Duty of Care

Equity imposes demanding standards of duty upon trustees with respect to their rights of beneficiaries of the trust. In Cowan v Sargill [1985] Ch 270; [1984] 2 All ER 750, a pension fund case, Megarry V-C said at 288 (Ch):

“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. The 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. When the purpose of the trust is to provide financial benefits for the beneficiaries, as is usually the case, the best interests of the beneficiaries are usually their financial interests.”

Professional Trustees

The duty of trustees to act personally is necessarily affected by the nature of the trust and the size and nature of the assets. In respect of a trustee that holds out that it possesses particular skill, expertise and ability to provide special care as a trustee and solicits appointment to that office, a higher standard of care may be imposed, to wit, an obligation to apply the level of skill, expertise and ability represented: Bartlett v Barcleys Bank Trust Co Ltd (No.2) [1980] Ch 515 at 534; Australian Securities Commission v AS Nominees (1995) 18 ACSR 459 at 518 (Finn J); Westpac Banking Corporation v The Bell Group Ltd (in Liq) (No. 3) [2012] WASCA 157 at [843]

The Western Australia Court of Appeal states at [844]:

“A failure by a trustee to exercise reasonable care in exercising the powers and performing the duties of trustee that occasions loss of, or detriment to, trust property will mean that a breach of trust has been committed by the failure of the trustee to duly administer the trust. See Maguire v Makaronis [1997] HCA 23(1997) 188 CLR 449, 473 (Brennan CJ, Gaudron, McHugh, Gummow JJ)”.

 

 

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.

 The Federal Court of Australia noted in ASC v AS Nominees at [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 1993s52(8), (9).

Finn J in the Federal Court noted at [57]:

Finally, I merely note that there is a question whether the duty of care owed by directors of a trustee company to their company is owed as well to the beneficiaries of the trust: see Royal Brunei Airlines Sdn Bhd v Tan [1995] UKPC 4(1995) 3 WLR 64 at 75; see also Wickstead v Browne (1992) 30 NSWLR 1; and cf Scott on Trusts, para 326.3 (4th Ed). Given the view I take of the relevance to these proceedings of the accessorial liability rule in Barnes v Addy (1874) LR 9 Ch App 244, the question is not one that need be explored here.

 

 

 

 

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