Trustees

Question 1

Appointment of Trustees

Describe the legislative power to appoint a trustee?

Answer 1

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.

Question 2

Appointment of Trustees

Describe the statutory basis for the Court appointing a trustee?

Answer 2

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.

Question 3

Retirement of Trustees

Describe the operation of the retirement of a trustee?

Answer 3

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.

Question 4

Removal of Trustees

Describe the three main ways to remove a trustee?

Answer 4

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.

Question 5

Removal of Trustees

Arnott v Arnott [1924]

Answer 5

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

Question 6

Removal of Trustees

Moore v McGlynn [1894]

Answer 6

• 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.

Question 7

Removal of Trustees

Spencer v Kinsella [1996

Answer 7

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

Question 8

Duties and Powers of Trustees

What is the rule for a trustee exercising discretion?

Answer 8

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.

Question 9

Duties and Powers of Trustees - Exercising Discretion

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

Answer 9

• 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

Question 10

Duties and Powers of Trustees - Exercising Discretion

Sieff v Fox [2005]

Answer 10

• 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]

Question 11

Duties and Powers of Trustees - Exercising Discretion

Pitt v Holt [2011] - Tax consequences case

Answer 11

• 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.

Question 12

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

General rule?

Answer 12

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

Question 13

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

Keech v Sandford [1726] - Renewed Lease

Answer 13

• 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.

Question 14

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

Answer 14

• 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.

Question 15

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

Answer 15

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

Question 16

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

Answer 16

• 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

Question 17

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?

Answer 17

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

Question 18

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

Answer 18

• 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

Question 19

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

Answer 19

• 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.

Question 20

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

Answer 20

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.

Question 21

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

Smyth v Smyth [1978]

Answer 21

• 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.

Question 22

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

Re Thompson [1930] - Yacht

Answer 22

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

Question 23

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

Answer 23

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

Question 24

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

Answer 24

• 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.

Question 25

# Duties and Powers of Trustees - Duty to Safeguard Assets of the Trust Re Brogden [1888]:

Answer 25

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:

Question 26

# Duties and Powers of Trustees - Duty to Safeguard Assets of the Trust Re Beddoe [1892] - What happens when you lose?

Answer 26

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.

Question 27

# Duties and Powers of Trustees - Duty to Safeguard Assets of the Trust Describe the Duty to Invest?

Answer 27

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.

Question 28

# Duties and Powers of Trustees - Scope of Power to Invest General rule?

Answer 28

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’

Question 29

# Duties and Powers of Trustees - Scope of Power to Invest Re Harrari Settlements Trust [1949]

Answer 29

- Held this term empowers trustees to invest in any investments they honestly thought were desirable.

Question 30

# Duties and Powers of Trustees - Scope of Power to Invest Statutory footing?

Answer 30

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.

Question 31

# Duties and Powers of Trustees - Standard of Care Learoyd v Whiteley [1886] - Prudent - Morally bound to provide

Answer 31

- 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.

Question 32

# Duties and Powers of Trustees - Standard of Care Bartlett v Barclays Bank Trust [1980] More flexible

Answer 32

- 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.

Question 33

# Duties and Powers of Trustees - Standard of Care Nestle v National Westminster Bank [1993]

Answer 33

- 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.

Question 34

# Duties and Powers of Trustees - Standard of Care Stacey v Branch [1995] IE - 14y caretaker - Confine to power - avoid hazards

Answer 34

- 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.

Question 35

# Duties and Powers of Trustees - Standard of Care What were the LRC recommendation in 2008?

Answer 35

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.

Question 36

# Duties and Powers of Trustees - Ethical Investments Cowan v Scargill [1985] Mining Pension

Answer 36

- 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.

Question 37

# Duties and Powers of Trustees - Ethical Investments Harries v Church Commissioners for England [1992]

Answer 37

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.

Question 38

# Duties and Powers of Trustees - Duty not to Delegate General rule?

Answer 38

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.

Question 39

# Duties and Powers of Trustees - Duty not to Delegate Speight v Gaunt [1883]

Answer 39

- 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.

Question 40

# Duties and Powers of Trustees - Willful Default Describe the operation of willful default

Answer 40

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.

Question 41

# Duties and Powers of Trustees - Power of Sale and Power to Issue Receipts Statutory basis?

Answer 41

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.

Question 42

# Duties and Powers of Trustees - Power of Maintenance Describe the operation of this power and its statutory bases?

Answer 42

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

Question 43

# Duties and Powers of Trustees - Power to Insure Describe power?

Answer 43

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.

Question 44

# Duties and Powers of Trustees - Remedies What are the remedies?

Answer 44

(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

Question 45

# Duties and Powers of Trustees - Liability Greene v Coady [2014]:

Answer 45

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

Question 46

# Duties and Powers of Trustees - Liability Bahin v Hughes [1886]

Answer 46

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.