A more recent version of these Trustee Duties notes – written by Cambridge/Bpp/College Of Law students – is available here.
The following is a more accessble plain text extract of the PDF sample above, taken from our GDL Equity and Trusts Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:
Equity & Trusts : Trustee Duties Intro: Duties of Trustees
?????To Familiarise themselves with the trust.
?????Safeguard Trust assets
?????Investment: o Proactive duty to invest the property. o Beneficiaries can sue for the money you would have made as a reasonable prudent person of interest. o Trustee duties are strict liability: doesn't matter why the loss has occurred.
?????Duty to distribute the trust property according to the trust.
?????Equality between beneficiaries:
?????Provide accounts and information
?????Duty of IMPARTIALITY: o Balance between beneficiaries. o Interests of different classes of beneficiaries. o Re Smith (1971).
o Carver v Duncan (1985) o Trustees don't have to pay for anything themselves. Any expenses incurred---either take money out of the trust and use that; or pay for it yourself and get reimbursed later. o Basic rule:
? any recurring costs/ongoing expenses, tend to be paid out of income.
? Anything that affects the trust capital itself, tend to be paid out of capital. o But depends on facts of each case:
?????Remuneration--Can trustees charge for their services o NO---Barnett v Hartley. o Unless:
? (1) Beneficiaries consent: but must get consent from every beneficiary, otherwise won't have total immunity.
? (2) a Charging clause inserted into the trust instrument; which can basically say anything.
? (3) Professional trustees---ss28-29 TA 2000
? (4) Court authorises: court gives express authorisation.
?????Re Duke of Norfolk: held that court has power to change/modify a charging clause; and to insert one, if it is not present. But completely discretionary. o Nor can trustees take a commission -Williams v Barton
Eg a finder's fee or commission---this is treated as trust property.
To whom are duties owed?
?????Owed to settlor?
?????To settlor's estate?
?????To the court?
?????Answer: BENEFICIARIES: trustee---beneficiary. The only people bound up by trustee duties. Everybody else is completely irrelevant. You might owe them fidicuairy duties. But trustee duties only to beneficiaries.
? ?? ? David Hayton: Irreducible Core Content of Trusteeship
* "Thus, while there is a strong contract-like basis for gratuitous family trusts to be regarded as 'deals' made with trustees for the benefit of the beneficiaries, any provisions apparently reducing the deal, instead, to one for the benefit of the trustees or of the settlor (or protector), entitled in default of the trustees exercising inherently revocable powers in favour of objects specified by the settlor, must either be struck out as inconsistent with, or repugnant to, the original deal for the benefit of the beneficiaries or be implemented as the real deal."
* Millet LJ in Armitage v Nurse---basically summing up what Hayton is saying above:
* 'If the beneficiaries have no rights enforceable against the trustees, there are no trusts'.
* i.e. two way street---trustees owe duties to beneficiaries; beneficiaries have rights they can enforce against trustees. Distributive duties
? Distribute income and capital according to terms of the trust
? Administrative managerial: Safeguard and develop the value of the trust fund according to the terms of the trust Duty to follow the trust
? Eaves v Hickson, per Sir John Romilly: There had been a fraud. 'I am of opinion, that it falls on the person who paid the money. Here the loss falls on the trustees, and the persons to whom the fund really belongs are not to be deprived of it. The trustee is bound to pay the trust fund to the right person."
? Strict liability---doesn't matter if an honest mistake or not. No self-dealing rule [[see also 'fiduciary duties']]
? Tito v Waddell (No 2)
? Eg piece of land, part of trust fund, trustee wants to buy it for himself. 2
Cannot do this---this is self-dealing. Why not? Conflict of interest: the trustee would be acting as both buyer and seller---and obviously seller wants higher price, buyer wants lower price. If self-dealing is discovered, the transaction is voidable (not void) by beneficiaries---i.e. the beneficiaries can accept it, or they can void the sale and the property returns to the trust fund. Voidable even if a fair value is paid. More problematic case---when trustee doesn't sell the property to themselves, but to a company in which they are a shareholder: o If trustee is a majority shareholder: Then this = selfdealing, sale voidable by beneficiaries (Re Thompson's ST ).
? If majority shareholder, three exceptions to no self-dealing rule:
? (1) Holder v Holder, authorized self-dealing.
? (2) B gives consent
? (3) authorized by trust instrument. o If trustee is a minority shareholder: then MAYBE (Farrar v Farrar).
? Not necessarily voidable.
? Onus on company to show 'fair value'---whoever buys the property, has to demonstrate that reasonable steps were taken to pay a fair price for the property. If reasonable steps taken; and fair price paid---then the sale is not voidable
? Eg, if you have a house---have it valued by estate agents, maybe 2 or 3. You would get a minimum and maximum valuation. A fair price would be anything in between the minimum and maximum valuation. Authorised self-dealing: o Holder v Holder, 'very special circumstances', no breach of trust because:
? The land was purchased at auction.
? The beneficiary was fully aware that the trustee wanted to buy the land, but was actually pushing the sale through.
? The trustee was one of only 3 executors.
? And the trustee had retired to only perform minor acts.
? Taken together, court held: in these circumstances, the self-dealing is not a breach of trust, even though it's technically self-dealing.
Fair Dealing [see also 'fiduciary duties']
?????Tito v Waddell (No 2)
?????This is all about the beneficial interest.
3 ?????Beneficiary decides they want to sell beneficial interest to the trustee (different to self-dealing). No conflict: as buyer and seller are different people.
?????Can be set aside: only set aside if unfair---onus on trustee to show beneficiary was (1) fully informed; and (2) fair price paid for their interest. Obtaining Directorships using Trust Shares/Director's fees [[see also fiduciary duties]]
??? ?Trustees often try and become directors of company under trust.
??? ?Do trustees who are directors get to keep income earned as director?
??? ?It's all about how you become a director , whether trust property is used for you to be come director.
? ?? ? Re Macadam: If you use the trust share votes to appoint yourself as director ? you cannot keep Director's fees, because they've only come about by using trust property. Those fees absorbed into trust fund.
? ?? ? Re Gee: If no connected between the trust shareholder and the election to directorship (appointed by other shareholder) ? trustee can keep fees earnerd as Director.
? ?? ? Dover Coalfield: if already a director before the trust is made, then you can keep fees.
Controlling Shareholding Duties--Where trustee is majority shareholder
??? ?Where trust fund includes a majority shareholding ('controlling shareholding') in a company---trustees have a potentially more onerous duty since they have the means to control the company.
??? ?Such trustees should not simply content themselves with the information about the company available to minority shareholders.
? ?? ? Re Lucking's WT (1968) o Trustee, became director of a company. o Brightman J in Bartlett, quoting Cross J in Re Lucking's: o 'A reasonably prudent man . . . may be prepared to run the business himself as managing director . . . Alternatively, he may find someone who will act as his nominee on the board and report to him from time to time as to the company's affairs . . . o "...trustees holding a controlling interest ought to ensure so far as they can that they have such information as to the progress of the company's affairs as directors would have. If they sit back... they do so at their risk if things go wrong" 4
o So if you are trustee, and you have a majority shareholding in the company that is trust property---
you should a director, or appoint an agent as director, so you can keep watch over control of trust property.
? ?? ? Bartlett v Barclays Bank (1980) o Slight modification to Re Lucking's: it's about access to info. o Trustees should ensure they (or one of their number) 'receive an adequate flow of information in time to enable the trustees to make use of their controlling interest should this be necessary for the protection of their trust asset, namely the shareholding'. o There are alternative methods, aside from becoming of Director, of achieving an 'adequate flow of information': Brightman J: o Other methods might include, depending on the circumstances: 'the receipt of copies of the agenda and minutes of board meetings if regularly held, the receipt of monthly management accounts in the case of a trading concern, or quarterly reports. Every case depends on its facts. The possibilities are endless" o So it's about the trustee having access to information
?????Way of finding causal link for liability to account described by Brightman J in Bartlett: o Key thing. If you are trustee, you are supposed to treat the trust property as a prudent person of business would, as if it were your own money. o In Barlett: the trustees become directors. They start to monitor what's happening in the company. Company decides it wants to buy land, develop it, and sell it on. o They built a sight, developed it, and sold it for a profit. o Then they went for a more complicated sight (Old Bailey sight)
---no prudent person of business would have gone down this route---they didn't do any diligence, eg investigation whether could get planning permission, seismic surveys, cost of developing etc. o Brightman J gave a test for liability re asset management of majority shareholdings:
? (1) What was T's duty?
? (2) was T in breach of the duty? (in this case, YESthey put themselves in the position, knew what was happening, but chose not to intervene or ask questions. It's not the fact it's high risk---the problem is no prudent person of business wouldn't have made enquiries.
? (3) If so, Did the breach cause the loss?
? (4) If so, to what extent is Trustee liable to make good the loss?
5 Trustee Acts
?????Note special rules for charitable trusts and pension funds ? not on GDL.
?????Trustee Act 1925: contains many of the fundamental rules re trustees and administration. Some changes in more recent legislation---Trusts of Land and Appointment of Trustees Act 1996; Trustee Delegation Act 1999; Trustee Act 2000.
?????Trustee Act 2000; changes to trustees' powers and duties, implementing Law Commission report Trustees' Powers and Duties (1999). Came into form 1 Feb 2001.
Appointment and removal of trustees???
Factors to consider: (1) Capacity to be a trustee (2) Number of trustees required (3) Appointment of trustees (4) Retirement and removal of trustees. NB: not always necessary to deal with all these matters in the trust instrument, as provisions of Trustee Act 1925 are often adequate.
?????(1) Capacity to be a trustee o In principle---anyone who has capacity to hold the property can be a trustee. o Minor does not have capacity to hold a legal estate in land, so cannot be trustee of land. o A minor cannot be appointed a trustee of personal property - LPA 1925, s20: 'the appointment of an infant to be trustee in relation to any settlement shall be void, but without prejudice to the power to appoint a new trustee to fill the vacancy.
?????(2) Number of trustees o Maximum:
? Trust of personalty, no restriction: no restriction on number of initial trustees.
? Trust of land, maximum 4 (Trustee Act 1925 s34): if more than 4 are appointed, the first four named, who are able and willing, will act as trustees. o Minimum:
? Generally only 1 needed.
? 2 trustees needed to give a good receipt for capital money arising from land, unless the sole trustee is a trust corporation [[ LPA 27(2); Trustee Act 1925 s14(2); Settled Land Act 1925 ss18(1), 94, 95]].
6 'Trust corporations' include the Public Trustee, Treasury Solicitor, Official Solicitor, and corporations constituted under UK law or law of EU Member State, having a place of business in the UK, and empowered to carry on trust business and having an issued capital of at least PS250,000---of which at least
PS100,000 has been paid up in cash.
? So corporations incorporated outside EU; or not having a place of business in UK---cannot be trust corporations. o No requirement to maintain same number of trustees throughout a trust's existence.
?????(3) Appointment of Trustees
?????First trustees: o Usually appointed by the trust instrument. o Inter vivos trusts ? trustees generally are parties to the deed, which vest the trust property in them. (often only a small amount of money is transferred to trustees initially, with significant property transferred at later date). o If no trustees are appointed, or non alive and able and willing to act: then trustees will be appointed by the person, if any, nominated in the trust instrument as having power to appoint trustees. o If all else fails, application can be made to the courts for appointment of trustees, under (a) Trustee Act 1925 s41; (b) the court's inherent jurisdiction; or (c) Judicial Trustees Act 1896. o A person cannot become an express trustee unless they have notice of the trust and have expressly or impliedly accepted the office of trustee (Robinson v Pett (1734). o Testamentary trust: A person appointed both as executor and trustee can renounce the executorship and take up the trusteeship, or vice versa. o A person can disclaim a trusteeship before acceptance, but not after (Re Sharman's WT (1942)---there can be no partial disclaimer.
?????Additional Trustees (s36) o Additional trustees may be appointed if desired (Trustee Act 1925, s36(6): may be done by the person (if any) nominated in the trust instrument with power to appoint; or if no one nominated, the existing trustee(s) may do so, provided the number of trustees is not > 4.
?????Replacement trustees (s36) o Trustee Act 1925 s36(1): replacement trustees may be appointed by the person (if any) nominated in the trust instrument with power to appoint trustees. o In default, the continuing trustee(s), or personal representative of last surviving trustee, may appoint a7
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