Duty to Act Honesty

A Trustee has an overriding duty to act honestly.

A Trustee in the eyes of the law is a Fiduciary and a special relationship therefore exists between the Trustee and the Beneficiaries of the Trust and in the case of Superannuation Funds, the Members as well.

Lord Justice Millet provided the following definition of a Fiduciary in Bristol & West Building Society v Mothew [1998] Ch 1 at 18:

“A Fiduciary (Trustee) is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The Principal (ie beneficiary) is entitled to the single-minded loyalty of his fiduciary. The core liability has several facets. A fiduciary must act in good faith; he most not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of the principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary”.

Broadly then, a fiduciary is one who owes legal duties of loyalty and utmost good faith in relation to another person.

Lord Justice Millet stated in Armitage v Nurse EWCA Civ 1279 that:

The duty of the trustees to perform the trusts honestly and in good faith for the benefit of the beneficiaries is the minimum necessary to give substance to the trusts, but in my opinion it is sufficient“.

A Trustee (and an agent acting on the behalf of the Trustee) of a Government Regulated Superannuation Fund is required to act honestly in all matters pertaining to the Fund under subsection 52(2)(a) of the Superannuation Industry (Supervision) Act 1993.

Furthermore a Trustee or an Agent acting on the behalf of the Trustee cannot engage in conduct that is misleading or deceptive or is likely to mislead or deceive a Beneficiary (inc Member) of a Government Regulated Superannuation Fund under subsection 1041H(vi) of the Corporations Act 2001.

In the Supreme Court of Victoria Beach J in ASEA Brown Boveri Superannuation Fund No.1 Pty Ltd v ASEA Brown Boveri Pty Ltd [1999] 1 VR 144 held that: “The trustees of a superannuation fund owe a duty of loyalty exclusively to the members. It does not follow from that, however that a trust deed can never be altered to meet the interests of the employer. Trustees are free to negotiate with an employer for a package of amendments that may include benefits to the employer if in the opinion of the trustees that would benefit the members”.

In this case Beach J held that an amendment backdating interest adjustments, being beneficial to the members, did not require their consent and was therefore valid. However the amendments limiting the retrenchment benefits and reducing the employer’s contributions detrimentally affected the member’s benefits and, lacking the member’s consent, were not valid.

In the Federal Court of Australia Finkelstein J stated in Fitzwood Pty Ltd v Unique Goal Pty Ltd (In liquidation) [2001] FCA 1628 at [152]:

152 “Good faith” in this context is used to signify “honesty“. In Karger v Paul [1984] VR 161, a beneficiary sought to challenge the exercise by his trustee of a power to apply the capital of the trust estate to another beneficiary. McGarvie J said that the exercise of the discretionary power could only be examined if the trustee failed to act “in good faith, upon real and genuine consideration, and in accordance with the purposes for which the discretion was conferred”: [1984] VR at 164. His Honour said that the test of acting in good faith was the same as the test of acting honestly. This recognises that in the administration of a trust, a deliberate breach of trust may not be dishonest. It is not unknown for a trustee to breach a trust, believing it to be in the best interests of the beneficiaries: Armitage v Nurse [1998] Ch 241. However, if the trustee acts in breach of trust not believing it to be in the interests of the beneficiaries, or if the trustee is indifferent to their position, he will be acting dishonestly and would not be entitled to claim the benefit of a provision such as cl 36.1: [1998] Ch at 251.

 

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