Trustee's Duties

Question 1

What core functions do judges and commentators say are common to all trusts?

Answer 1

Millett LJ - Armitage v Nurse - duty to act in good faith (but consider Boardman v Phipps)

Lords Goff & Browne-Wilkinson - Westdeutsche - fiduciary duties

Question 2

Does Lord Millett agree with this view?

Answer 2

No, Bristol & West v Mothew;

1. Not every duty owed by a trustee can properly be described as a fiduciary duty
2. Remedies for breach of fiduciary duty are different for remedies of breach of other duties.

Question 3

What is the source of Trustees’ Duties?

Answer 3

The creation of the trust - express/constructive/resulting

i.e. a discretionary trust will require different duties than a fixed trust

Not all duties come from the will of the settlor i.e. the duty to honour a Saunders v Vautier claim

Question 4

What are the contents of fiduciary duties and which case are they from?

Answer 4

Bristol & West v Mothew;

1. He must act in good faith
2. He must not make a profit out of the trust
3. He must not place himself in a position of conflict of interests
4. He must not act for the benefit of a third party without consent

Question 5

What does the prophylactic approach say?

Answer 5

Not all trustees will be tempted to make a profit out of their trust, like not all owners of weapons will be tempted to assault someone

Both courses of conduct are prohibited in order to deter this type of harmful behaviour

Question 6

Describe the rule against conflict of interests.

Answer 6

The rule is incredibly strict.

The trustee must not even get into the position where there may be a conflict of interests - Keech v Sandford

Question 7

What is the leading case on ‘no profits’?

Answer 7

Boardman v Phipps.

The defendants became fiduciaries by attending company meetings. They became majority shareholders in the company and turned it around, making a handsome profit for the beneficiaries and themselves

They were disgorged of their gains for making a profit using trust propety

Question 8

What does Boardman v Phipps mean?

Answer 8

The trustee can be held to have breached his fiduciary duty even where;

1. He acted in complete good faith in advancing his beneficiary’s interest.
2. There was at no point any actual conflict of interest.
3. The actions of the trustee benefited the beneficiary.
4. The gains could not otherwise have been made for the trustee.

Question 9

What are some counterarguments to this?

Answer 9

Beneficiaries may be exposed to economic risk if trustees are allowed to act in this way.

Trusts should be for the sole benefit of the beneficiaries.

Question 10

What did Lord Upjohn say in his dissent?

Answer 10

There should only be liability where there is a real and sensible possibility of a conflict of interests.

Question 11

What has Arden LJ suggested?

Answer 11

Murad v Al-Saraj - That the no profits rule be relaxed in line with the legal systems of other jurisdictions,

Question 12

What are the rules for payment of the trustee?

Answer 12

Trustees are not generally due payment.

Professional trustees are an exception - Trustee Act 2000 S28(5)

Trustees can recover expenses which they incurred reasonably in the administration of the trust - Trustee Act 2000 S31(1)

The court can order that the trustee is paid, or paid more - Re Duke of Norfolk

Failure to pay a trustee can amount to an unjust enrichment on the part of the beneficiaries - Foster v Spencer

Question 13

Are all trustees fiduciaries?

Answer 13

No, Re Rose constructive trustees simply have to return property to the beneficiary, they owe them no fiduciary duty

Question 14

What fiduciary relationships exist outside of trusts?

Answer 14

Solicitor-client/director-company/agency-principal

Birks - it takes a special relationship for us to have to take positive steps to promote another’s interests.

Question 15

What is the first approach the courts have take to determining whether someone is a fiduciary?

Answer 15

Considering the factual relationship between C and D to see whether it has the key features of a fiduciary relationship;

There is no consensus on the true meaning of ‘fiduciary relationship,

It tends to arise where one party is in a position where he is reliant or dependent on the actions or decisions of another,

Undertaking will usually be present in a fiduciary relationship.

Question 16

What is the second approach the courts have take to determining whether someone is a fiduciary?

Answer 16

Considering whether a claimant should be able to bring the same claims as available for breach of fiduciary duty,

Chase Manhattan v Israel-British Bank - the recipient of a mistaken payment should be treated as a fiduciary

Question 17

Outline the trustee’s duty of care.

Answer 17

S1 Trustee Act 2000 provides for the duty of care relating to investment, acquisition and appointment of agents.

The standard varies upon the circumstances of the trust, there isn’t one overarching test.

Question 18

How must a trustee invest property?

Answer 18

Simply placing trust money into an interest-bearing bank account may not be a sufficient return on the property.

Pension funds must diversify their portfolios.

Trustees can invest in any way he could if he were absolutely entitled to the money - S3(1) Trustee Act 2000.

Question 19

What investment advice is given under S3/S5 Trustee Act 2000?

Answer 19

Trustees must use suitable investment options (not 1 share for a small amount of trust money)

Long term trusts must not invest solely in short term investment techniques.

Investments must be periodically reviewed, not just placed in an REIT/ETF.

Trustees must seek advice if they are not experts in the field of investment (Pitt v Holt)

Question 20

What about ethical investments?

Answer 20

The trustee must put ethical and moral considerations to one side when investing trust property - Buttle v Saunders

Or he may breach trust - Cowan v Scargill.

If the trust deed allows an ethical investment strategy, the beneficiaries consent or the trust is a charitable one, ethical considerations may be given

Question 21

What rights to information must trustees honour?

Answer 21

1. Trustees must inform beneficiaries that they are indeed beneficiaries under a trust.
2. A settlor may be required to disclose the details of the current trustees to the beneficiaries.
3. Beneficiaries may order trustees to disclose information on the status of the trust.

Question 22

Is there a duty common to all trusts?

Answer 22

-No, there is no single, indivisible package of trustees’ duties but an array of duties to which the trustee may be subject.