Trustees Flashcards

1
Q

Appointment of Trustees

Describe the legislative power to appoint a trustee?

A

S.10 Trustee’s Act 1893 sets out the legislative power to appoint a trustee.
• The power may be exercised if (1) a trustee dies, (2) remains out of the jurisdiction for more than 12 months’ (3) wants to be discharged of duties (4) Refuses to act or (5) is unfit/incapable of acting.
• Replacement power only: gives the power to replace an original or substituted trustee although where a trustee is being replaced, the number of trustees can be increased.
• Power can be exercised by the person who has the power to appoint under the trust instrument.
• If no such person or unable to act, the power can be exercised by the surviving trustees.
• S.10(1) any appointment must be made in writing.

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2
Q

Appointment of Trustees

Describe the statutory basis for the Court appointing a trustee?

A

S.25 Trustee’s Act 1893: Court has the power to appoint a new trustee when it is expedient to do so and would be inexpedient, difficult or impracticable to do so without the assistance of the court.
• Generally used if no power of appointment in the instrument or s.10 power can’t be exercised.
• As s.10 only permits replacement trustee, must use s.25 to appoint additional one if no power.

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3
Q

Retirement of Trustees

Describe the operation of the retirement of a trustee?

A

A trustee may retire if either (i) the trust instrument expressly lets him or (ii) he obtains the consent of all the beneficiaries provided each of them is of age and entitled to the entire beneficial interest.

S.11 Trustee’s Act 1893: Where there’s a number of trustees, a trustee can retire if the co-trustees and any person w power to appoint trustees under the trust consents.

S.25 Trustee’s Act 1893: He could also seek the courts assistance.

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4
Q

Removal of Trustees

Describe the three main ways to remove a trustee?

A

Three main ways to remove:

(a) Instrument may expressly define the circs where a trustee may be removed
(b) All beneficiaries provided each is of age + entitled to entire beneficial interest can remove a trustee
(c) Court may remove a s.25 while appointing an additional one.

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5
Q

Removal of Trustees

Arnott v Arnott [1924]

A
  • Held jurisdiction exercised if trustee acted dishonestly/incompetently/wilfully obstruct the object of trust
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6
Q

Removal of Trustees

Moore v McGlynn [1894]

A
  • D held post office on trust for benefit of fam of deceased bro. He set up a rival PO in comp w fam one.
  • Held trustee isn’t in breach of a trust by setting himself up in similar line of business in the neighbourhood provided he doesn’t resort to deception or solicitation of custom form persons dealing at the old shop.
  • But held the trustee’s new position disqualifies him from remaining a trustee anymore.
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7
Q

Removal of Trustees

Spencer v Kinsella [1996

A

In deciding to exercise, must primarily have regard to beneficiaries’ welfare

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8
Q

Duties and Powers of Trustees

What is the rule for a trustee exercising discretion?

A

If a trustee has discretion, in exercising his discretion, he must (i) take all relevant considerations into account and (ii) ignore all irrelevant considerations
Re Hastings Bass [1975] NB
- The Rule: If a trustee is given a discretion as to a matter, the court shouldn’t interfere with his action notwithstanding that it doesn’t have the full effect which he intended unless:
(1) What he has achieved is unauthorised by the power conferred upon him or
(2) It’s clear he would not have acted as he did (a) had he not taken into account considerations he
shouldn’t have or (b) had he not failed to take account of considerations he should have.

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9
Q

Duties and Powers of Trustees - Exercising Discretion

Abacus Trust Co v Barr [2003] - 40% v 60% - Loosening

A
  • Held the principle doesn’t require the trustee’s mistake be fundamental, just that the unconsidered relevant
    consideration would or might have affected his decision. Here, a settlor asked trustees to create a
    discretionary trust of 40% of the trust fund. The message was mistakenly conveyed as 60%.
    Criticism: It was allowing decisions by trustees be unscrambled on basis they’d unintended consequences: tax
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10
Q

Duties and Powers of Trustees - Exercising Discretion

Sieff v Fox [2005]

A
  • Held court can set aside an exercised of trustee discretion if the effect was diff from that intended + trustee wouldn’t have acted as they did had they not failed to take account of relevant circs. But note Pitt v Holt [2011]
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11
Q

Duties and Powers of Trustees - Exercising Discretion

Pitt v Holt [2011] - Tax consequences case

A
  • CA overturned HC decision letting a trustee decision to pay accident compensation into a settlement that had inheritance tax consequences to be unravelled.
  • Held act of trustee only voidable if it amounts to a breach of fiduciary duty. Failure to consider tax
    consequences didn’t amount to a breach of fiduciary duty. Rule being used too widely. Narrowed scope.
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12
Q

Duties and Powers of Trustees - Duty Not to Make an Unauthorised Profit from the Trustee’s Fiduciary Position

General rule?

A

If he makes an unauthorised profit, he holds it on constructive trust for the beneficiaries.

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13
Q

Duties and Powers of Trustees - Duty Not to Make an Unauthorised Profit from the Trustee’s Fiduciary Position

Keech v Sandford [1726] - Renewed Lease

A
  • Trustee held a lease of profits of a market on trust for a child. Applied for renewal of lease for kid’s benefit before it expired. Landlord refused but offered renewal in trustee’s name. Trustee accepted
  • Held T held the renewed lease on constructive trust for the kid. Obliged to transfer profits to the child.
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14
Q

Duties and Powers of Trustees - Duty Not to Make an Unauthorised Profit from the Trustee’s Fiduciary Position

Boardman v Phipps [1967] - Solicitor Asset Stripping

A
  • Ds solicitors to + beneficiaries under a trust. Trust had large no of shares in a private co. Using info from trust, took control of co by buying remainder of shares + sold off lots of its assets.
  • V profitable so trust benefited a lot. D also benefited in regards to the shares they bought to take control.
  • D did inform the beneficiaries + trustees of the take-over + asked if they objected but they got info on the co by purporting to act for the trust. Thus held liable to account for the profit they’d made. CT for trust.
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15
Q

Duties and Powers of Trustees - Duty Not to Make an Unauthorised Profit from the Trustee’s Fiduciary Position

Regal Hastings v Gulliver [1967] Cinema Lease Acquisition

A

As a fiduciary, a director can’t make undisclosed personal profit from position + must account for any profit:

  • Cinema being sold, acquiring 2 more leases to make more attractive, subsidiary (directors contributed to) formed to take a lease for other 2, then sold them + got a profit
  • Held directors can’t use position to gain advantages through dealings w 3rd parties. Irrel in good faith
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16
Q

Duties and Powers of Trustees - Duty Not to Make an Unauthorised Profit from the Trustee’s Fiduciary Position

Industrial Development Consultants v Cooley [1972] Gas Board - Resigned

A
  • D MD of P. Tried to get contract w gas board for P. Failed but they offered it to him. Accepted + resigned
  • P sought to make him account for profit, argued P couldn’t have benefited anyways. Rejected: CT for co
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17
Q

Duties and Powers of Trustees - Duty Not to Make an Unauthorised Profit from the Trustee’s Fiduciary Position (Remuneration)

What is the self dealing rule?

A

Self-Dealing Rule: A trustee may not buy the trust property. If he does, transaction voidable by beneficiaries.

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18
Q

Duties and Powers of Trustees - Duty Not to Make an Unauthorised Profit from the Trustee’s Fiduciary Position (Remuneration)

Kane v Radley-Kane [1999] - Administratrix Widow

A
  • Woman (administatrix of husband’s estate) bought from/sold to herself shares in satisfaction of statutory legacy she was entitled to on her H’s intestacy. Did it w/o other heirs’ consent.
  • Held the appropriation of the shares breached the self-dealing rule: she held the shares on CT for his estate
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19
Q

Duties and Powers of Trustees - Duty Not to Make an Unauthorised Profit from the Trustee’s Fiduciary Position (Remuneration)

Holder v Holder [1968] More flexible - Eecutor Tenant - Exceptional

A
  • Executor purported to renounce the position but invalid. Took no further part in admin of the estate + then bought land belonging to it, land he’d been a tenant on.
  • Held transaction not voidable: (i) executor hadn’t interfered w admin of the estate (ii) no conflict of interest + duty as the beneficiaries weren’t looking to him to protect their interests (iii) any special knowledge he had re the property was acquired as tenant not executor. Delany: exceptional facts here.
20
Q

Duties and Powers of Trustees - Duty Not to Make an Unauthorised Profit from the Trustee’s Fiduciary Position (Remuneration)

Tito v Waddell [1977] - Less strict - Adv - Disc - F&H

A

Equity takes less strict approach:
- Megarry VC: If trustee buys ben interest, not voidable as a legal obligation but can be set aside unless he can show he took no advantage of his position + made full disclosure to bens + transaction is fair + honest.

21
Q

Duties and Powers of Trustees - Duty Not to Make an Unauthorised Profit from the Trustee’s Fiduciary Position (Remuneration)

Smyth v Smyth [1978]

A
  • Held trustee must prove he gave full value + all relevant info was given to the beneficiary. But added that no obligation on trustee to ensure beneficiary received independent legal advice/independent valuation.
22
Q

Duties and Powers of Trustees - Duty to Avoid Conflicts of interest/Not to be in Competition with the Trust

Re Thompson [1930] - Yacht

A
  • Held executor couldn’t set up business in competition w deceased’s yacht business.
23
Q

Duties and Powers of Trustees - Duty to Avoid Conflicts of interest/Not to be in Competition with the Trust

Moore v McGlynn [1984] - Post Office

A
  • See above. Held no breach unless soliciting clients/deceiving but held it disqualified him as trustee.
24
Q

Duties and Powers of Trustees - Duty to Avoid Conflicts of interest/Not to be in Competition with the Trust

Greene v Coady [2014] - No CoI on how P made

A
  • Held trustees not entitled to put themselves into a position of conflict of interest whereby they may be influenced by how they make profit from any decision which the body of trustees make.
25
Q

Duties and Powers of Trustees - Duty to Safeguard Assets of the Trust

Re Brogden [1888]:

A

Most onerous duty: failing to instate + prosecute legal proceedings to recover a debt owed to the trust
Held this duty. Also held there would be no breach if trustee believed the case would fail.
If institutes a case that fails, onus to show it was reas necessary: only indemnified for costs properly incurred:

26
Q

Duties and Powers of Trustees - Duty to Safeguard Assets of the Trust

Re Beddoe [1892] - What happens when you lose?

A

If institutes a case that fails, onus to show it was reas necessary: only indemnified for costs properly incurred:
- Emphasised a trustee isn’t personally liable for mere error in judgment but must have reasonable belief that the litigation is necessary. Trustee well advised to get court’s approval before instituting case.

27
Q

Duties and Powers of Trustees - Duty to Safeguard Assets of the Trust

Describe the Duty to Invest?

A

Duty to invest is a specific example of the general duty to safeguard the trust property. Trustee can invest to:
(1) Provide income for beneficiaries with life interest in the trust
(2) Ensure capital appreciation for beneficiaries with a remainder interest.
Must act impartially, but no duty to consult beneficiaries as to all possible investments/follow their wishes.

28
Q

Duties and Powers of Trustees - Scope of Power to Invest

General rule?

A

The power to invest may be determined (1) by the trust itself or (2) by statute. Trust instruments usually have an investment term. Typically ‘power to invest in such investments they see fit’

29
Q

Duties and Powers of Trustees - Scope of Power to Invest

Re Harrari Settlements Trust [1949]

A
  • Held this term empowers trustees to invest in any investments they honestly thought were desirable.
30
Q

Duties and Powers of Trustees - Scope of Power to Invest

Statutory footing?

A

S.1 Trustee (Authorised Investment) Act 1958 specifies what ‘authorised’ investments are
S.2 Trustee (Authorised Investment) Act 1958 gives Minister for Finance the power to vary this list.
 Delany notes this list was limited to investments such as gov securities /stock in semi-state bodies, etc.
SI 28/1998 introduced a number of variations + more introduced by the Order of 2002.
First obligation of trustee when investing is to remain within confines of power to invest.

31
Q

Duties and Powers of Trustees - Standard of Care

Learoyd v Whiteley [1886] - Prudent - Morally bound to provide

A
  • Standard: the care an ordinary prudent man of business would exercise in making investments not only on his own behalf but also on behalf of those for whom he felt morally bound to provide.
  • Delany: suggests a greater standard than required investing his own money.
32
Q

Duties and Powers of Trustees - Standard of Care

Bartlett v Barclays Bank Trust [1980] More flexible

A
  • Held it doesn’t mean trustee is bound to avoid all risks (as would then be an insurer of the trust).
  • Distinction is between prudent risk + hazard. No liability for errors of judgment.
  • Also recognised professional trustees (partic skills + experience) are judged to a higher standard.
33
Q

Duties and Powers of Trustees - Standard of Care

Nestle v National Westminster Bank [1993]

A
  • Beneficiary complained a fund of £270k would’ve been worth £1mn if it was properly invested.
  • Held against ben: Although trustees failed to appreciate scope of investment power + failed to conduct regular reviews, the beneficiary didn’t prove these failures resulted in wrong investment decisions.
  • Held the investments fell “woefully” short of maintaining the real value + bank didn’t act conscientiously
  • But held failure to maintain value wasn’t breach in itself: to hold trustee to that standard would be impossible as it requires both skill and luck. Mere error of judgment unlikely to be breach.
34
Q

Duties and Powers of Trustees - Standard of Care

Stacey v Branch [1995] IE - 14y caretaker - Confine to power - avoid hazards

A
  • P (ben) said D (T) breached duty by leaving trust property in care of caretaker for 14 yrs rather than renting it out. Suggested it would’ve been in better condition if it was rented out.
  • HC rejected this + held trustee acted bona fide: Noted trustee must consider not only current beneficiaries but also any potential future ones + needs for prudent judgment re investments.
  • Held duty not just to confine himself to invest within power but also to avoid hazards.
35
Q

Duties and Powers of Trustees - Standard of Care

What were the LRC recommendation in 2008?

A

LRC (2008) recommended statutory duty of care similar to UK Trustees Act 2000: ‘to exercise such skill and care as reasonable in circs, having regard to (a) special skill/knowledge he has or holds himself out as having
and (b) if he acts in course of profession, to any knowledge reas to expect of person in that profession.

36
Q

Duties and Powers of Trustees - Ethical Investments

Cowan v Scargill [1985] Mining Pension

A
  • 10 trustees managed mineworkers pension fund. Fund had wide powers of investments. 5/10 appt by TU.
  • Investment plan proposed by experts. TU trustees reject plan unless amended to have no increase in overseas investments, remove overseas ones + no investment in energies competing w coal.
  • Held trustees in breach of duty if fail to adopt plan: purpose of trust was to provide financial benefit so
    must put aside personal interest + social + political views. Best interests = best financial interests.
37
Q

Duties and Powers of Trustees - Ethical Investments

Harries v Church Commissioners for England [1992]

A

Different considerations in context of charitable trust: where purpose trust, issue whether trustee can pursue invest incompatible with that purpose (eg: cancer charity investing in tobacco industry):
- P argued D (whose purpose was to promote Christianity in Church of England) shouldn’t invest in a way incompatible to that aim. Rejected: held best interests are served by the greatest financial return.
- Held there may be extreme circs (cancer/tobacco eg) where there’d be direct conflict bw an investment
and the aims of the charity, or bring charity into disrepute, but trustee must act prudently re finances.

38
Q

Duties and Powers of Trustees - Duty not to Delegate

General rule?

A

Generally trustee may not delegate duties to another. But an instrument may permit delegation. Equity may permit it in circs of necessity. ALSO can delegate to professionals such as solicitors, bankers + financ advisers.

39
Q

Duties and Powers of Trustees - Duty not to Delegate

Speight v Gaunt [1883]

A
  • Held you must employ an agent in circs where ordinary prudent business man would do so.
  • Where agent is used, trustee must supervise to a reasonable degree.
40
Q

Duties and Powers of Trustees - Willful Default

Describe the operation of willful default

A

S.24 Trustee Act 1893: Trustee liable for own acts only unless loss occurs as a result of wilful default by him
Re Chapman [1896]
- Held ‘wilful default’ means trustees acting in want of honestly with ordinary prudence + within limits of their trust + not liable for mere errors in judgment.

41
Q

Duties and Powers of Trustees - Power of Sale and Power to Issue Receipts

Statutory basis?

A

S.13 subject to instrument, T may sell property in whole/part, by public auction or private contract under such conditions as he sees fit.
S.14 sale cannot be impeached by ben on grounds that any conditions were unduly depreciatory unless it
appears consideration was rendered inadequate.

42
Q

Duties and Powers of Trustees - Power of Maintenance

Describe the operation of this power and its statutory bases?

A

S.43 Conveyancing Act 1881 T may apply income of trust for maintenance/educ of kid bens in certain cases.
S.11 Guardianship of Infants Act 1964: application can be made by guardian of infant to ask court to make
payments of income/capital where needed for maintenance/education of child

43
Q

Duties and Powers of Trustees - Power to Insure

Describe power?

A

S.18 Trustee may insure property against loss or damage by fire to amount not exceeding ¾ full value of
property. Besides this provision, trustee has no power to insure unless instrument specifies it.

44
Q

Duties and Powers of Trustees - Remedies

What are the remedies?

A

(a) Unauthorised profit: Trustee can be asked to account for it – See cases on unauthorised profit
(b) Unauthorised investment: made liable for any loss incurred when investment realised
(c) May be called upon to replace loss with interest and to replace the fund

45
Q

Duties and Powers of Trustees - Liability

Greene v Coady [2014]:

A

Must be able to establish the conduct amounted to a breach of duty.

46
Q

Duties and Powers of Trustees - Liability

Bahin v Hughes [1886]

A

If two or more trustees involved in breach, each joint and several liable even if not equally blameworthy.

  • A passive trustee may not delegate responsibility to active trustee and escape liability, as set out in
  • If 1 trustee acts honestly but erroneously, other trustee who does nothing neglects duty more than active trustee. Wrong to punish trustee who acted honestly more than one who failed to act at all.