Administration of Trusts- Negative Duties

Question 1

What are the four negative duties of a trustee?

Answer 1

1. Duty not to profit
2. Duty not to purchase trust property
3. Duty not to delegate
4. Duty not to compete with the trust

Question 2

Discuss the duty not to profit

Answer 2

Biehler has said that a person who occupies a fiduciary position is not entitled to make a profit from that position unless expressly authorised to do so.

Question 3

Duty not to profit: Greene v Coady

Answer 3

Trustees are not entitled to put themselves into a situation of conflict of interest whereby they may be influenced by how they themselves may profit from any decision which the body of trustees may make

Question 4

Duty not to profit: Armstrong v Armstrong

Answer 4

A trustee who has gained a profit from his position must be held cesuis que trust to retain that profit for the trustee.

Question 5

Duty not to profit: Bray v Ford

Answer 5

It is an inflexible rule that a person in a fiduciary position is not, unless expressly so provided, entitled to make a profit. He is not allowed to put himself in a position where his interest and duties conflict.

Question 6

There are 5 exceptions where the trustee is entitled to remuneration, these are:

Answer 6

1. Where there is authority in the trust instrument
2. Agreement of the beneficiaries who are sui juris
3. Authority of the court- where the trust is burdensome. In the Duke of Norfolk Settlement Trusts, the court of appeal agreed to increase the rate of remuneration laid down by the settlor
4. The trust property is abroad and the local law allows this
5. Where the rule in Cradock v. Piper applies- This states that if a trustee is also a solicitor and acts for himself and any other trustee in trust litigation, he may be recompensed as long as the costs do not exceed what he would have charged if acting for the trustees only

Question 7

Discuss expenses:

Answer 7

Biehler stated that a trustee is entitled to be reimbursed for expenses properly incurred in the administration and management of the trust- Courtney v. Rumley.

Question 8

Discuss Expenses- Legislation

Answer 8

Section 24 of the Trustee Act 1893- a trustee is entitled to pay himself expenses for the proper carrying out of his trust duties and powers

Question 9

2) Duty not to purchase trust property- Wright v Morgan

Answer 9

In this case there were two trustees. The specific terms of the trust stipulated that the property was to be sold to trustee A. Trustee A did not wish to purchase the property so assigned their right to purchase to Trustee B. The property was valued independently, Trustee B resigned their post and purchased the property. The court set aside the transaction of the basis of the self-dealing rule as the sale did not comply with the specific terms set out in the trust instrument. Even the fact that Trustee B had retired did not alter the situation.

Question 10

Biehler-

Answer 10

• As a general principle this rule cannot be evaded by selling the trust property to a relative or associate of the trustee or to a company controlled by him; at the very least, in such circumstances the transaction will be closely scrutinised by the court to ensure that it is not merely a colourable device to preclude the application of the self- dealing rule. It would also appear that the principle applies where a trustee has recently retired, although not where he has retired a considerable time before purchasing the trust property.

Question 11

Re Thompson’s Settlement

Answer 11

A trustee sold trust property to a company of which he was MD

Question 12

There are exceptions to the rule:

Answer 12

If the (i) Trust instrument allows it; (ii) The beneficiaries who are all of age agreed (iii) The court allows it
Also, note exceptions where the beneficiary sells the property to the trustee.

Question 13

When the beneficiary sells property to trustee: Fair Dealing Rule

Answer 13

Still a presumption of undue influence but rebuttable.

Question 14

Fair Dealing- Tito v Wadell

Answer 14

Tito v. Wadell- If a trustee purchases the beneficial interest of any of his beneficiaries, the transaction is not voidable ex debito justitiae, but can be set aside unless the trustee can show that he has taken no advantage of his position and he made full disclosure to the beneficiary, and that the transaction is fair and honest.

Question 15

Fair Dealing- Coles v Trecothick

Answer 15

Cole v Trecothick- A trustee may purchase from a beneficiary if ‘there is a distinct and clear contract, ascertained to be such after a jealous and scrupulous examination of all the circumstances’ - and no fraud, concealment or undue influence. Evidence of independent evaluation and legal advice is advisable but not necessary.

Question 16

Smyth v Smyth

Answer 16

Here the testator gave a life interest in a field to his brother, remainder to his nephew. The nephew agreed to sell his interest back to his uncle/trustee but subsequently sought to have the transaction set aside on the basis of undue influence and on the basis that the trustee should not have purchased the beneficiaries interest. The court was satisfied that there was no undue influence.

Question 17

3) Duty not to delegate

Answer 17

A person to whom duties/powers have been delegated cannot delegate them to another. Delegatus non potest delegare. The essence of trusteeship is the placing of trust and confidence by one person in another, then it follows that the duties are personal in nature and performance and as such a person who undertakes them cannot simply walk away and pass them on to another.

Question 18

3) Duty not to delegate

Answer 18

This principle was shown in Turner v Corney- where it was stated that where a trustee takes on the management of property for the benefit of others, then they have no right to shift their duty onto another person.

Question 19

3) Duty not to delegate

Answer 19

In Re O’Flanagan and Ryan’s Contract- a testator appointed his wife as trustee of property to hold for the benefit of herself and their children. It was held by Porter MR, that she had no power to delegate this role.

Question 20

There are some exceptions where delegation may not take place:

Answer 20

Delegation may take place where:
1. There is authority in the trust instrument
2. If delegation is used in the ordinary course of business- an accountant to prepare accounts for submission to the revenue commissioners
3. If there is a legal or physical necessity for it- a barrister to conduct a case; a builder to make repairs

Question 21

Legislative exception: S17 Trustee Act 1893

Answer 21

A trustee may allow a solicitor to receive money from the sale of a trust property by providing a deed containing a receipt. Also, he can appoint a solicitor or banker to collect money due under an insurance policy.

Question 22

Speight v Gaunt

Answer 22

The trustee employed a broker at the beneficiaries request to buy stock. The broker ran off with the money advanced. The beneficiaries sued the trustee for delegating their responsibility to the broker. HL’s: The trustee has acted as a prudent man of business in employing a broker and was therefore not liable for a breach of duty.

Question 23

4) Duty not to compete with the trust- The English position

Answer 23

A trustee should no enter into competition with his trust. In Re Thompson- the English courts granted an injunction to stop a trustee competing in business with his trust.

Question 24

4) Duty not to compete with the trust- the Irish position

Answer 24

Moore v McGlynn- The courts refused to grant an injunction but removed the trustee from office instead. Here the defendant was a trustee for the trust set up his deceased brother. Chattervon VC stated that ‘his new position disqualifies him from remaining any longer a trustee, and it would have been better for him to have procured his removal from trusteeship before setting himself up for himself……..he should not have continued in a position where his duties and his self-interest may conflict