Duty to Exercise Reasonable Care

Under the general law a trustee has an obligation to carry out the trustee’s duties and powers with a standard of care of that of an ordinary prudent business person {Re Speight (1883) 22 Ch D 727 at 739-740}.

The statutory standard of care under subsection 52(2)(b) of the Superannuation Industry (Supervision) Act 1993 is of a lesser standard since the requirement is:

to exercise, in relation to all matters affecting the entity, the same degree of care, skill and diligence as an ordinary prudent person would exercise in dealing with property of another for whom the person felt morally bound to provide.”

However the Trustees of Government Regulated Superannuation Funds cannot act dishonestly or grossly negligently.

Professional trustees, such as corporate Trustees who are paid for their services, are arguably subject to a higher standard of care compared to lay Trustees.

Brightman J in Bartlett v Barclays Bank Trust Co Ltd (No.1) [1980] Ch 515 at 534 stated:

A trust corporation holds itself out in its advertising literature as being above ordinary mortals. With specialist staff of trained trust officers and managers, with ready access to financial information and professional advice, dealing with and solving trust problems day after day, the trust corporation holds itself out,and rightly, as capable of providing an experise which would be unrealistic to expect and unjustified to demand from the ordinary prudent man or woman who accepts, probably unpaid and sometimes reluctantly from a sense of family duty, the burdens of trusteeship”.

Australian Courts have upheld the dicta of Brightman J {Australian Securities Commission vs AS Nominees Ltd [1995] FCA 1663; (1995) 133 ALR 1 at 18-19; Wilkinson v Feldworth Financial Services Pty Ltd [1998] NSWSC 647; (1998) 29 ACSR 642 at 693; Re Investa Properties Ltd [2001] NSWSC 1089; (2001) 187 ALR 462 at 472}

The Federal Court of Australia in Australian Securities Commission vs AS Nominees Ltd (1995) at [47] held:

47. Where the trustee is itself a company the requirements of care and caution are in no way diminished. And here, unlike with companies in general, these requirements have a flow-on effect into the duties and liabilities of the directors of such a company. It was early established – largely it would seem from case law on charitable and municipal corporations – that at least when, and to the extent that, directors of a trustee company are themselves “concerned in” the breaches of trust of their company, they are liable to the company according to the same standard of care and caution as is expected of the company itself: Charitable Corporation v Sutton [1742] EngR 111; (1742) 2 Atk 400; 26 ER 642; Attorney-General v Wilson (1841) 10 LJ Ch 53; Joint Stock Discount Co v Brown (1869) LR 8 Eq 381; Fouche v The Superannuation Fund Board [1952] HCA 1; (1952) 88 CLR 609.

48. To affirm such a limited coalescence in the standard of care of directors and trustees in the case of directors of trust companies is not to reignite the arid debate on whether directors are trustees: cf Re International Vending Machines Pty Ltd (1961) 80 WN(NSW) 465 at 473; L S Sealy, “The Director as Trustee(1967) Camb LJ 83. It is merely to say that in this context the duties of trusteeship of the company can give form and direction to the common law and statutory duties of care and diligence imposed on directors, where the directors themselves have caused their company’s breach of trust: on the duty of care of directors generally, see Daniels v Anderson (1995) 16 ACSR 607; Permanent Building Society v Wheeler (1994) 14 ACSR 109; see also Superannuation Industry (Supervision) Act 1993, s52(8).

Subsection 52(8) of the SIS Act states:

(8)  A covenant by a corporate trustee of a superannuation entity that is to the effect of a covenant referred to in subsection (2), or to the effect of a covenant prescribed by regulations referred to in subsection (5), also operates as a covenant by each of the directors of the trustee to exercise a reasonable degree of care and diligence for the purposes of ensuring that the trustees carries out the first-mentioned covenant, and so operates as if the directors were parties to the governing rules.

The Federal Court of Australia in Australian Securities Commission vs AS Nominees Ltd (1995) at [50] held:

50. The standard of trustee care and caution of which I have been speaking so far does not differentiate between types of trustee. It is of general application. That standard, moreover, was settled a century ago and during a period when trust corporations were not used for the trading and investment purposes that are the commonplace in this country today. There is, in my view, a substantial question now to be answered as to whether a higher standard is not to be exacted from at least corporate or professional trustees (i) which hold themselves out as having a special or particular knowledge, skill and experience and (ii) which, directly or indirectly, invite reliance upon themselves by members of the public in virtue of the knowledge etc they appear so to have.

51. In Bartlett v Barclays Trust Co Ltd (No 1) (1980) Ch 515 at 534 Brightman J was prepared to impose such a higher duty of care on a trust corporation:

a professional corporate trustee is liable for breach of
trust if loss is caused to the trust fund because it
neglects to exercise the special care and skill which it
professes to have.
 

52. This decision has been cited with apparent approval, though it was not in terms relied upon, by Gleeson CJ in Gill v Eagle Star Nominees Ltd, SC of New South Wales, 22 September 1993. It is, in its own way, consistent with observations of the Privy Council in the Australian appeal, National Trustees Company of Australasia Ltd v General Finance Company of Australasia Ltd (1905) AC 373 at 381, when refusing to excuse a trust company from a breach of trust. There is an extensive United States case law affirming such a higher standard. It is conveniently explained and exemplified in Scott on Trusts para 174.1 (4th Ed); see also Fales v Canada Permanent Trust Co (1977) 2 SCR 302(Can) where the question is recognised but not answered by the Supreme Court of Canada; and see Bogert, The Law of Trusts and Trustees, para 541 (Rev 2nd Ed).

53. If it were in fact necessary for me so to do (which it is not), I would be prepared to apply to the trustee companies in these proceedings a standard of care higher than that of the ordinary prudent business person. The applicant in its submission has invited me to adopt this course.

54. I should indicate that I do not regard the observations of the High Court in Fouche v The Superannuation Fund Board [1952] HCA 1; (1952) 88 CLR 609 at 641 on the standard of care and prudence expected of the statutory corporation in that case (ie the prudent business person standard) as precluding the adoption of a different and higher standard in the circumstances of a trustee company (a) carrying on business as such in the now established field of superannuation; (b) accepting and soliciting the utilisation by members of the public of its services as a funds manager; and (c) charging significant fees for so doing. The Board in Fouche was a body of a materially different variety. It was created by statute to administer a superannuation scheme for members of the Tasmanian public service. It did not hold itself out as conducting a trust business or as rendering professional trust services.”

 

 

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