trustee Act 1925 s 25 (individual delegation) – reproduced at end of handout=
     • g. two trustees one of them decides to go on a cruise for six months problem is whilst the other is away they can’t do anything this section allows the trustee who’s going to be away to delegate.
   • Trustee Act 2000 ss 11-12 (collective delegation)

2. EXEMPTION CLAUSES

Citibank NA v Hayim [1987] AC 730

Armitage v Nurse [1998] Ch 521

Bogg v Raper (1998) 1 ITELR 267

Law Commission Trustee Exemption Clauses (Law Com No 301, 2006) part 7