Fiduciary Duties and Accessory Liability

Question 1

What are the 2 fiduciary duties of a trustee?

Answer 1

1. No conflict rule
2. No profit rule

Question 2

What is the no conflict rule?

Answer 2

A trustee should not put himself in a position where his own interest conflicts with that of the beneficiaries of the trust. Makes offending transaction voidable at instance of the beneficiaries.

(a) Self dealing
(b) Unfair dealing
(c) Conflict between principals

Question 3

What is self dealing?

Answer 3

Where the trustee or a company that he owns / controls sells something to the trust or purchases assets from trust.

Requires beneficiaries’ consent otherwise it is voidable regardless of the price paid.

Question 4

What is unfair dealing?

Answer 4

Trustee buys a beneficiary’s beneficial interest in the trust. This is allowed if:
* trustee made full disclosure to beneficiary;
* acted honestly and fairly; and
* did not take advantage.

Question 5

What is conflict between principals?

Answer 5

Where trustee of two or more trusts and they transact with each other. Allowed if transaction is authorised by both trust deeds or if there is fully informed consent.

Question 6

What are the remedies for breach of the no conflict rule?

Answer 6

1. Compensation where loss
2. Rescission
3. Account for profits
4. End fiduciary relationship.

Question 7

What is the no profit rule?

Answer 7

A trustee must not, except where expressly provided for by the trust deed, make a profit from performing their duty.

Breaches include:
1. Direct profit
2. Indirect profit
3. Exploiting opportunities
4. Secret bribes and commissions

Question 8

What is direct profit?

Answer 8

Using the trust to make a personal profit (e.g holding trust money in bank account and keeping interest for yourself).

Question 9

What is indirect profit / exploiting opportunities ?

Answer 9

A trust holds trust property (e.g shares in a limited company) and the trustee is appointed as a director to monitor the shares. If the trustee receives payment for their role as director, this must be paid into the trust fund. However, if director for other reason then can keep.

Or if holding lease for minor and receiving rental payments.

Question 10

What is a bribe / secret commission?

Answer 10

Accepting money from a third party to administer the trust in a certain way or perform other duties in certain way.

Question 11

What are the remedies for breach of the no profit principle?

Answer 11

1. Account of profits (personal)
2. Constructive trust (proprietary)

Question 12

What is accessory liability?

Answer 12

Persons liable for dishonestly assisting or procuring breach of trust or fiduciary duty.

Must be more than de minimis and make breach easier for trustee (e.g concealing, instigating).

DISHONESTY = Ivey v Genting Casinos

Question 13

What are the remedies for accessory liability?

Answer 13

1. Compensation
2. Account for profits (where the assistance was the real / effective cause of profits).