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- Topic 8 - Trustees Powers
Topic 8 - Trustees Powers
- By Student at Law
- Published 29/05/2007
- Sydney Uni 2005-2006
- Unrated
(A) The Duties Rights and Powers of Trustees
• Mostly arise in context of express trust.
• Trustees have powers due to the holding of property.
Distinguish between a power and a duty
• Power allows for the exercise of discretion. When someone who has power to exercise discretion, there are principles to decide whether made the correct decision.
• Powers must be used “bona fide” and for a proper purpose
• Exercise of a power is reviewable (cf administrative law principles). A judge will not usurp the administrative decision. Judicial review is about errors on the face of the record; has the decision maker taken into account irrelevant considerations, have they used the power for improper purpose, have they made a decision that no reasonable decision maker could have made. Judges will not make a new decision on the merits, only look at the process of decision making to decide whether the trustee used their discretion properly. This will be based on procedural rather than substantive tests.
Re Beloved Wilkes’ Charity
Facts: Churchmen charged with the choice of a young man for religious training, with preference to be given to candidates from a particular parish. They decided there were no appropriate candidates from the preferred parish, and chose someone from outside the parish.
Held: It was within the trustees’ power to choose someone outside the preferential clause, and there was nothing to show that they went outside the powers provided. Churchmen did not reveal any reasons for their decision and didn’t say anything. Had they set out reasons, they would have left the possibility that someone would read the record and find some bias or something to challenge the decisions. Court will not substitute its own judgment. Trustee does not have to provide reasons or records of their deliberations.
Duty to obey the terms of the trust
• With the trust powers, trustees acquire a set of duties set out in the trust.
Youyang Pty Ltd v Minter Ellison
Facts: Firm of solicitors held money on trust for a client, Y, to enable them to complete a transaction for the client on certain terms. Transaction didn’t go in accordance with the terms of the trust and Minter Ellison had to pay back 500K that they paid out.
Did Y lose that much money because of Minter’s mistake? Minter argued the loss was not due to their mistake but the fact that the decision to enter into the arrangement was bad and it was a dud transaction.
Held: Minter’s argument was not considered. Minter had to reconstitute the trust fund and pay back the money they had paid out. The firm had a duty to obey the terms of the trust. Trustees’ responsibilities are strict, and they couldn’t pay out the money from the trust unless they followed the requirements.
Can a trustee ever deviate from the terms of a trust?
Chapman v Chapman
Facts: not relevant
Ct identified 4 categories of cases where trustee may deviate from the terms of the trust.
1. To make allocations to infant beneficiaries
2. To deal with unforeseen difficulties (e.g. postpone a sale to save taking a loss i.e. it would benefit the beneficiaries)
3. To provide maintenance for needy beneficiaries. (e.g. beneficiary can’t get inheritance until 30 but they starve before 30 and die, they need the money)
4. To compromise or settle disputes between beneficiary claimants (without fear of allegations of breach of trust) - there is a presumption that reasonable settlements will not be disturbed by the courts, provided that both parties new what they were doing.
Duty to keep accounts and inform beneficiaries
Hartigan Nominees v Ridge
Facts: Media magnate (Sir Norman) owned lots of trade magazines had a family trust with money that could be transferred every year. He provided memorandum of wishes to trustees telling them how to exercise their discretions. He didn’t mention a particular person in the memo. Person wanted this memo revealed. Sir Norman
did not want the document revealed.
Issue: This matter concerned an assertion that a trustee had a “duty” to reveal a memorandum from the settlor guiding the trustee’s discretion in a discretionary trust.
Held: Trustees don’t have to reveal reasons for making choices and any documents they do create about the use of their powers need not be disclosed to beneficiaries on request as a matter of trust law. Held that the memorandum of wishes was the property of the trustees and not a “trust document”. Hence it did not have to be revealed to the beneficiaries.
Re Londonderry’s Settlement
Facts: Defendant was an income beneficiary under a settlement where trustees had power to appoint shares. She wanted documents including (a) minutes of meetings between trustees, (b) agenda prepared for trustees’ consideration and (c) correspondence relating to administration of trust.
Held: Trust documents are the property in equity of the beneficiaries and the beneficiaries have the rights of inspection, BUT trustees are not obliged to reveal reasons for their decisions. Here the trustees were not obliged to reveal documents (a) and (b) as they did not contain information that the beneficiaries were entitled to know. In category (c) correspondence between trustees themselves and between trustees and beneficiaries did have to be disclosed. BUT letters from trustees’ solicitors to trustees were deemed “trust documents” in which beneficiaries had a proprietary right.
Duties to exercise care
Trustees must often make investment decisions. When they make investment decisions, what standard of skill and competence is required of them? What matters must they consider in making their choices?
Re Speight; Speight v Gaunt
Facts: The trustees put a broker in charge of the investments which broker did not successfully manage and there were losses suffered as a result. In this case, there was an attempt to hold a trustee liable for losses caused by the failure of a broker to make investments.
Held: Standard of care for trustees exercising investment powers is “to conduct the affairs of the trust as the ordinary prudent man of business would conduct his own”. The Court said that if the trustees would have put the funds with the broker (as ordinary prudent men) then there is no case to answer. Trustees did not owe a duty of strict liability, they did not provide a guarantee against the loss of the trust fund. Court favoured the side of the “honest trustee” and was reluctant to fix the trustee with any liability on the contract.
What matters can trustee take into account?
Trustee cannot bring in their own ethical considerations.
Cowan v Scargill
Facts: Coal mine union-appointed trustees refused to invest in oil and overseas investments, so as to protect their own industry and avoided investment in foreign countries such as South Africa, with whom they had political diagreements. The pension fund was for coal miners and was for the provision of financial benefit.
Held: Under a trust for the provision of financial benefits, the paramount duty of trustees the trustee must act in the financial best interests of beneficiaries. Trustees were in breach of their duties under the trust because the decision-making wasn’t guided by profitable investment and was guided by irrelevant considerations.
Harries
Large trust fund holding church property. Provided pensions for clergy and income for church. Trustees wanted to maximize the investment for the church. Much better for the investment to be used for the needs of others. They tried to put pressure on the trustees to use the money to do good, feed homeless etc. The ‘do gooders’ lost.
Harries v Church Comrs for England
Facts: Church faction attempt to force trustees (for a trust holding a large amount of property) to invest in charitable projects (such as housing for the homeless) instead of high yield investments, as this is what they thought Jesus advised in the Bible. The trust was to pay for outgoings for the church and pensions for the clergy, etc. Trustees stipulated that the money had to be used to benefit the financial best interests of the church, this was ethical business practice.
Held: It was held that the trust property was to be invested to ensure the financial best interests of the beneficiaries were realised. The Church faction lost.
• Mostly arise in context of express trust.
• Trustees have powers due to the holding of property.
Distinguish between a power and a duty
• Power allows for the exercise of discretion. When someone who has power to exercise discretion, there are principles to decide whether made the correct decision.
• Powers must be used “bona fide” and for a proper purpose
• Exercise of a power is reviewable (cf administrative law principles). A judge will not usurp the administrative decision. Judicial review is about errors on the face of the record; has the decision maker taken into account irrelevant considerations, have they used the power for improper purpose, have they made a decision that no reasonable decision maker could have made. Judges will not make a new decision on the merits, only look at the process of decision making to decide whether the trustee used their discretion properly. This will be based on procedural rather than substantive tests.
Re Beloved Wilkes’ Charity
Facts: Churchmen charged with the choice of a young man for religious training, with preference to be given to candidates from a particular parish. They decided there were no appropriate candidates from the preferred parish, and chose someone from outside the parish.
Held: It was within the trustees’ power to choose someone outside the preferential clause, and there was nothing to show that they went outside the powers provided. Churchmen did not reveal any reasons for their decision and didn’t say anything. Had they set out reasons, they would have left the possibility that someone would read the record and find some bias or something to challenge the decisions. Court will not substitute its own judgment. Trustee does not have to provide reasons or records of their deliberations.
Duty to obey the terms of the trust
• With the trust powers, trustees acquire a set of duties set out in the trust.
Youyang Pty Ltd v Minter Ellison
Facts: Firm of solicitors held money on trust for a client, Y, to enable them to complete a transaction for the client on certain terms. Transaction didn’t go in accordance with the terms of the trust and Minter Ellison had to pay back 500K that they paid out.
Did Y lose that much money because of Minter’s mistake? Minter argued the loss was not due to their mistake but the fact that the decision to enter into the arrangement was bad and it was a dud transaction.
Held: Minter’s argument was not considered. Minter had to reconstitute the trust fund and pay back the money they had paid out. The firm had a duty to obey the terms of the trust. Trustees’ responsibilities are strict, and they couldn’t pay out the money from the trust unless they followed the requirements.
Can a trustee ever deviate from the terms of a trust?
Chapman v Chapman
Facts: not relevant
Ct identified 4 categories of cases where trustee may deviate from the terms of the trust.
1. To make allocations to infant beneficiaries
2. To deal with unforeseen difficulties (e.g. postpone a sale to save taking a loss i.e. it would benefit the beneficiaries)
3. To provide maintenance for needy beneficiaries. (e.g. beneficiary can’t get inheritance until 30 but they starve before 30 and die, they need the money)
4. To compromise or settle disputes between beneficiary claimants (without fear of allegations of breach of trust) - there is a presumption that reasonable settlements will not be disturbed by the courts, provided that both parties new what they were doing.
Duty to keep accounts and inform beneficiaries
Hartigan Nominees v Ridge
Facts: Media magnate (Sir Norman) owned lots of trade magazines had a family trust with money that could be transferred every year. He provided memorandum of wishes to trustees telling them how to exercise their discretions. He didn’t mention a particular person in the memo. Person wanted this memo revealed. Sir Norman
Issue: This matter concerned an assertion that a trustee had a “duty” to reveal a memorandum from the settlor guiding the trustee’s discretion in a discretionary trust.
Held: Trustees don’t have to reveal reasons for making choices and any documents they do create about the use of their powers need not be disclosed to beneficiaries on request as a matter of trust law. Held that the memorandum of wishes was the property of the trustees and not a “trust document”. Hence it did not have to be revealed to the beneficiaries.
Re Londonderry’s Settlement
Facts: Defendant was an income beneficiary under a settlement where trustees had power to appoint shares. She wanted documents including (a) minutes of meetings between trustees, (b) agenda prepared for trustees’ consideration and (c) correspondence relating to administration of trust.
Held: Trust documents are the property in equity of the beneficiaries and the beneficiaries have the rights of inspection, BUT trustees are not obliged to reveal reasons for their decisions. Here the trustees were not obliged to reveal documents (a) and (b) as they did not contain information that the beneficiaries were entitled to know. In category (c) correspondence between trustees themselves and between trustees and beneficiaries did have to be disclosed. BUT letters from trustees’ solicitors to trustees were deemed “trust documents” in which beneficiaries had a proprietary right.
Duties to exercise care
Trustees must often make investment decisions. When they make investment decisions, what standard of skill and competence is required of them? What matters must they consider in making their choices?
Re Speight; Speight v Gaunt
Facts: The trustees put a broker in charge of the investments which broker did not successfully manage and there were losses suffered as a result. In this case, there was an attempt to hold a trustee liable for losses caused by the failure of a broker to make investments.
Held: Standard of care for trustees exercising investment powers is “to conduct the affairs of the trust as the ordinary prudent man of business would conduct his own”. The Court said that if the trustees would have put the funds with the broker (as ordinary prudent men) then there is no case to answer. Trustees did not owe a duty of strict liability, they did not provide a guarantee against the loss of the trust fund. Court favoured the side of the “honest trustee” and was reluctant to fix the trustee with any liability on the contract.
What matters can trustee take into account?
Trustee cannot bring in their own ethical considerations.
Cowan v Scargill
Facts: Coal mine union-appointed trustees refused to invest in oil and overseas investments, so as to protect their own industry and avoided investment in foreign countries such as South Africa, with whom they had political diagreements. The pension fund was for coal miners and was for the provision of financial benefit.
Held: Under a trust for the provision of financial benefits, the paramount duty of trustees the trustee must act in the financial best interests of beneficiaries. Trustees were in breach of their duties under the trust because the decision-making wasn’t guided by profitable investment and was guided by irrelevant considerations.
Harries
Large trust fund holding church property. Provided pensions for clergy and income for church. Trustees wanted to maximize the investment for the church. Much better for the investment to be used for the needs of others. They tried to put pressure on the trustees to use the money to do good, feed homeless etc. The ‘do gooders’ lost.
Harries v Church Comrs for England
Facts: Church faction attempt to force trustees (for a trust holding a large amount of property) to invest in charitable projects (such as housing for the homeless) instead of high yield investments, as this is what they thought Jesus advised in the Bible. The trust was to pay for outgoings for the church and pensions for the clergy, etc. Trustees stipulated that the money had to be used to benefit the financial best interests of the church, this was ethical business practice.
Held: It was held that the trust property was to be invested to ensure the financial best interests of the beneficiaries were realised. The Church faction lost.
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