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Law Notes Trusts and Equity Notes

Administrative Powers Of Trustees Notes

Updated Administrative Powers Of Trustees Notes

Trusts and Equity Notes

Trusts and Equity

Approximately 1016 pages

Equity notes fully updated for recent exams at Oxford and Cambridge. These notes cover all the LLB trusts cases and so are perfect for anyone doing an LLB in the UK or a great supplement for those doing LLBs abroad, whether that be in Ireland, Hong Kong or Malaysia (University of London).

These were the best Equity and Trusts Law notes the director of Oxbridge Notes (an Oxford law graduate) could find after combing through dozens of LLB samples from outstanding law students with the highes...

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Equity 4 Trustees Administrative Powers of Abbreviations: C Claimant D Defendant T Trustee S Settlor B Beneficiary PoA Power of Appointment ADMINISTRATIVE POWERS OF TRUSTEES INTRODUCTION In the context of land law constructive trusts, the trusts are often static - trust property remains unchanging; meant to allow enjoyment of the specific property. But modern day trust funds are very different! They are changing body of assets which are often heterogenous (eg. Company shares) - meant to allow purchase/sales, so as to generate income - overreaching particularly relevant. One must understand the interplay between law and equity, in defining "powers" of a trustee. in the strict legal sense, a power is something which enables T to do an act he would otherwise not be entitled to, at law. Hence, by virtue of legal title being vested in T, T has power to manage/use/alienate asset. These powers depend on T being the legal owner (common law powers!) but in the equitable sense, we are talking about powers as immunities. Eg. A clause conferring administrative powers of investment does not confer further legal powers, but rather, act as defences for T against equitable claims by B (usually). It is this sense of "powers" which elevates the trust beyond being a static one. Default position: at CL, Ts' powers authorise him to do what he wants, prima facie, since he is legal owner. Ts' equitable obligations reverses this, so that in equity, all assets are to be maintained in specie. But this default rule can be overcome, otherwise all cases of trusts will be static. Pickering v Pickering, 1839: question whether executors breached duties (same as those of trustees) court focused on whether executors had duty to sell perishable property and use proceeds to invest in something more secure. Bs argued Ts' duty was to hold specific assets, for Bs'; enjoyment in specie. Ts' argument was that default position - T can't deal with trust assets in manner which they do not have express authorisation to do so - had been overcome. Ts failed and Bs won! Cf Lowson v Copeland, 1787: here, argument was accepted by the court. Asset was more precarious here - debt owed to executor. Executor failed to collect - breach of trust or not? If default position applied, then assets were to be kept in specie (debt to be maintained), hence no breach. BUT courts held that on these facts, Ts had duty to rid themselves of precarious assets, rather than keep it. Hence, failing which, executor had to pay into estate amount of debt he failed to collect. Categorisation of powers: * Distinction between administrative and dispositive powers. * Dispositive powers: gives Ts power + discretion. "The Trustees shall stand possessed of the Trust Fund and the income thereof upon trust for all or such one or more exclusively of the others of the members of the Specified Class (discretionary trust!) if more than one in such shares and either absolutely or at such age or time or respective ages or times upon and with such limitations conditions 1 Equity 4 Trustees Administrative Powers of and restrictions and such trusts and powers ... and with such provisions ... and generally in such manner as the Trustees (being not less than two in number or being a corporate trustee) shall in their absolute discretion from time to time by any deed or deeds revocable or irrevocable appoint."- *"appoint" indicates that the power is "dispositive", since it involves of disposing property. This can be done in 2 ways. Either T transfers property absolutely to object of trust (making object absolute legal and beneficial owner), or T declares a new trust. Powers and duties, on the other hand, are usually around the same. But differences manifest in a discretionary trust. A discretionary trust requires T to administer property in favour of particular class of objects, hence is mandatory in this aspect (duty). But within that class, T has power (discretion) as to how to distribute. in practice, the difference is less significant. Sources of Powers and Duties 1. Terms of the trust: Terms might require T to sell certain assets (duty), coupled with power to postpone sale awaiting favourable market conditions [Langbein, "The Contractarian Basis of the Law of Trusts", 1995]: notion that there is great flexibility in what can be done through trust terms, in creating new duties/powers. Can be equated to freedom of contract. Maitland: points out that trusts are specifically enforceable, just as contracts sometimes are. Can bring about similar consequences, but different rules determining when courts will order specific performance. Much easier/practically guaranteed to get specific performance for trusts. parties can create wide range of powers/duties, knowing they will probably be enforceable. 2. General law trustee powers Example of judge made law! Re Patten & Edmonton Union, 1883: if T makes unauthorised investment, law gives T power to then sell that investment to get back PS and refund the trust. There are also some general law powers originating from statute 3. General law trustee duties Eg: (equitable) duty of care and skill; fiduciary duties (very onerous!); duty of good faith A) Duties which arise upon appointment * ** *- * *1. Duty to become acquainted with trust documents Requires T to learn terms of the trust, and examine other docs on the state of the trust (eg. If the trust asset is a lease, look at deed) Hallows v Lloyd, 1888: Mrs H was beneficiary, who then entered into marriage settlement. Granted charge over beneficial interest from pre-existing trust. B was chargee. At time of transactions, there was single T, who then retired and 2 new Ts appointed. New Ts knew about charge, and tried to repay some of it. H argued this was breach of trust, saying that marriage settlement required Ts to keep money on trust for her. courts disagreed - Ts not liable to repay amount cos they had no notice of marriage settlement duty to enquire what trust terms were/what affected trust, BUT no duty to find marriage settlement. Further, nothing to indicate existence of the trust terms. Flip side of this is illustrated in Turner v Turner, 1984: where Ts did not know of power, can't validly purport to make appointment of property in pursuance of exercising that power. 2. Duty to take steps to 'get in' trust property T must obtain, safeguard and protect trust property. physical assets: Ts must be in physical possession. intangible assets: for shares, Ts must become registered on company register so others know; for debts, T must get assignment of debt from previous creditor and give notice to debtor. Choithram: if trust has more multiple Ts, each owes duty to acquire joint title of assets. NOT strict liability! Rather, duty to take care and use skill to get in the property, as far as possible. might be impossible, like where debtor is insolvent. 2 Equity 4 Administrative Powers of Trustees - T will incur liability only if T is at fault. Re Brogan, 1886: T was under duty to collect debts. T had been urged to do so, but instead did other stuff falling short - brought proceedings against debtors (though not in respect of any particular debt). Hence, a specific debt became irrecoverable and debtor became insolvent. CA held T was liable - at fault! Failed to show due diligence. Had to repay amount of debt. **- * 3. Duty to sue for prior breaches of trust Basically where breaches were committed by their predecessors/other existing Ts. depends on the facts, whether T knows others have breached the trust. Even if T doesn't know, T might have notice to put him on inquiry. In re Strahan, 1856: there was covenant to receive money and hold it on trust, before subsequently paying it to proper Ts. New T appointed, and knew old Ts had received PS from covenantors, and had paid it properly into trust fund. But new T didn't know that old Ts had received some PS which they hadn't paid in properly. Was he liable for failing to sue old Ts? NOPE! didn't know of predecessors' breach, and no reason to know. no liability for failing to make enquiries where there is nothing to put new T on notice. New T otherwise entitled to assume everything was duly done up to time of his appointment. Hence, there are limits to the duty. It is not strict liability! B) General duties for administration of the trust * *- *** 1. Duty to comply strictly with the trust terms Equity places particular weight on the settlor's autonomy - must uphold settlor's wishes; T not allowed to do whatever he likes. Hence, specific performance is the norm here. Fry v Fry, 1859: testamentary trust where Ts were to sell some freehold land "so soon as convenient after [testator] is deceased". After his death, Ts tried to sell land, but refused an offer from prospective purchaser as there was depreciation of value at that time due to railways being built nearby. Bs sued for loss to trust fund, alleging neglect by Ts to sell inn as trust terms required. court agreed! Held Ts strictly to their duty, as laid out in the detailed terms of the trust. liable to compensate for difference btw actual value at time of trial, and offer received. Hence, liability is strict, albeit in a slightly different sense - applies only once and if Ts know trust terms. Still requires some element of fault! but once there is knowledge, if T has power to pay money at particular time, to do so slightly earlier will still be breach of trust (though might not cause loss). 2. Duty to keep accounts Eglin v Sanderson, 1862: "it is the duty of executors to keep proper accounts, and to have those accounts ready for inspection and examination". duty to provide accounts holds even outside courtroom - litigation not necessary prerequisite. Similar duty required of trustees. 3. Duty to use care, skill and diligence *- * *- What standard of care? In re Speight, 1883: standard is that of an ordinary prudent man conducting his own business quite a low level, but because of fiduciary relationship... cf Learoyd v Whiteley, 1887: duty is to take such care as an ordinary prudent man would, if he were to make investments for the benefit of other persons for whom he felt morally bound to provide . Special characteristics? NOPE - Learoyd v Whiteley (hence, different from tort. Completely objective) Clough v Bond, 1838: S appointed 2 Ts as executors of her will, issuing letters of administration. But T1 was married, and under law at that time, her husband could act on her behalf. Though H acted for her, T1 failed to discharge remaining obligation to ensure that bank accounts became vested in her name (and name of her co-trustee). Instead, was vested in husband's and co-trustee's name. Husband died, co-trustee ran off. court held T1 was liable. depreciation of trust asset, in itself, does not incur liability for T. But once there is a breach, every loss that follows will incur liability, regardless of likelihood/foreseeability. Also, irrelevant that T1 was not acting under improper motives. 3 Equity 4 Trustees * Administrative Powers of 4. Duty to be properly informed Scott v National Trust for Places of Historic Interest or Natural Beauty, 1998: Ts must inform themselves of relevant matters, before making decision. Might have to seek advice from experts, but cannot abrogate one's duties/delegate exercise of discretion to experts. 5. Notifying beneficiaries/disclosure of trust information A) Beneficiaries' rights * While Ts have duty to account, they do not have duties to provide info about basis of their discretionary decisions. How about advice obtained by Ts in performing duties? And other documents? * There are 2 applicable sets of rules: inside vs outside civil procedure. Focus will be on latter. Outside civil procedure... * Armitage v Nurse, 1998: Millet J highlighted the irreducible core of obligations owed by Ts to Bs, with enforcement by Bs being fundamental to the concept of a trust. To give substance to this, a sui juris B has the right to be told that he is a beneficiary T owes duty to take reasonable steps to notify B. * Schmidt v Rosewood Trust, 2003: Lord Walker stressed there is no bright-line distinction between Bs under discretionary trust, vs objects of discretionary PoA, for the purposes of disclosure. - -this applies to notification too! - -hence, will not depend on proprietary interest, but rather, strength of C's claim, which is a qn of fact and degree in all the circumstances. * B has right to inspect accounts (exercised at reasonable intervals); Ts owe duty to keep proper accounts! This extends to every B, whether B's interest is in possession or not. Even if B only holds future interest (eg. B is a likely object of discretionary trust/power which may never be exercised in his favour), B still has way to discover breach of a trust which B can then redress. * But the above absolute right does NOT extend to other trust documents. Re Londonderry's Settlement, 1965: CA distinguished between 1) trust accounts, 2) other "trust documents", and 3) that which were not "trust documents" hence were not available for inspection. note Bs had argued on basis of proprietary right theory. Salmon LJ expressly adopted this, but Danckwerts and Harmon LJ declined to adopt it. Documents on the exercise of discretion (correspondence between Ts themselves/between Ts and Bs/agenda for Ts' meetings) fell within (3) and did NOT have to be revealed. Otherwise, Ts' right not to be obliged to give reasons for exercise of their discretionary distributive functions would be undermined! This sort of trusteeship is confidential, as intended by settlor. in Bs' interests that they shouldn't be allowed access too! cannot specify in advance particular categories of documents which will always be accessible. But clear that access isn't to be matter for courts' discretion either - either confidential or not! Objective assessment. Cf Schmidt v Rosewood Trust: appears to now be futile to try to distinguish (3) from "trust documents", since the court can order T to give C access to everything relating to trusteeship functions, when acting in its inherent equitable jurisdiction to supervise, and if appropriate to intervene in, the administration of trusts. Right to seek disclosure is an aspect of court's inherent jurisdiction to supervise. hence, today, once C has shown he has more than a theoretical possibility of benefiting, court will probably order disclosure (regardless of whether its a trust doc). But if there are issues of personal/commercial confidentiality, court will balance competing interests; may limit disclosure! but note Bs and objects still are NOT entitled to Ts' reasons for exercise of discretion. In Londonderry, once doc was considered to be not confidential, B was to have access. But now, emphasis on court's discretion, not indiv's entitlement (rejected proprietary theory that was adopted by Salmon LJ in Re Londonderry)IMPLICATIONS: I. Does Schmidt only apply to discretionary trusts, or to fixed trusts too? 4

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