Duty of care Flashcards
Duty of care
S.1 of Trustee Act 2000: reasonable care and skill, with regard to special knowledge
Overview of actions flowing from duty of care
a) Notification of beneficiaries, provision of trust info
b) Investment of the trust property
c) Balancing capital and income
d) Exercise of discretionary powers by trustees
Notification of beneficiaries
Beneficiary has a right to be told that she is a beneficiary and the trustee owes a duty to take reasonable steps to notify her of this (Armitage v Nurse)
Hayton: core of trusteeship is beneficiaries’ rights
Reasonable steps for notification of beneficiaries
Only need to inform the primary objects (persons with extensive rights) (Re Manisty’s Settlements)
Provision of trust accounts
Beneficiary has a right to inspect accounts of the trust that accounts for the trust property and history of transactions
Provision of other ‘trust documents’ (besides accounts)
Distinction between trust accounts/trust documents (can be inspected by beneficiary), and material that fell outside the category (cannot be inspected) (Re Londonderry’s Settlement)
Example of trust documents: trustee meeting minutes, correspondence on discretionary exercise of trustee powers – but couldn’t be inspected to respect discretionary powers
Right to disclosure is example of court’s inherent jurisdiction to supervise the administration of trusts, rather than dependent on a proprietary interest (diff from Re Londonderry’s) (Schmidt v Rosewood Trust Co)
Letters of wishes
Subject to Londonderry that the exercise by trustees of discretionary powers should be regarded as confidential, unless disclosure would help the sound administration and exercise of discretion
(On facts, allowed) (Breakspear v Ackland)’
Professional legal privilege
Professional legal privilege
Did not extend to letters of wishes (Dawson-Damer v Taylor Wessing - DPA action)
Request for more information - role of trustee
Request cannot be reject just because the trustees say that they already have enough info (Lewis v Tamplin)
Investment of trust property - standard of care
Ordinary prudent man of his business would take in managing similar affairs of his own (Speight v Gaunt)
Objective test, no regard for skills and experience (Re Vickery)
If paid professional, raised to standard that such a professional would be expected to exhibit (Bartlett v Barclays Bank Trust Co)
Duty to maximise financial returns when investing trust funds (financial productivity)
S.4 of Trustee Act 2000: standard investment criteria e.g. diversification
Strict approach, ethical considerations irrelevant (Cowan v Scargill)
Exception: ethical considerations relevant if profitability not jeopardised (Harries v Church Commissioners)
Duty of impartiality
Balancing capital and income interests (Nestle v National Westminster Bank)
Exercise of discretionary powers
a) Duty to exercise a power for a proper purpose
b) Duty of adequate deliberation
c) Mistaken exercise of powers
Duty to exercise a power for a proper purpose (doctrine of fraud on a power)
Donee of a power may not exercise it in order to produce a result contrary to the purposes of the donor
Fraud in equity not the same as fraud in common law (Vatcher v Paul)
Outcomes based on how the power was exercised
Power exercised to achieve purpose impermissible on its face - void
Power exercised to produce a permissible outcome on its face but with a bad faith intention of achieving a larger, impermissible purpose - voidable (Cloutte v Storey)
But may be revisited (Pitt v Holt, dicta)
Duty of adequate deliberation (Rule in Hastings-Bass)
Even if trustees have not satisfied standard of skill and care, it does not follow that they will be liable to the beneficiaries
Original Re Hastings-Bass principles
There can be no lawful exercise of discretion if it was not exercised in a lawful manner
Court should not interfere but can set aside trustee’s decision if that decision would not have been made had the trustee taken into account all relevant factors or if trustee had taken into account irrelevant factors
Mettoy Pension Trustees v Evans
Misconstrues Hastings Bass into a positive form: ‘the court will interfere…if it is clear that he would not have acted as he did had he not failed to take into account considerations which he ought to have taken into account’
Expansion of Re Hastings Bass
Interventionist approach by the court (the court WILL interfere if the effect is different from that which trustee intended) (Sieff v Fox)
Rationale for expansion of Re Hastings Bass
Opaqueness/difficulty of the tax system – need to protect vulnerable beneficiaries
Restriction of Re Hastings
Rule will only render a trustee’s act voidable if it could be shown that the act had been done in breach of fiduciary duty on the part of the trustee (Futter v Futter, part of Pitt v Holt)
Distinction between exercise of powers and outcomes
Exercise beyond the scope (bvoid)
Exercise within the scope but there is inadequate deliberation (voidable)
Implications of Pitt v Holt
Possible floodgate litigation for professional negligence claims, but haven’t occurred yet, since trustees who rely on professional advice generally won’t be liable for breach
Instead: mistake claims
Impact limited by robust exclusion claims, and incompetent advice doesn’t mean negligent
When is there a breach of fiduciary duty for professional negligence
Compare with reasonable director (Power Adhesives v Sweeney)
Mistaken exercise of powers
Rescission possible (Pitt v Holt), no defences
Remedy: reparation claims
Make good the harm which the beneficairies have suffered as a consequence of the trustees’ breach of duty
Dependent on wrongful conduct
Purpose is to restore trust to the state
Beneficiaries must prove ‘but for’ causation
General rule for personal reparation claims
Isolate every decision disallowing balancing up gains and losses
Where gain and loss from the same decision, a loss could be set off against a gain
(Bartlett v Barclays Bank Trust)
Burden of proof
Beneficiaries have to prove that the prudent ordinary man, with the economic and financial conditions of the time, would not have done the same (Nestle v National Westminster Bank)
Equitable compensation
Similar to common law damages (Britsol & West v Mothew)
Cost of cure
Where costs of reinstatement is greater than the enhancement of property’s value, there is no breach (Brudenell-Bruce v Moore)
Defences
a) S.61 of Trustee Act 1925
b) Exemption clauses
S.61 of Trustee Act 1925
Honesty, fairness, reasonableness = can be excused
Exemption clauses
Generally cannot affect court’s jurisdiction for application to court
If trustees can prove that settlor knew of and approved exemption clause, then no liability (Armitage v Nurse)
Dicta: honesty and good faith may suffice despite gross negligence
Criticism of Armitage
No permission for exemption clauses protecting trustees (Spread Trustee v Hutcheson)
Court should be more restrictive on professional trustees (Walker v Stone)
Law Commission report:
Current law for exemption clauses is unsatisfactory, but no statutory reform recommended besides rule of practice
Settlors should be able to give away their property however so
