#10985 - Trustee's Duties - Trusts

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 necessity

     • Non-delegation (Re Hays)

       • Trustee cannot delegate powers or discretions

       • Cannot just blindly approve of other trustee’s decisions Dalrymple v Melville

       • Co-trustees must act unanimously – can’t delegate to other trustee

     • Delegation permitted during absence (s 30(1))

       • Trustee may delegate to any person (except a co-trustee) the execution of the trust while the trustee is out of Victoria

       • Trustee is liable for any actions of the delegate s 30(2)

       • Must be done by power of attorney

     • Agency 28(1)

       • Trustee can employ agents to transact any business in the execution of the trust, as long as the agent is not making decisions

         • Delegation vs implementation

       • A trustee is not responsible for the default of an agent who was employed in good faith. Good faith includes:

         • Asking what a reasonably prudent person of business would have one

         • Choose a suitable agent

         • Supervise performance as much as possible

         • Don’t leave money in agent’s hands for an unnecessarily long period of time

         • Hiring the right person for the job, reasonably supervision) Re Speight,

     • Not acting under dictation

       • Trustee cannot act under the dictation of another, including a co-trustee Dalrymple

       • Also includes the beneficiary Re Brockbank; Re Mulligan)

         • This is particularly because the beneficiaries can choose to wind up the trust if they wish

       • Must give real and genuine consideration Karger, Turner

   • Duty to act in the best interests of beneficiaries (present and future)

     • This duty can be altered by the trust instrument

     • Must act in the best interests of present and future beneficiaries

       • Means best financial interests (Cowan)

       • Trustees who made decisions on non-financial grounds would be in breach of duty as a trustee unless those grounds were equally beneficial

       • Meant to indicate people who are objects but are not yet in receipt of a pension. Already objects of the trust Cowan

         • Doubt it could extend to people not yet objects

     • Can divest from certain investments if they are completely at odds with the terms of a charitable trust, as long as they do not significantly diminish the trust assets (Harries v Church Commissioners)

       • Rare to find investments that everyone agrees are completely at odds with the purposes of the trust

     • Can involve the interests of others, as long as this benefits the trust (Asea Brown)

   • Duty to act impartially

     • Need to act impartially between individual beneficiaries and classes of beneficiaries

       • It may not be possible to act in a way that is advantageous to each individual beneficiary, but the duty of impartiality will be performed if the trustee acts in the interests of the all the beneficiaries VBN v APRA

     • Trustee can make a judgment to balance the interests in favour of one class, so long as it is not for an improper purpose Nestle

       • Even if they have acted “woefully” or “poorly” it may still not be a breach of the trust

       • Court cannot interfere with the trustee’s decision unless he has acted unreasonably (improper purpose, not upon real and genuine consideration, having regard to irrelevant matters (VBN v APRA)

     • Cannot favour income beneficiaries only capital beneficiaries Re Mulligan

       • Similarly, apportionment of expenses, outgoing and losses is also required

   • Duty to keep accounts and inform

     • Trustee must allow the beneficiary to inspect trust documents

       • If they can’t, the court will order them to produce the documents and pay for it out of their own pocket

       • Extends to informing beneficiaries about their rights under the trust instrument

     • Trust documents:

       • Anything that came into the possession of the trustee as trustee that...