Trust Law- Conflict of Interest Authorised by Truster

Question 1

how can a conflict of interest arising from the act of a trustee be resolved?

Answer 1

The acts of a trustee which would otherwise be invalid because of a conflict of interest may be sanctioned where the truster foresees the possibility of a conflict of interest and expressly authorises this in the trust deed. The commonest example is an express grant of a power to trustees to charge fees.

Question 2

how are the provisions that sanction conflict of interest construed?

Answer 2

Provisions which sanction a conflict of interest are strictly construed. (JOHNSTON v MACFARLANE 1987 SLT 593 where a power to sell trust property to any beneficiary was held not to include a power to sell to a trustee who was also a beneficiary).

Question 3

can a conflict of interest be sanctioned by implication?

Answer 3

controversial topic
In some decisions it has been stated that a conflict of interest cannot be sanctioned by implication (JOHNSTON v MACFARLANE 1987 SLT 593). In other cases, however, a different view has been taken. For example, in COATS’ TRUSTEES PTRS 1914 1 SLT 504 it was held that a power to sell to any beneficiary did include a power to sell to a beneficiary who was also a trustee.

Question 4

what is the statutory position on implied sanction of a conflict of interest?

Answer 4

statutory provisions have admitted the possibility of implied sanction of a conflict of interest where a particular type of trustee is put in the position of conflict by the truster. This is where a party has died intestate and the surviving spouse’s or civil partner’s prior rights consume all of the intestate estate of the deceased.

Question 5

when will you not be able to avoid the aucta in suam rem principle?

Answer 5

• when a the trustee acted with other trustees (even if the trustee left meeting early at which the trasnaction is discussed and let his co-trustees take the decision to enter into the offending transaction
• In the absence of authority from the truster, the trustees may obtain the sanction of the consent of all the beneficiaries and potential beneficiaries to the transaction. Provided this consent is freely given and the beneficiaries are fully informed in relation to the nature of the transaction and the surrounding circumstances it will prevent the transaction from being avoided on the basis that the trustee acts as auctor in rem suam.
• Where consent cannot be obtained from the truster and all the beneficiaries the trustee probably cannot petition the court to sanction the offending transaction.
• There is no rule which would generally prevent a former trustee from transacting with the trust.

Question 6

what are the rules governing the requirement of proper motivation?

Answer 6

• In all his dealings with the trust a trustee must do his best to exercise a fair and rational judgement taking into account matters which are relevant to the trust only.
• This rule would not prevent a trustee with personal beliefs which are consonant with the trust purposes to influence his decisions relative to trust.
• Where the trustees are motivated by proper concerns this may assist in having a transaction upheld where the benefit received by the trustee is small and incidental and the principal object of the transaction is to provide some greater substantial advantage to beneficiaries who are not trustees.
• Even if a trustee is motivated by his own personal beliefs in a manner which would otherwise leave him in breach of the rule, the transaction may still be upheld if the truster has sanctioned the application of personal values to transactions