The Rights of a Trustee

Upon a trustee accepting their role, they are bound by certain duties to the trust and its beneficiaries, which they must exercise with due regard when discharging their trustee power. These are predominantly governed by the Trustee Act 1925, as amended, however there have also been many occasions where the courts have sought to elaborate upon these duties in such a way that widens or restricts the scope of their application, and thus also affects the possible rights of beneficiaries to certain privileges under the trust. This brief will seek to explore the ways that the courts have imposed certain duties and restrictions on trustees, particularly in relation to the disclosure of information. In order to analyse such an issue, it is important to firstly have an understanding of the general fiduciary duties, and other general law duties, of trustees upon their appointment to their position. As such, a number of legislative and common law provisions will be discussed. Perhaps the most important point to be made about the duties of trustees is that it is generally defined by the text of the trust instruments, and the general law simply provides a background that allows a settlor to set the boundaries of these duties. This is best evidenced in the case of Target Holdings Ltd v Redferns (a firm), where Lord Browne-Wilkinson said: …the basic right of a beneficiary is to have the trust duly administered in accordance with the provisions of the trust instrument, if any, and the general law.[1] This means that a breach of duty can only occur if there was a specific duty outlined in the documents that established the trust, or are in breach of general law provisions, and any absence of such a specification means that a trustee has effectively acted in accordance with their duties under the trust. It is also important to note that a testator can also modify or exclude any of the general law duties applicable to trustees by specifying as such in the trust instruments. This may be an unusual situation, however the common law provides for such a scenario to arise. This is best demonstrated by the case of Hayim v Citibank, where Lord Templeman stated: It is of course unusual for a testator to relieve the trustee of his will of any responsibility or duty in respect of the trust property, but a testator may do as he pleases.[2] Essentially then, while the general law imposes certain duties on a trustee, the testator is free to modify and amend these duties as he or she sees fit, thus limiting the scope of application of the general law in relation to trustees’ duties. HayimHIn light of the issue at hand, this could be construed as there not being a duty upon the trustees to minute their trustee meetings, unless there is a specific provision that requires them to do so in the trust instruments. The general law in relation to the disclosure of information to beneficiaries will be discussed in more detail shortly, however the general rule in relation to this would suggest that there is no specific requirement for trustees to document their decisions in the minutes of a trustee meeting. However, if they still choose to do so, they may be subject to the rules of disclosure of information to the beneficiaries upon request, which will be discussed in further detail shortly. In regards to the management decisions that a trustee is allowed to make, there are a number of statutory provisions that indicate to this extent. These include the power to raise money by sale or mortgage of the trust property (but does not apply to the trustees of a charity, which raises separate issues not necessarily within the scope of this brief),[3] the power to give receipts,[4] the power to insure the trust property and pay those premiums out of the trust funds,[5] and the power to compound any liabilities of the testator by taking action that they think fit to resolve the situation.[6] As one can see, the trustees of a trust are given substantial powers to exercise on behalf of the testator (or settlor, as the case may be). As such, there also needs to be recognised limits to this power, which this brief will now discuss. Common law does not recognise the fact that a trustee owes a duty of care to the beneficiaries (and the testator or settlor) when exercising their role, however equity does. Under equity, a trustee is “merely” required “to conduct the business of the trust in the same manner that an ordinary prudent man of business would conduct his own”.[7] This has since been codified in legislation, giving it a more direct and relevant effect.[8] The Trustee Act 2000 gives the duty of care the scope of application to apply to trustees’ decisions relating to investment, acquisition of land, insurance, and also in instances where that managerial power has been delegated to others.[9] Limits to the application of this duty are also recognised, such as that in Re Godfrey, where Bacon V-C said: No doubt it is the duty of the trustee, in administering the trusts of a will, to deal with property intrusted into his care exactly as any prudent man would deal with his own property. But the words in which the rule is expressed must not be strained beyond their meaning. Prudent businessmen in their dealings incur risk. That may and must happen in almost all human affairs.[10] In other words, while the trustee is required to exercise a reasonable standard of care, they cannot be held accountable for any loss incurred where the risk of such a transaction was deemed to be coincidental to the ordinary course of business. In addition to the duty of care, a trustee is required to also act in the interests of fairness to the beneficiaries of the trust, respecting the fact that the beneficiaries obviously need to benefit as a result of the trust. The most authoritative case on this duty is that of Nestle v National Westminster Bank plc, where Hoffman J said: This brings me to the second principle on which there was general agreement, namely that the trustee must act fairly in making investment decisions which may have different consequences for different classes of beneficiaries.[11] This means that a trustee must not only consider the interests of the beneficiaries as a whole when making management decisions, but must consider the fairness of the effects of these decisions with regard to all the different classes of beneficiaries under the trust. These are perhaps the two most relevant duties that a trustee must have regard for, beyond their other fiduciary duties imposed upon commencement of their appointment as a trustee. These fiduciary duties include not to sell trust property to him or herself (the self-dealing rule) and to make the purchase of such property fair (the fair-dealing rule),[12] a duty to not place themselves in a position of conflict,[13] and a rule against unauthorised profit.[14] These are just a few examples of the duties that trustees owe to the beneficiaries, and to the trust as a whole. As one will note, there seems to be no duty that has arisen under general law principles that provides for a requirement for minutes of trustee meetings to be kept. Rather, this is left either to the text of the trust instruments or, where such a specification is absent, the discretion of the trustees. The court recognises that trustees have a “wide discretion” when exercising the role of their office,[15] however it is clear that these powers are quite restricted, but not to the extent where the rationale behind the decisions is required to be documented and presented to the beneficiaries upon request. The idea of a beneficiary’s right to information has been significantly expanded upon by the courts in recent times. Previously, the courts have adopted the view that access to information by the beneficiaries is a proprietary right of being a beneficiary, and that they should have access to all trust documents upon request. This is best displayed in the case of O’Rourke v Darbishire, where Lord Wrenbury said: The beneficiary is entitled to see all trust documents because they are trust documents and because he is a beneficiary. They are in this sense his own.[16] This presented a key issue. It assumes that all information relating to the management of the trust is able to be accessed on a proprietary basis, thus often denying the trustees the confidentiality and, in effect, trust to exercise their role fully without external and extraneous influence. This proprietary right was later objected to in the case of Re Londonderry’s Settlement,[17] where it was held that trustees who exercise a discretionary power are not bound to disclose the reasons for their decision to other parties, but can choose to do so if they wish. Interpreting such conflicting case law is tough. It presents two opposite points of view in relation to the duty of a trustee (or trustees) to disclose information to beneficiaries, making it difficult to establish whether such a duty exists. The most significant progress made on expanding this duty in recent times would be that made in the case of Schmitt v Rosewood Trust Ltd, where it was held that while the previous case law was not easy to reconcile, the overriding concern was to protect the confidentiality of information relating to managerial decision made by the trustees, thus granting them the privacy and security they require to exercise their dispositive discretions, and that such a right would override any proprietary right that a beneficiary may have to that information.[18] This case is technically not binding in England as it relates to a trust formed in the Isle of Man; however it is assumed it will be followed, given it has been followed in a number of other jurisdictions already.[19] In Australia, it has been established that the court must find a balance between disclosure of the information and the need to protect confidentiality in the interests of promoting a safe environment for managerial decision-making.[20] In short, it would appear that the courts are moving more towards the adoption of protection in favour of the trustees, more so than allowing the information to be discovered by the beneficiaries. While there is no clear duty in general law requiring trustees to either record or disclose reasons for their decisions in any event, there is also suitable protection ensuring that, even if such reasons are recorded, they are not subject to easy disclosure to the beneficiaries, due to the often sensitive nature of such business material. In conclusion, this brief has considered many aspects of a trustee’s duty to the beneficiaries and the trust. It discovered that most trustees’ duties arise as a result of their inclusion in the documents that form the trust, and are merely expanded upon by the general law. As such, there is no clear requirement that requires trustees to document and record their decisions (and reasons for those decisions) in the minutes of the meeting, unless there is a specification as to such a procedure in the trust instruments. The general law remains silent on this issue, thus emphasis needs to turn toward the trust instruments themselves, given that it has been established that the testator or settlor is able to modify or exclude general law duties if he or she (or they) specify as such in the trust instruments. In any event, it has also been established that decisions made by the trustees in relation to the management of the trust are afforded considerable confidentiality under the general law, which can often override any proprietary right which a beneficiary may have to the information. It has been established that the board of trustees is not required to disclose its reasons for making a decision, and also that the court will generally be required to make a consideration which balances the need for the information to be released in conjunction with the need for it to be protected in the interests of promoting a safe decision-making environment. The law seems to fall in favour of the trustees, imposing a burden on the beneficiaries to petition the court with just cause as to have the information released, however it seems in all likelihood that a court will often serve to protect the information relating to managerial and administrative aspects of the trust, as it is the trustees that are empowered to make these decisions and, given that the discretion they possess is considerably wide, there is a need for them to exercise this discretion in an environment that would promote safety and the integrity of the decision-making process. Bibliography Books

• Pettit, P, Equity and the Law of Trusts (2006, 10th ed), London: Oxford University Press
• Watt, G, Todd and Watt’s Cases and Materials on Equity and Trusts (2005, 5th ed), London: Oxford University Press

Legislation

• Trustee Act 1925
• Trustee Act 2000

Cases

• Boardman v Phipps [1967] 2 AC 46, HL
• Broere v Mourant & Co [2004] JCA 009, [2004] WTLR 1417
• Foreman v Kingstone [2004] 1 NZLR 841
• Fry v Fry (1859) 28 LJ Ch 591
• Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 403
• Hayim v Citibank [1987] AC 730, PC
• Nestle v National Westminster Bank plc (1996) 10(4) TLI 11, CD
• Re Godfrey (1883) 23 ChD 483
• Re Londonderry’s Settlement [1963] Ch 918, [1964] 3 All ER 855, CA
• Re the Intermine and the Intertraders Trusts [2004] JLR 325
• Re Thompson’s Settlement [1986] 1 CH 99, CD
• Schmitt v Rosewood Trust Ltd [2003] UKPC 26, [2003] 3 All ER 76
• Sergeant and another v National Westminster Bank plc (1990) 61 P & CR 518, CA
• Speight v Gaunt (1883) 9 App Cas 1, HL
• Target Holdings Ltd v Redferns (a firm) [1996] 1 AC 421, HL
• Tito v Waddell (No 2) [1977] Ch 106, CD

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Footnotes

[1] Target Holdings Ltd v Redferns (a firm) [1996] 1 AC 421, 434A, HL (Lord Browne-Jackson). [2] Hayim v Citibank [1987] AC 730, PC (Lord Templeman). [3] Trustee Act 1925, s 16. Also note the fact that a trustee is also compelled to obtain the best price for the sale of the property, which may result in them having to renege on an already existing offer. For an example of this, see Fry v Fry (1859) 28 LJ Ch 591. [4] Trustee Act 1925 as amended, s 14. [5] Trustee Act 1925, s 19. This section is presented as amended by the Trustee Act 2000. [6] Trustee Act 1925, s 15. This section is also as amended by the Trustee Act 2000. [7] Speight v Gaunt (1883) 9 App Cas 1, HL. [8] See Trustee Act 2000, s 1 and sch 1. [9] Trustee Act 2000, sch 1. [10] Re Godfrey (1883) 23 ChD 483, 493 (Bacon V-C). [11] Nestle v National Westminster Bank plc (1996) 10(4) TLI 11, CD (Hoffman J). [12] Tito v Waddell (No 2) [1977] Ch 106, CD; Re Thompson’s Settlement [1986] 1 CH 99, CD. [13] Sergeant and another v National Westminster Bank plc (1990) 61 P & CR 518, CA. [14] Boardman v Phipps [1967] 2 AC 46, HL. [15] Nestle v National Westminster Bank plc (1996) 10(4) TLI 11, CD (Hoffman J). [16] O’Rourke v Darbishire [1920] AC 581, 626-7, HL. [17] [1963] Ch 918, [1964] 3 All ER 855, CA. [18] Schmitt v Rosewood Trust Ltd [2003] UKPC 26, [2003] 3 All ER 76. [19] For example, this case has been adopted in New Zealand in Foreman v Kingstone [2004] 1 NZLR 841. See also Broere v Mourant & Co [2004] JCA 009, [2004] WTLR 1417 and Re the Intermine and the Intertraders Trusts [2004] JLR 325 in Jersey. [20] Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 403.

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