Trusts - Fiduciary Delegation (6) Flashcards
What are fiduciary duties?
Fiduciary Duties: Fiduciaries are individuals in a position of trust and confidence (Bristol v Mothew).
(1) Status Based: Status based fiduciary duties arise by virtue of a position of trust, i.e. trustees, directors, partners, agents, solicitors.
(2) Fact Based: Fact based fiduciary duties arise by virtue of undertaking to perform an act for another person, who believes the undertaker is acting exclusively in their best interests, even if this is a sham (LAC Minerals; English v Dedham).
(3) Retirement: Liability cannot be eschewed by retirement if opportunity arose due to fiduciary position.
Strict Liability
Strict Liability: Fiduciaries are strictly liable for breach of duty, meaning honest trustees can be liable for incidental breaches (Armitage v Nurse).
(1) Exemption Clauses: Trusts may permit breach of fiduciary duty, unless fraudulent or dishonest.
(2) Incidental Gains: If one breach caused loss, and another gain, the trust may keep the gain and sue for the loss.
(3) Remedies: Beneficiaries may seek both personal and proprietary remedies. No loss is required.
What is the duty not to profit from position?
Duty Not to Profit: Trustees must account for profits that arose incidentally to their position, even if from opportunities the trust could not directly benefit from or expressly rejected (unless expressly authorised).
(1) Gifts: Gifts or one-off commissions provided incidentally must be accounted for, unless authorised (Imageview v Jack).
(2) Salaries: Salaries earned incidentally must be accounted for, such as a directors’ salary if the appointment arose by virtue of the trust.
Exception: If the trustee would have been director in any case, or was already a director, then they may retain the salary (Re Dover Coalfield Extension).
(3) Opportunities: Profits made through opportunities incidental to trusteeship must be accounted for, even if the trust also benefited or the profit was innocent (Boardman v Phipps).
Court Exception: Courts occasionally permit breaches if they also benefit the trust, but rarely, as this encourages self-interested behaviour (Guinness v Saunders).
(4) Unauthorised Payment: Trustees cannot seek payment from the trust unless authorised.
Expenses: Trustees can recover reasonable expenses from the trust, but not a ‘salary’ (s31).
Authorisation: Payment may be authorised by:
a) The Trust instrument; b) fully informed consent of all beneficiaries if they are adults; c) court order; or d) they are professionals and the other trustees consented in writing.
What is the duty not to purchase trust property?
Duty Not to Purchase Trust Property: Trustees must not buy from or sell to the trust.
(1) Self-Dealing: Trustees cannot purchase legal title to trust property outright, or sell property outright to the trust. This is never permitted, even if fair, unless authorised (ex p Lacey).
Rescission: Transaction voidable by beneficiaries within reasonable time.
Solution: Trustees could retire, and ensure no advantage is made, but retiring for purchase is a breach.
(2) Fair Dealing: Trustees cannot purchase a beneficial right in trust property, as undue influence is presumed.
Rescission: Transaction voidable by beneficiaries within a reasonable time.
Rebuttal: Undue influence may be rebutted if all material is disclosed, it is fair and honest, there is evidence of no advantage being taken, and the beneficiary sought independent judgement.
(3) Renewing Trust Lease: Trustees cannot renew leases or purchase property which previously belonged to the trust, even if the trust no longer wanted it (Keech v Sandford; Don King v Warren).
What are conflicts of interest for trustees?
Conflicts of Interest: Trustees cannot compete with the trust or trust business unless authorised.
(1) Account: Must account any profits made to the trust.
(2) Injunction: Beneficiaries may seek injunction to prohibit the competing business (Re Thomson).
