Trustee’s Duty to Account

A Trustee is under a duty to keep and render to the Beneficiaries (inc Members) a full and candid record of the Trustee’s stewardship of the Trust.

The trust records demonstrate not only how the Trustee has performed the Trustee’s duty or the Trustee’s duty to preserve the Trust Property, but also the Trustee’s obedience to the terms of the Trust Instrument with respect to the beneficiaries.

The Trustee has a duty to render accounts to the beneficiaries, the have the accounts ready and to be candid in any disclosures to the Beneficiaries.

This duty entails allowing the Beneficiaries or their solicitors {Kemp v Burn (1863) 4 Giff.348;66 E.R. 740}  to inspect the accounts and other documents relating to the trust including counsel’s opinion {Hawkesley v May [1956] 1 Q.B. 304 at 323 per Havers. J.; Murray v Schreuder [2009] WASC 51} and to take copies {Ottley v Gilby (1845) 8 Beav. 602;50 E.R. 237; Re Bosworth (1889) 58 L.J. Ch. 432; Re Watson (1904) 49 Sol. 86 at 88 per Chitty J}.

The beneficiaries are also entitled to have such trusts accounts and documents provided to their accountants {Kemp v Burn (1863) 4 Giff 348, Re Cowin (1886) 33 Ch D 179, Re Londonderry’s Settlement [1965] Ch 918, Schmidt v Rosewood Trust Ltd [203] 2 WLR 1442}

Lord Justice Millet held in the leading English case of Armitage v. Nurse [1998] Ch241 that there was an irreducible core of obligations owed by a trustee to beneficiaries which is fundamental to the concept of a trust. If those obligations are missing then there is no trust. The duty of a trustee to account to beneficiaries for his administration of a trust is one of those core obligations and the right of beneficiaries to Trust Documents enables beneficiaries to enforce that duty to account.

When a trustee retires the Trustee must produce all trust documents and accounts relating to the trust estate to the continuing and new trustees {Tiger v Barclays Bank [1951] 2 K.B. 556}.

The accounts kept by the Trustees should not be destroyed at the termination of the trust, even after the beneficiaries have given the Trustees a release, because they may be needed at a later date if some question arises {Payne v Evens (1874) L.R. 18 Eq. 356} or an allegation is made against the Trustees.

The trustee’s accounts must be timely, faithful, accurate and, where practicable, substantiated by documentary evidence. See: Ford and Lee, Principles of the Law of Trusts, (1990), at ¶[940]; Christensen v Christensen [1954] QWN 37. Furthermore, trustees should not be tardy or reluctant in providing appropriate information: Kelly v Bruce [1907] SALR 174.

In Murray v Schreuder [2009] WASC 51 Newnes J stated:

“It was long regarded as the law that in the case of a non-discretionary trust, where a beneficiary had a vested or contingent interest, the beneficiary had a prima facie right to inspect any property forming part of the trust estate, including trust documents used by the trustee in the administration of the trust: see Re Tillott [1892] 1Ch 86, 88 – 89.

In Fratcher WF, Scott on Trusts (4th ed, vol IIA, 1987), the relevant principle was stated as follows:

The trustee is under a duty to the beneficiaries to give them on their request at reasonable times complete and accurate information as to the administration of the trust. The beneficiaries are entitled to know what the trust property is and how the trustee has dealt with it. They are entitled to examine the trust property and the accounts and vouchers and other documents relating to the trust and its administration. Where a trust is created for several beneficiaries, each of them is entitled to information as to the trust. Where the trust is created in favour of successive beneficiaries, a beneficiary who has a future interest under the trust, as well as a beneficiary who is presently entitled to receive income, is entitled to such information, whether his interest is vested or contingent.

A beneficiary is entitled to inspect opinions of counsel procured by the trustee to guide him in the administration of the trust. (462 – 465)

That statement of the law was adopted by Kirby P in Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405, 422 – 423, and by Gummow J in Re Simersall; Blackwell v Bray [1992] FCA 211; (1992) 35 FCR 584, 587 – 588. It is supported by dicta in O’Rourke v Darbishire [1920]AC 581], 619 and 626. See also, Re Fairbairn  [1967] VR 633 , 635 – 640; Spellson v George (1987) 11 NSWLR 300, 315 – 316.

The accounts monitor the Trustee’s performance of his duties generally. Comprehensive reporting to, and the monitoring by, the Beneficiaries reduces the likelihood of trustees being able to perpetrate breaches of trust.

As Lord Kyllachy said in The Town and County Bank Ltd v Walker (1904) 12 SLT 411 at 412:

“A breach of  trust  may consist of embezzlement, or it may arise simply from failure to account, or it may consist, as alleged here, of some act or default which amounts only to some irregularity or error of judgment for which, nevertheless, there may be personal liability.”

The Trustee’s Duty to Inform

The Trustee has a positive duty to inform each Beneficiary of the Beneficiary’s rights under the trust instrument {Hawkesley v May [1956 1 Q.B. 304}.

In the case of an adult Beneficiary the duty is best performed by handing over copies of the relevant terms of the trust.

Refusal to Disclose Trust Documents

In Re Murphy’s Settlements, Murphy v Murphy [1998] 3 All ER Ch D 1 at 7  Neuberger J made reference to:

“Lord Kilbradon who was also impressed by the judgement in Post’s case, cited with approval a passage from Bray Principles and Practice of Discovery (1885) p 612:

“A party might file a bill of discovery before he commenced his action, where he required discovery in order to ascertain what form of action to bring … or in order to ascertain the proper person against whom to bring the action (See [1973] 2 All ER 943 at 974, [1974] AC 133 at 204)”

Therefore if a Trustee refuses to disclose Trust Documents not exempted by subsection 1017C(4) of the Corporations Act 2001, then the beneficiaries can file a bill of discovery to obtain these Fund Documents

Statutory Provisions

Statutory provisions exist in some States under which public officers may require production,audit and investigation of trust accounts {Section 60 of the Public Trustee Act 1978 (Qld); Section 84a-f of the Trustee Act 1936 (SA)}.

 

 

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