Topic 2: Trustees duties and power

Question 0

When can the exercise of a power result to a breach of trust?

Answer 0

Karger v Paul: where the decision to or not to exercise the power has been done in the wrong way.
Elements, whether the trustee has:
1. Given real and genuine consideration to the decision
2. Acted in good faith; and
3. For a proper purpose.

Question 1

What is the difference between a duty and a power?

Answer 1

A duty is an obligation and a failure to perform the duty is a breach of the trust.
A power is discretionary meaning the trustee has a choice whether to exercise the power.
Mere failure to exercise it will not result in a breach of trust.

Question 2

What are the facts of Karger v Paul?

Answer 2

• Woman had died and left a will to her husband for life. Therefore he had life estate.
• Karger was the remainder beneficiary.
• Paul was a trustee along with the husband who was also a trustee and a beneficiary.
• During his lifetime, the husband made many requests to Paul to make distributions in his favour, which Paul granted.
• Overtime estate was worn down, almost nothing left for Kurger.
• She sued Paul arguing he had exercised power in wrong way.

Question 3

What was the decision in Karger v Paul?

Answer 3

Court held: Paul was not liable.

• The test whether the trustee has given real and genuine consideration. Laid out factors to take into account
• It was deceased’s woman’s intention that the funds could be used for husband where he had more pressing need than Karger.
• Paul did have information about respective financial positions, even though it contained some minor deficiencies.
• However he hadn’t engaged in far reaching considerations each time he made a contribution, didn’t find out the relevant financial positions each time.
• he had been solicitor for husband for a long time so had knowledge of his affairs.
  Court held: he had properly informed himself and engaged in real and genuine consideration.

Question 4

What are the factors to consider for Genuine and real consideration and which case is it drawn from?

Answer 4

Karger v Paul:

1. What inquiries were made by trustee in making the decision
2. What are reasons for trustee making the decision
3. Had trustee properly informed himself of the relevant matters?

Question 5

How else can a beneficiary challenge a trustee’s exercise of power?

Answer 5

s8 Trust Act application to the Supreme Court to review the Trustee’s exercise of power.

Question 6

What is the difference between a s8 TA application to the court and an action like in Karger v Paul?

Answer 6

s8 TA can be brought based on an expected breach, where else an action for breach of trust must actually have a breach.

Question 7

What is the relevance of Re Whitehouse?

Answer 7

• It was an application under s8 to the court to review decision of the husband as well as to remove him as trustee.
• The courts would not review a decision merely because they would have done something differently.

Question 8

What is the relevance of Wilkinson’s Case?

Answer 8

The court may review a decision where it is:

1. Done in bad faith;
2. Includes irrelevant considerations;
3. Exercised for improper purpose
4. Arbitrarily done

Question 9

What are the sources of a trustee’s duty and powers?

Answer 9

1. General law
2. Superimposed on top of that is the Trust Act
3. Superimposed on top of that is the Trust Instrument.

Question 10

Can the duties in the Trust Act override the trust instrument?

Answer 10

s4(4) Trust Act - the duties in the act apply in so far as no express intention is indicated in the trust instrument.

Question 11

Can any of the duties in the Trust Act apply regardless of what the Trust instrument says?

Answer 11

Yes.
s31(1) - the duties in Part 4 apply regardless of intention stated in trust instrument, UNLESS the provision indicates otherwise (double reversal).

For example s32: Provision says nothing about the trust instrument overriding, therefore the trustee has a power to sell regardless of what the trust instrument says.

Question 12

What is an example where a duty in Part 4 can be overridden by the Trust Instrument?

Answer 12

1. s57 - ‘“subject to the provisions of the instrument”

Question 13

What are a trustee’s duties at common law?

Answer 13

1. Duties of administration - duty to perform administration in accordance with terms of the trust
2. Duties of loyalty and confidence
3. Duties of care and skill - analogous to duty of care in torts