Topic 3: Duties of administration

Question 0

What are the duties of administration?

Answer 0

1. To get in the trust property
2. Maintain the value of the trust property so as to advance the ends for which the trust has been established
3. Carry out the terms of the trust

Question 1

What is the essence of duties of administration?

Answer 1

It is concerned with whether the trustee is authorised or not authorised to do something. The duties ensure that the trustee does not misappropriate or misapply the trust property: Armitage v Nurse

Question 2

First duty: What is the duty to get in trust property

Answer 2

The trustee has a duty to identify what property is covered by the trust and procure a transfer of legal title to themselves of the property.

Question 3

First duty: Duty to get in trust property

Is there a limitation period to get property in?

Answer 3

The Limitations of Acts Act limits it to 6 years.

Question 4

What are the facts in Partridge v Equity Trustees Executors

Answer 4

• D company was in the business of acting as trustee
• They were trustee for deceased’s estate
• The estate was owed money by William
• a debt is a chose in action (property) so the trustee has an obligation to get it in or secure the money under the debt.
• In the will there was provision saying not to press William for money.
• First 3 years, then entered into compromise agreement. William didn’t comply, 7 years later, Trustees agreed with William to delay payment for another 5 years but he had to pay interest of 5%
• he became bankrupt.
• Trustee’s chances of recovering full debt was significantly diminished, they could only recover small amount.
• Residuary beneficiaries sued for breach of trust that trustee didn’t get property in

Court held:

1. Even if had power to postpone collection, they still had overarching duty to get property in.
2. Postponement of collection should only be made where it is consistent with overarching duty or increases the chances of getting proeprty in.

Question 5

What is the duty to maintain the value of the property?

Answer 5

As a general rule, the trustee has a duty to invest the trust property to combat effects of inflation: Adamson v Reid

Question 6

What are the facts of Adamson v Reid?

Answer 6

• Trustee sold block of land and got cash
• Will contained no provision regarding investment
• trustee held onto money for 6 months and did nothing
• P brought action for breach of trust

Courts held:

1. Money had been deal with improperly. Any money not distributed immediately HAS TO BE INVESTED.
2. Plaintiffs must be placed in position they would have been in had the trustee acted properly.
3. So courts awarded interest in the form of what it would have been had money been invested in government bonds.

Question 7

Is the trustee expected to acquire property and what authority?

Answer 7

Only if it is necessary to preserve the value of an existing asset: Elvis company v Higgins

Question 8

What are the facts of Elvis Company v Higgins?

Answer 8

• Deceased’s estate included two adjoining rural properties used for cattle grazing business.
• One land “The Brook” was freehold, another was “Burnt Oak” which was leasehold.
• There was option to purchase Burnt Oak during the period of the lease only.
• Trustee failed to exercise that option and lease came to an end.
• Burnt Oak was sold to someone.
• Evidence showed The Brook was not economically viable without Burnt oak.
• So business less value than what it would have been had Burnt Oak been purchased.

Court held:

1. Breach of trust
2. Not a matter of acquiring new asset, but preserving the value of an existing asset. In order to do so, the trustee should have purchased Burnt Oak

Question 9

As part of maintianig property, is there a duty to insure property?

Answer 9

There is no duty, but there is a power to insure under s47(1) Trust Act.
It is an overriding power as it is in Part 4 and s31(1) applies.

Question 10

When would a person be liable for failure to insure?

Answer 10

Where it would be prudent to ensure and a failure to exercise reasonable care and skill, not a breach of duty of administration.

Question 11

Can the trustee raise money by mortgage?

Answer 11

Under s45 Trust Act, there is a power to mortgage.

Re Suenson - Taylor’s Settlement Trusts
Interpretation of s45 equivalent in UK: only for the purpose of upkeep of existing property to protect it, however can’t mortgage for the purposes of acquiring new property.

Question 12

What is the duty to carry out the terms of the trust primarily concerned with?

Answer 12

This is mostly about authorised and unauthorised transactions that the trustee may have to engage or refrain from doing.

Question 13

What is a controversial area in the duty to carry out terms of the trust?

Answer 13

Investments.

Question 14

How to determine if a transaction is authorised?

Answer 14

1. Look at trust Act

2. S21 confers a broad power of investment

Question 15

Is the power of investment under s21 TA constricted?

Answer 15

It must be taken together with s23 of the trust Act.

Question 16

What is the effect of s21 TA?

Answer 16

The trustee has a power of investment, subject to the trust instrument.

Question 17

What is the effect of s23 TA?

Answer 17

It constrains the trustee’s power by imposing duties. It is not a cofidication, but a remidner or colelction of the important duties.

Question 18

What is the effect of s23(2)(b)?

Answer 18

It limits the power of investment to only invest in things that are not speculative or hazardous.
This applies even where the instrument grants a power of investment to the trustee.

Question 19

Is a share a speculative or hazardous investment as under s23(2)(b)?

Answer 19

• Yes because dividends on a share depend on whether the business makes a profit. It is difficult to predict whether a company will make a profit in the future.
• Historical performance is little indication because conditions in market change very quickly and people can’t readily predict them.

Question 20

How can a trustee invest and comply with s23(2)(b)?

Answer 20

By investing in multiple companies spread out over different industries thereby creating a diverse portfolio.
It spreads the risk.
Viable where there is a large trust estate.

Question 21

How else can a trustee invest and comply with s23(2)(b)?

Answer 21

• By putting the money in superannuation accounts.
• Lee’s article said because trustee investing in large sums, they could afford diversity. furthermore, if put into superannuation, they wouldn’t use cash all at one go, they would only withdraw what was necessary. So reduced risk even where value of superannuation goes down.

Question 22

What is the duty in s23(2)(c)?

Answer 22

It is a duty tro act impartially to benefiicarie sand different classes of them. THis becomes relevant where there are life beneficiaries and remainder benfeiiaries

Question 23

How to comply with duty of impartiality under s23(2)(c)?

Answer 23

The trustee must balance the interests of beneficiaries and invest in things that don’t produce just good revenue in the long run or the short term.

Question 24

What is an example of failure to act impartially?

Answer 24

Re Mulligan

Question 25

What are the facts of Re Mulligan?

Answer 25

• Decease’s widow who was beneficiary and trustee of a trust.
• Trust estate was invested in fixed term securities which produced good revenue in the short term, but evidence showed over time, the value of estate would diminish.
  Trust instrument did expressly authorised investing in shares.

NZ Court held:

1. Retaining fixed interest securities meant they couldn’t invest in other portfolio
2. There was a breach of trust because failure to act impartially between income beneficiaries and capital beneficiaries.

Question 26

What is the duty in s23(2)(d)?

Answer 26

It is a duty to obtain advice where necessary. Example is investing shares, certain calculations need to be made and may include getting advice from a third party.

Question 27

What is the relevance of s24?

Answer 27

In exercising a power of investment in s21, the trustee must give considerations to the matters in this section.
The most important consideration is s24(1)(a) - circumstances of the trust and needs of the beneficiaries

Question 28

What is a case related to the interpretation of s24(1)(a) beneficiary needs and needs of trust?

Answer 28

Cowan v Scargill

Question 29

What are the facts of Cowan v Scargill?

Answer 29

• Superannuation fund for British Coal miners.
• 10 trustees, 5 appointed by Trade union, 5 appointed by National Coal board.
• Trade union trustees wanted to eliminate overseas investments and all investments in energies competing with coal to preserve jobs for the industry.
• Other 5 sought direction from the court

Court held:

• Trustee must exercise powers in best interest of present beneficiaries of the trust
• The purpose of the trust was to provide financial benefit for members though pension fund so the primary concern should have been best possible return on investments
• Eliminating whole industries not only compromised the ability to raise funds, but also increased risk of loss by taking away ability to diversify
• Counter argument by defence saying they were promoting jobs for the current beneficiaries so it wasn’t limiting financially. Argument rejected as the needs of ALL beneficiaries must be considered.

Question 30

What is the relevance of Harries v Church Commissioner for England?

Answer 30

Relevant to interpretation of s24(1)(a)

Question 31

What are the facts of Harries v Church Commissioner for England?

Answer 31

• They had substantial fund, so getting good return was a matter of concern.
• argued that trustees had to account for ethical considerations when investing. So they needed to avoid making investment in organisation whose values were inconsistent with it.

Court held:
1. Could consider ethical considerations, if it did not involve significant financial detriment.
The paramount concern for property invested is to generate income, so it’s financial.
2. There was a desire to avoid South African companies, even though they held a significant portion of the market.
3. To avoid them would limit financial opportunities and cause financial detriment but would be consistent with values.

Question 32

What are the circumstances in which ethical considerations can be taken into account under s24(1)(a)?

Answer 32

1. Where it did not involve significant financial detriment;
2. Where it goes to root and purposes of organisation; or
3. Where engaging in that form of investment would undermine faith in the organisation and have adverse consequences.

Question 33

Can a trustee delegate his authority?

Answer 33

No, they cannot: Re Brockbank
Although they do have a power to employee agents to do particular tasks under s54 TA, but ultimately they have to make the decision.

Question 34

What are the facts of Re Brockbank?

Answer 34

• Trust instrument was a will
• IT gave continuing trustee the power to appoint a new trustee
• The Brockbanks wanted to appoint a different company to be the new trustee
• The continuing trustee resisted because they were of the view that appointing the company would involve too much costs

Court held:

1. they were right in resisting the Brockbanks. If they did cave in, they would have delegated their decision making power
2. The trustee had a duty to exercise his own discretion.