Duties of Trustees

The duties of Trustees can be many and varied however in a leading case in English trust law Armitage v Nurse [1997] EWCA Civ 1279 Lord Justice Millet confirmed that there were irreducible core obligations owed by Trustees to the beneficiaries of the Trustee and if those obligations were missing then there are no trusts.

In the hearing of the Court of Appeal, Bernard Weatherill QC for Armitage submitted that the “irreducible core” duties of a trustee include the following.

(1) a duty to inquire into the extent and nature the property and the trusts (see Hallows v Lloyd (1888) 39 Ch D 686, 691; Nestle v National Westminster Bank plc [1993] 1 WLR 1260, 1265e, 1266h, 1275e-g and Wyman v Paterson [1900] AC 271);
(2) a duty to obey directions in the settlement (Trust instrument) unless the deviation is sanctioned by the court (see Harrison v Randall (1851) 9 Hare 397, 407 and Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, 390a-b);
(3) a duty to account for his stewardship of the assets under his control;
(4) a duty to carry on the business of the trust with the degree of prudence to be expected of a hypothetically reasonably prudent man of business (see Speight v Gaunt  (1883) 9 App Cas 1, 19 and In re Whiteley, Whiteley v Learoyd (1886) 33 ChD 347, 355).

Lord Justice Millet stated:

“I accept the submission made on behalf of Paula that there is an irreducible core of obligations owed by the trustees to the beneficiaries and enforceable by them which is fundamental to the concept of a trust. If the beneficiaries have no rights enforceable against the trustees there are no trusts. But I do not accept the further submission that these core obligations include the duties of skill and care, prudence and diligence. 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. As Mr. Hill pertinently pointed out in his able argument, a trustee who relied on the presence of a trustee exemption clause to justify what he proposed to do would thereby lose its protection: he would be acting recklessly in the proper sense of the term”.

………

In Wilkins v Hogg, 31 L.J.Ch. 41 Lord Westbury L.C. accepted that no exemption clause could absolve a trustee from liability for knowingly participating in a fraudulent breach of trust by his co-trustee. But, subject thereto, he was clearly of opinion that a settlor could, by appropriate words, limit the scope of the trustee’s liability in any way he chose.

{Note: The ability of Trustees of Government Regulated Superannuation Funds to limit their personal liability is constrained by Section 57 of the Superannuation Industry (Supervision) Act 1993.}

Other Duties of Trustees

In addition to the irreducible core obligations there are other duties that a Trustee must comply with.

Duty to Administer the Trust Personally

The Trustee’s duty to administer the trust personally dictates that the Trustee must not permit others,  the Employer-Sponsor, the Members and Beneficiaries, or some third party – to dictate to the Trustee the manner in which the Trustee’s discretion should be exercised.

Section 58 of the Superannuation Industry (Supervision) Act 1993 and Regulation 4.03 of the Superannuation Industry (Supervision) Regulations 1994 prescribe what directions an Employer-Sponsor can give to the Trustee of a Government Regulated Superannuation Fund.

Duty to Act Impartially

The duty to act impartially prohibits a trustee acting in favour to one class of beneficiaries at the expense of another.

If the CEO of the Employer-Sponsor appoints a new Trustee, the Trustee cannot thank the CEO by providing a “special benefit” to the CEO that is not available to other Members of the Fund.

Duty to Pay Correct Beneficiaries

If the Trustee overpays a particular beneficiary, then the Trustee is under a duty to recover that overpayment to that beneficiary. The trustee’s duty to recover the overpayment is subject to the control of the court, which jurisdiction is exercised in the case of hardship.

An underpaid beneficiary may sue the Trustee for Breach of Trust, and the Trustee is liable to make good the loss caused by the wrongful payment as well as other parties who may have assisted in the Breach of Trust {Second limb of Barnes v Addy}.

“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”

–          Lord Browne-Wilkinson (Target Holdings and Redferns [1995] UKHL 10)

“The basic equitable principle applicable to breach of trust is that the beneficiary is
entitled to be compensated for any loss he would not have suffered but for the breach.”

–          Lord Browne-Wilkinson (Target Holdings and Redferns [1995] UKHL 10)

 

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