Trustee's Duties Notes

Trustee’s Duties (start with conduct of parties, then go on to breaches)

1. Duties relating to discretionary powers (see earlier topic)

   • Mere power

     • Can choose who to appoint as beneficiaries

     • Must be within limits, in good faith and for a proper purpose Karger

     • Objects have no standing to sue; cannot force exercise of the power

   • Trust power

     • Before exercising the power

       • Trustee must consider the exercise of power of appointment

       • Must turn his mind to whether or not to exercise the power, the range of objects of the power and the appropriateness of individual appointments Re Hay per Megarry VC

       • A trustee who does not turn his mind to the question will have failed to exercise the duty Turner v Turner

     • After exercising the power

       • Powers needs to have been exercised in good faith, for a proper purpose, and be within he limits of the power (Karger)

       • If the courts interfere, they may remit the decision back to the trustee to make the decision again. appoint new trustees to make the decision, or exercise the discretion themselves (last resort) (Finch)

     • If the trustee makes the wrong distributions, he must reconstitute the fund to pay the right beneficiaries or else be held personally liable

   • Superannuation Trusts (Finch)

     • A trustee coming to an opinion is not of itself exercise a discretion; it’s one factor in the performance of the trusts duties

1. Duties upon becoming trustee

   • Paramount duty to adhere to the trust deed/Supremacy of the trust deed

     • S 2(3) Trustee Act provides that powers, duties, immunities etc. given to trusteed by the Act shall be in addition to those set out in the trust instrument and powers, duties etc. set out in the Act apply only if a contrary intention is not expressed in the instrument

     • If a trustee does not adhere, he will be in breach of trust (Green v Wilden)

     • The trust deed itself can alter the equitable duties

   • Duty to distribute

     • A trustee must ensure that distributions are only made to those people who are entitled under the trust deed

     • S 33 Trustee Act: protection by means of advertisement

       • Notice in government gazette/daily newspaper

   • Duty to get in trust property (Permanent Trustees v Perpetual Trustees)

     • Trustee must take control of the trust instrument and familiarise themselves with any terms of the trust…must work out their obligations

     • If replacing old trustees, the new trustees must see if there have been any previous breaches of trust. If so, they must sue the old trustees

       • If the new trustee fails to identify and rectify those breaches, he will be liable for a breach of trust

     • The Trustee must get control of the trust by following through and getting legal title

2. Equitable and general law duties

   • Standard of prudence

     • A trustee must exercise the same care and diligence as an ordinary prudent man of business would exercise in conducting that business as if it were his own (Re Speight per Lord Blackburn)

   • Fiduciary duties (trustee is a fiduciary)

     • Not all breaches by a trustee will be fiduciary in nature

       • Must work out whether they are proscriptive (fiduciary) or prescriptive

     • Conflicts rule (Chan, Keech v Sandford)

       • The trustee has acted in circumstances where there was a significant possibility of conflict

       • Duty/Interest (Chan), duty/duty (Farrington v Rowe – can’t serve two masters)

       • There must be a “real and sensible possibility of conflict” rather than merely hypothetical Chan

         • Irrebutable presumption of breach of fiduciary duty if property is partner obtains renewal of lease in own name

     • Self-dealing rule (particular application of the conflicts rule)

       • Trustee cannot purchase trust assets from the trust, or borrow money from the trust, and selling property to the trust, as he is not a bona fide purchase (Clay v Clay). Automatically void.

       • A sale made in breach of this rule is likely to be rescinded at the suit of a beneficiary Clay v Clay and does not matter if the trustee has been honest or given full market value. Why?

         • Trustee is owner of trust property thus can’t sell to himself (too tempting to sell at an undervalue) – same would apply to leases Keech v Sanford

       • Exceptions:

         • The Trustee “shaking off the character” i.e. establishing that the fiduciary obligations had ceased at time of purchase (retired, trust terminated)

         • Consent of the beneficiaries (so long as they are all sui juris and fully entitled to the property)

         • Prior consent of the court

     • Fair dealing rule (Tito v Waddell) (particular application of the conflicts rule)

       • Trustee can purchase the beneficiary’s beneficial interest if:

         • The trustee did not take advantage of his position

         • Has given full disclosure of all relevant information

         • The transaction is fair and honest

     • Duty not to mix trust property (ASC v AS Nominees)

       • Trustee cannot mix his own assets with the assets of the trust

       • If they haven’t kept them separate, there is a risk that there is a breach of trust

       • Cannot mix assets of two different trusts

     • Profit rules (Boardman v Phipps; Williams v Barton)

       • Trustee is prohibited from making an unauthorised profit from his position as trustee; cannot exploit knowledge or opportunity relating to the relationship

     • Duty to act gratuitously (particular application of the profits rule)

       • Equity prohibits a trustee from benefiting from the trust Re Drexel

         • Distinguish between getting an unauthorised profit and getting what you are entitled as beneficiaries Re Drexel)

       • Trustee must act wholly for the benefit of the other person, precludes them taking any benefit unless authorised by trust instrument

       • Reasonable remuneration of up to 5% of the trust fund can be sought from the court (s 77)

         • Despite the trustee’s duty, the court has an inherent jurisdiction to award remuneration to the trustee Nissen v Grunden

       • Note: usually overridden in trust instrument

   • Duty to act personally

     • General rule is that the trustee must act personally, and cannot delegate power/discretions without express authority in trust instrument, or in cases of...

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