MLL406 Lecture Notes - Lecture 7: Gestetner, Queensland Housing Commission, Sui Iuris
1 Jul 2018
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Topic 7: Duties of Trustees, Beneficiaries and Trustee Rights and Powers
•Fiduciary duties: to act in the best interests of the beneficiaries when exercising
fiduciary powers (act in good faith): Tempest v Lord Camoys [1766].
•Specific duties
•Equitable duty of care: to act in the best interests of the beneficiaries.
All trustees are fiduciaries but not all fiduciaries are trustees
•Trustees have fiduciary duties applied very strictly to them
•This is illustrated in Keech v Sandford (1726) 25 ER 223 (TB 32.1).
•Facts: Lease held on trust but lessor refused to renew the lease to the trust because
beneficiaries were infants and lessor was worried about their capacity to comply with
the terms of the lease. The trustee sought and was granted a renewal of the lease in
his own name.
•Held: Trustee held the new lease upon trust for the beneficiaries. LC King felt that it
was better that the lease be allowed to run out than to allow a trustee to have the lease.
•This was reinforced by Deane J in Chan v Zacharia (1984) 154 CLR 178 where his
Honour concluded that there is an ‘irrebuttable presumption’ that ‘any gain’ made by
a trustee during the course of carrying out his duties is the consequence of a breach.
Trustee Duties: Duty to act with Reasonable Prudence
•Trustee must act with reasonable care.
•This relates to the management of the trust property and the administration of the
trust.
•The nature of the duty will depend upon the character of the trustee
•Professional trustees holding themselves out as having a higher level of experience
(and perhaps negotiating remuneration for this will have a higher standard than
ordinary trustees
•Where the trustee is non-professional standard of care is that of an ‘ordinary prudence
business person who is morally bound to look after the interests of another.’ (Speight
v Gaunt(1883) 9 AC 1/Re Whiteley (1886) 33 Ch D 347)
•This duty applies to all trustees including trustees of a superannuation fund: Telstra
Super Pty Ltd v Finch [2009] VSCA 318 at [65]; Manglicmot v Commonwealth Bank
Officers Superannuation Corporation [2010] NSWSC 363 at [22] per Rein J
•A trustee must act with reasonable prudence when exercising a discretion bestowed
on them in the trust instrument or by statute.
•Discretion may be impugned where it is not exercised reasonably and with care eg
wantonly, irresponsibly, capriciously.
•This was reinforced by the High Court in Attorney-General Cth v Breckler (1999) 197
CLR 87 at [7]:
•Where a trustee exercises a discretion, it may be impugned on a number of different
bases such as that it was exercised in bad faith, arbitrarily, capriciously, wantonly,
irresponsibly, mischievously or irrelevantly to any sensible expectation of the settlor,
or without giving a real or genuine consideration to the exercise of the discretion.
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Real and genuine consideration and improper purpose:
•For a trustee to exercise real and genuine consideration, it must be established that the
trustee has given careful consideration to the power. This will not be satisfied where
the trustee merely follows the instructions of the settlor: Klug v Klug [1917].
•Where a trustee has a discretion conferred in the trust deed, the trustee must act in
accordance with their fiduciary obligations and exercise the power in good faith,
honestly, and with real and genuine consideration to the interests of the beneficiary.
•Where a trustee acts with regard to an improper purpose or without any regard to the
interests of the beneficiaries at all, the beneficiaries may apply to have the discretion
set aside.
•An improper purpose is a purpose that does not relate to the interests of the
beneficiaries in the particular trust.
•Real and genuine consideration is consideration which is honest and which has
actually been exercised. Where trustees simply follow the directions of others
(Turner) or do not turn their minds to the nature of the decision involved, they have
not given real and genuine consideration. Mere carelessness or a failure to consider
the precise interests of persons receiving in default of the power (Karger v Paul) does
not amount to a failure to take real and genuine consideration. Some re-evaluation of
the scope of this assessment may be necessary within the different contextual
circumstances of superannuation funds: Finch v Telstra Super Pty Ltd (2010) 242
CLR 254.
•Where the beneficiaries wish to bring an action alleging improper purpose or an
absence of real and genuine consideration, they can seek disclosure of documents
(even if they relate to the exercise of the discretion) if they can show reasonable cause
that such documents would assist their case.
Duty to avoid conflict of interest and account for any profit:
•Keech v Sandford - trustee precluded for applying for renewal of a lease for the
benefit of a child beneficiary
•Confirmed – Chan v Zacharia
•obtained or received
–in circumstances where the conflict or significant possibility of conflict existed
between fiduciary duty and personal interest in pursuing the benefit or gain
–by reason of his or her fiduciary position or opportunity or knowledge
resulting from it – and such gain must be held by the fiduciary for the benefit
of the beneficiary
Warman International v Dwyer
•Per the rule in Keech v Sandford, a trustee of a tenancy who obtains for himself the
renewal of a lease holds the lease as a constructive trustee, even though the landlord is
unwilling to grant it to the trust. But the rule ‘depends partly on the nature of leasehold
property’ and partly on the position which the trustee occupies. A similar approach will
be adopted in a case in which a fiduciary acquires for himself a specific asset which
falls within the scope and ambit of his fiduciary responsibilities, even if the asset is
acquired by means of the skill and expertise of the fiduciary, and would not otherwise
have been available to the person to whom the fiduciary duty is owed.
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Williams v Barton
•Earned a salary of half the commission
•recommended his firm to value the testator’s securities
•remuneration was earned as a result of his trusteeship
•profit held on constructive trust for the estate
Duty to carry out terms of the trust:
•Co-trustees have separate duties
•Any breach – all liable
•No defiant majority
•“to protect the interests of beneficiaries by ensuring that all relevant decisions are
made jointly by trustees each being properly informed as to all the relevant matters.”
(George v McDonald [1992])
•More than 1 trustee: Trust property held in name of all trustees
•No delegation – personally responsible to ensure property under control of one
or all trustees
•Title documents – may be held by one of several; or, lodged for safekeeping
•Documents deposited eg bank: Trustee Act 1958 (Vic) s 25
•Provide accounts & permit inspection: Waterhouse v Waterhouse (1998) 46 NSWLR
449
Duty to act in the interests of beneficiaries:
•‘Best interest’ depends on the range and character of beneficiaries
•Financial interest: Cowan v Scargill
•values, beliefs and principles
•conflict between the express terms of the trust and the commercial interest and well-
being of the beneficiaries’ duty and discretion.
Edge v Pension Ombudsman
•Pension scheme depended on the continued contributions of active members
•should surplus be decreased by increasing benefits to members, or seeking decreased
contributions?
•best interests of beneficiaries may be to act against their social beliefs.
•Chadwick LJ
•The task of trustees is to maintain a balance between assets and liabilities valued on
that actuarial basis; so that so far as the future can be foreseen, they will be in a position
to provide pensions and other benefits in accordance with the rules throughout the life
of the scheme. The task is to be performed by setting appropriate levels for employers’
and members contributions. If that task could be performed with perfect foresight there
would be no surpluses and no deficits. But because the task has to be performed in the
real world, surpluses and deficits are bound to arise from time to time and prudent
trustees will aim to ensure that the likelihood of surplus outweighs the risk of deficit.
Nevertheless it is no part of the trustees’ function, in a fund of this nature, to set levels
for contributions which will generate surpluses beyond those properly required as a
reserve against contingencies.
Buttle v Saunders
•Best interest – although dishonourable – to gazump the first offer with the second
•Approved in Mills v Sheehan
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Document Summary
Topic 7: duties of trustees, beneficiaries and trustee rights and powers: fiduciary duties: to act in the best interests of the beneficiaries when exercising fiduciary powers (act in good faith): tempest v lord camoys [1766]. Specific duties: equitable duty of care: to act in the best interests of the beneficiaries. The trustee sought and was granted a renewal of the lease in his own name: held: trustee held the new lease upon trust for the beneficiaries. Honour concluded that there is an irrebuttable presumption" that any gain" made by a trustee during the course of carrying out his duties is the consequence of a breach. Super pty ltd v finch [2009] vsca 318 at [65]; manglicmot v commonwealth bank. For a trustee to exercise real and genuine consideration, it must be established that the trustee has given careful consideration to the power.
