Duty of care

Question 1

Duty of care

Answer 1

S.1 of Trustee Act 2000: reasonable care and skill, with regard to special knowledge

Question 2

Overview of actions flowing from duty of care

Answer 2

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

Question 3

Notification of beneficiaries

Answer 3

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

Question 4

Reasonable steps for notification of beneficiaries

Answer 4

Only need to inform the primary objects (persons with extensive rights) (Re Manisty’s Settlements)

Question 5

Provision of trust accounts

Answer 5

Beneficiary has a right to inspect accounts of the trust that accounts for the trust property and history of transactions

Question 6

Provision of other ‘trust documents’ (besides accounts)

Answer 6

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)

Question 7

Letters of wishes

Answer 7

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

Question 8

Professional legal privilege

Answer 8

Did not extend to letters of wishes (Dawson-Damer v Taylor Wessing - DPA action)

Question 9

Request for more information - role of trustee

Answer 9

Request cannot be reject just because the trustees say that they already have enough info (Lewis v Tamplin)

Question 10

Investment of trust property - standard of care

Answer 10

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)

Question 11

Duty to maximise financial returns when investing trust funds (financial productivity)

Answer 11

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)

Question 12

Duty of impartiality

Answer 12

Balancing capital and income interests (Nestle v National Westminster Bank)

Question 13

Exercise of discretionary powers

Answer 13

a) Duty to exercise a power for a proper purpose
b) Duty of adequate deliberation
c) Mistaken exercise of powers

Question 14

Duty to exercise a power for a proper purpose (doctrine of fraud on a power)

Answer 14

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)

Question 15

Outcomes based on how the power was exercised

Answer 15

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)

Question 16

Duty of adequate deliberation (Rule in Hastings-Bass)

Answer 16

Even if trustees have not satisfied standard of skill and care, it does not follow that they will be liable to the beneficiaries

Question 17

Original Re Hastings-Bass principles

Answer 17

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

Question 18

Mettoy Pension Trustees v Evans

Answer 18

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’

Question 19

Expansion of Re Hastings Bass

Answer 19

Interventionist approach by the court (the court WILL interfere if the effect is different from that which trustee intended) (Sieff v Fox)

Question 20

Rationale for expansion of Re Hastings Bass

Answer 20

Opaqueness/difficulty of the tax system – need to protect vulnerable beneficiaries

Question 21

Restriction of Re Hastings

Answer 21

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)

Question 22

Distinction between exercise of powers and outcomes

Answer 22

Exercise beyond the scope (bvoid)

Exercise within the scope but there is inadequate deliberation (voidable)

Question 23

Implications of Pitt v Holt

Answer 23

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

Question 24

When is there a breach of fiduciary duty for professional negligence

Answer 24

Compare with reasonable director (Power Adhesives v Sweeney)

Question 25

Mistaken exercise of powers

Answer 25

Rescission possible (Pitt v Holt), no defences

Question 26

Remedy: reparation claims

Answer 26

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

Question 27

General rule for personal reparation claims

Answer 27

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)

Question 28

Burden of proof

Answer 28

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)

Question 29

Equitable compensation

Answer 29

Similar to common law damages (Britsol & West v Mothew)

Question 30

Cost of cure

Answer 30

Where costs of reinstatement is greater than the enhancement of property’s value, there is no breach (Brudenell-Bruce v Moore)

Question 31

Defences

Answer 31

a) S.61 of Trustee Act 1925

b) Exemption clauses

Question 32

S.61 of Trustee Act 1925

Answer 32

Honesty, fairness, reasonableness = can be excused

Question 33

Exemption clauses

Answer 33

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

Question 34

Criticism of Armitage

Answer 34

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