“Wilful Default”

The term “Wilful Default” is commonly used in association with the liability  of Trustees and their agents.

For example Section 36 of the Victorian Trustee Act 1958.

The English Court of Appeal in Armitage v Nurse [1997] 3 WLR 1046; EWCA Civ 1279 considered “Wilful Default” {Cited in Wilkinson v Feldworth 29 ACSR 642 at p743}.

Millet LJ quoted a passage from the consultation paper of the Law Commission and continued:

“This passage calls for two comments. Firstly, the expression “wilful default” is used in the cases in two senses. A trustee is said to be accountable on the footing of wilful default when he is accountable not only for money which he has in fact received but also for money which he could with reasonable diligence have received. It is sufficient that the trustee has been guilty of want of ordinary prudence; see Re Chapman; Cocks v Chapman [1896] 2 Ch 763. In the context of a trustee exclusion, however, such as s.30 of the Trustee Act 1925, it means a deliberate breach of trust; In Re Vickery [1931] 1 h. 572..The decision has been criticised, but it is in line with earlier authority: see Lewis v Great Western Railway Co. (1877) 3 QBD 195; Re Trusts of Leeds City Brewery Ltd.’s Debenture Stock Trust Deed [1925] Ch. 532; Re City Equitable Fire Insurance Co. [1925] 1 Ch. 407.. Nothing less than conscious and wilful misconduct is sufficient” The trustee must be “conscious that, in doing the act complained of or in omitting to do the act which it said he ought to have done, he is committing a breach of his duty, or is recklessly careless whether it is a breach of his duty or not ” per Maugham J in Re Vickery ( supra) at p. 583). .

Millett LJ then cited the passage from Re Vickery with approval and said:

“A trustee who is guilty of such conduct either consciously takes a risk that loss will result, or is recklessly indifferent whether it will or not. If the risk eventuates he is personally liable. But if he consciously takes the risk in good faith and with the best intentions, honestly believing that the risk is one which ought to be taken in the interests of the beneficiaries, there is no reason why he should not be protected by an exemption clause which excludes liability for wilful default”.

Bramwell LJ stated in Lewis v Great Western Railway (1877) 3 QBD 195 at p206:

“”Wilful misconduct” means misconduct to which the will is a party, something opposed to accident or negligence; the misconduct, not the conduct, must be wilful”

In Re Chapman [1896] 2 Ch 763 wilful default included any “want of ordinary prudence“. Later a different view was taken of such words, first in the contect of Directors’ liability under articles of association (Re City Equitable Fire Insurance Co Ltd [1925] 1 Ch 407) and then in relation to trustees under Section 23 of the UK Trustee Act 1925 (Re Vickery [1931] 1 Ch 572 {See Spread Trustee Co Ltd v Hutcheson [2011] UKPC 13 at [95]}

in Re City Equitable Fire Insurance Co Ltd [1925] Ch 407 at 434 Romer J stated:

“Act, or an omission to do act is wilful when the person of whom we are speaking knows what he is doing and intends to do what he is doing. But if that act or omission amounts to a breach of duty, he is not guilty of wilful default unless he knows that he is committing, and intends to commit, a breach of his duty, or is recklessly careless in the sense whether is act or omission is or is not a breach of duty”. { Approved by the majority of the Court of Appeal at 525, 528}

 

 

 In Wilkinson v Feldworth 29 ACSR 642 at p743 it was held by Rolfe J that a trustee is not liable for loss occasioned by the misconduct of the agent unless the loss happens through the wilful default of the trustee, those words implying either a conciousness of negligence or breach of duty or a recklessness in the performance of a duty with Re Vickery; Vickery v Stephens [1931] 1 Ch 572; Dalrymple v Melvill (1932) 32 SR(NSW) 597 applied

A person is reckless when he or she acts in a manner which indicates a decision to run the risk or a mental attitude of indifference to its existence {SS Pharaceutical Co Ltd v Qantas Airways (1991) 1 LLR 288; Goldman v Thai Airways Ltd [1983] 1 WLR 1186}

It is only necessary for a breach of trust obligation to be the cause of the loss in order for there to be a sufficient causal nexus. If the loss or damage which occurred after the breach would not have occurred but for the breach the person in breach will be made to compensate for the loss or damage {Target Holdings Limited v Redferns [1995] UKHL 10; [1996] AC 421; [1995] 3 All ER 785;, Re Dawson [1966] 2 NSWR 211}

Where the conduct of a trustee constitutes gross negligence then compound interest at the trustee rate ought to be paid by the trustee {Alamite Lubrequip Pty Ltd v Adams (1996) 41 NSWLR 45}.

Sir Robert Megarry stated in Cowan v Scargill [1985] Ch 270 at 288:

“The starting point is the duty of trustees to exercise their powers in the best interests of the present and future beneficiaries of the trust, holding the scales impartially between different classes of beneficiaries. This duty of the trustees towards their beneficiaries is paramount. they must, of course, obey the law; but subject to that, they must put the interests of their beneficiaries first.”

This requirement is also to be found in Section 52(2)(c) of the Superannuation Industry (Supervision) Act 1993.

For the Duty of Care of Trustees see

ASIC v AS Nominees Ltd [1995] FCA 1663 at [42]; 62 FCR 504 at 517-8; 133ALR 1 at 13-14)

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