Duties that a trustee has to perform the administration; its undertaking to administer the trust for the benefit of the beneficiaries or for any other purpose for which the trust was set up.  

These are AFFIRMATIVE duties. 

1. The trustee has to get control of the trust property

2. The trustee must manage the trust assets

3. The trustee has to abide by the terms of the trust (remain within the scope of their powers)

1. Identify trust property

2. Locate trust property

3. Procure a transfer of the legal title

Strict duty - breach of trust if failure to do get in ppty: Partridge v Equity Trustees Executors and Agency Co Ltd

Debt outstanding to company which was taken under trust. Clause that "trustee not press the payment of any debt that may be owing by WHP but will grant the company such reasonable time that it may require at such rate of interest as my said trustees may deem fit". WHP went into liquidation, debt still outstanding. 

Held: Had the D trustee insisted upon pyment on a certain date, it would have been able to pay. The debt was part of the deceased person's estate so the trustees had obligation to "get in" property.

To advance the ends for which the trust has been established - MUST at the very least -  

(a) MAINTAIN VALUE of trust property (at least keep pace with inflation),

(b) distribute to the correct beneficiaries or

(c) apply it to the charitable purpose in accordance with the terms of the trust.   

(i) To keep pace with inflation - general duty to invest - Adamson v Reid

(ii) May be req'd to acquire ppty - Elder's Trustee and Executor Ct Ltd v Higgins

s21 Power of Trustee to Invest 

A trustee may, unless expressly forbidden by the instrument creating the trust, (a) invest trust funds in any form of investment; and (b) at any time, vary an investment or realise an investment of trust funds and reinvest an amount resulting in any form of investment 

If an investment is authorised, then the consequence is irrelevant, the trustee cannot be sued for breach of trust (unless breach of duty of care and skill obvs)

s22 Duties of a trustee in relation to power of investment

(1) Trustee MUST 

(a) if the trustee's profession, business or employment includes acting as a trustee or investing for other persons - exercise the care, diligence and skill a prudent person engaged in that profession would; 

(b) if the trustee's profession, business or employment does not include acting as trustee or investing for other persons - exercise the care diligence and skill a prudent person of buisiness would exercise in managing the affairs

(2) Must comply with provisions of trust instrument

(3) Must at least yrly review the performance, individually and as a whole, of trust investments

s23 Law and Equity Preserved

(1) Rules of eq and law continue to apply except so far as it is inconsistent with the Act (or another Act) or the trust instrument. 

(2) Includes: (a) duty to exercise powers in best interests of all present and future beneficiaries and (b) duty to invest in investments that are not speculative or hazardous; (c) duty to act impartially towards beneficiaries and remainder beneficiaries (Karger v Paul; Re Mulligan) and (d) duty to obtain advice

If you have:  

(a) a large fund

(b) you are investing over an extended period

(c) you are never going to realise the entire fund at once, 

then you are not undertaking a speculative investment when you invest in a fully diversifed share portfolio

Matters to which trustee must have regard in exercising power of investment

Trustee MUST take into account so far as it is relevant, the following matters -  

(a) purposes of the trust and the needs and circumstances of the beneficiaries - Cowan v Scargill; Harries v Church Commissions for England

... 

(Extensive list if you want to look at it)

Pension scheme set up by National Coal Board administered by 10 trustees; Contributions from members, payments by board. Scargill part of union - wanted to eliminate all non-British investments & competitors with coal industry. Board trustees asking for Ct directions to whether union trustees were in breach of fiduciary duties. 

Held: Trustees must 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.

Key identifier is the PURPOSE of trust.  Generally maximising financial benefit = maximising interests

Exception to this (1) political instability which renders the investment unsafe or (2) where ALL of the beneficiaries are firmly opposed to a particular investment (v. rare)

Charitable trust for advancement of religion; some beneficiaries wanted extreme restrictions on what the trustees could invest in i.e. excluded oil sector, chemical sector, tobacco, alcohol, newspapers, gambling etc. 

Held: Prima facie purpose of a charitable purpose trust will be best served by the trustees seeking maximum financial return. 

Exceptions to this are: 

(1) investment in conflict with aims of charity

(2) holdings in particular investments hamper charity's work (by alienating sponsors/donors/recipients e.g.)

(3) where trust deed provides so

What is the authority for duty of impartiality? 

NB: A concept that relates broadly to the trust - not just to investment

Re Mulligan

A trustee must be even handed (ie fair) b/w the two classes of beneficiaries: a duty of impartiality

Case where trust funds invested with poor return (didn't keep up with inflation) - held was not an impartial investment. Damages awarded are the difference b/w actual performance and what a prudent trustee would likely have achieved (common measure against ordinary shares)

Trustees jointly and severally liable for any loss caused by the breach, except where a trustee who has himself got the benefit. 

Re Brockbank 

• Trustee must not be dictated to by beneficiaries b/c this is a delegation of their discretion. Beneficiaries views however may be a consideration
• Cannot acquiesce in the decisions of other trustees
• Although they cannot delegate their discretion, they can employ agents: s 54 Trusts Act Power to Employ Agents

• Beneficiaries
• Co-trustees
• Continuing trustees or successing trustees may sue former trustee for losses sustained by the trust fund

Co-trustees are jointly liable. E.g. 3 trustees, P can join all 4 in action regardless of who is at fault 

Several liability: P can choose to 1 trustee only; need not be trustee most at fault. Does not affect rights of contribution b/w trustees. Burden is on trustee that is sued to ensure each trustee pays their share.

Where there is a breach of contract, the D is personally liable for damages. 

In Eq, a claim for compensation may be a personal remedy. E.g. if trustee pays wrong person, trustee liable to restore trust estate to what should have been. Can also sue recipient of money --> restitutionary remedy.

If trustee misappropriates trust property, benficiary can sue for lost of trust estate, or sue for assets (where traceable) pursuing for equitable interest in asset.  

Benefits?

Assets may have increased in value

Trustee unable to repay amt misappropriated/insolvent

Proprietary claim persists against 3rd party/any creditors

NB: if 3rd party sells to BFPV w/o N, 3rd party has defence against proprietary claim

Re Dawson 

NB: The rules regarding causation and remoteness will depend on what duty has been breached. E.g. for negligence, a D is only liable for losses that are reasonably foreseeable. 

Dawson died 1932; Trusts created under will administered by 3 sons and Perpetual Trustee Co. Son1 in NZ in breach of trust, passed trust funds through to the Son2, who absconded with the money. Deliberate breach of trust. Son1 liable to recoup funds. 

NB HELD: Compensation calculated at date of judgment, not date of loss. MUST restore fully the trust estate to if the maladministration had not occurred. 

Target Holdings Ltd v Redferns

Youyang Pty Ltd v Minter Ellison Morris Fletcher

Youyang Pty Ltd v Minter Ellison Morris Fletcher

Facts?

Youyang Co was trustee of discretionary trust; issued chq to ME, who were to hold funds on trust until correct Cert of Deposit was issued. Cert of Dposit never issued, money paid out, in breach of trust. Court found that even if breach hadn't occurred, money would have been lost anyway.

RESULT: Reduction of compensation. 

Upheld Re Dawson rule, however must also consider content of particular trustee's undertaking. 

Estate to be applied for charitable or benevolent purposes: trust invalid - too broad. Any acts done by trustee also invalid. Trustee paid out 203000 pounds, all institutions had rec'd money they were not entitled to. Next of Kin sought to recover money. 

Issue fatal to claim - cannot recover where mistake is to law. Can only make restitutionary claim on mistake of fact. However, Ct of A said test is whether @ time pmt was made, the recp'nt rec'd anything more than he was properly entitled to rec've, the claimant has to exhaust remedies against executor (or trustee) before asserting a claim against a 3rd party. 

House of Lord agreed.

s113 Remedies for Wrongful Distribution of Trust PPTY

(1) Wrongfully distributed Trust Ppty - any person who has suffered a loss may enforce the same remedies 

(2) Except with leave of the QSC, claims cannot be made against 3rd parties until the person has first exhausted all remedies against trustee. NB - Can join trustee and 3rd party in claim.

(3) If a 3rd party has rec'd trust prop in good faith and it has altered their position in such a way that the Ct considers it inequitable to enforce the remedy, the Ct may make orders as it considers just

NB: this provision applies ONLY to RESTITUTIONARY claims against 3rd party (Personal claims). 

Tracing on Proprietary Claims

Tracing is a process of ascertaining where the ppty went: evidentiary process that is a prerequisite to asserting a proprietary claim. Case?

Murphy a real estate agent 220 properties in Portugal, Algarve, Mt Eden. Each prospective Purchaser entered contract to pay PP to M's associate held on trust. M applied some money to pay premiums on his life insurance policy (2/5ths financed from trust money). M committed suicide, wife and children rec'd money.

HoL held: prospective purchasers were collectively equitable owners of 2/5ths life insurance policy as the misappropriated trust ppty could be traced into the new asset. Followed in Aus - Rob Evans and Associates v European Bank

1. A transfer of the Ppty to P

2. A Court Declaration that P is entitled to a portion of the ppty

Disadv of proprietary claim

1. Asset may have depreciated

P has right of election whether to claim compensation or to claim proprietary remedy - Foskett v McKeown (can simultaneously claim both) 

What are the Deeming/Tracing Rules - Re Dissipations?

(a) Regarding dissipations

If a trustee puts trust money in same a/c as own money, and there is expenditure, the presumption is that dissipation of their own money first - Re Hallett's Case

Same applies to other types of trust assets - Brady v Stapleton (share asset case)

E.g. if a trustee takes $5000 held on trust and deposits it in personal bank a/c with $5000 balance, invests $5000 in shares and spends $5000 on holiday. 

"Presumption of honesty" - Trust money was invested in shares. Where money spend on appreciating asset, it is deemed trustee invests trust money. Trust estate can claim beneficial interest in profits.

Re Oatway

(iii) Mixing Money from 2 Diff. Trusts

Where a trustee opens personal bank a/c, deposits money from two trusts... 

2 rules: 

1. Proportionate distribution rule (pari passu)

2. First in first out rule (FIFO)

Use Pari Passu unless impractical to do so - Re British Red Cross Balkan Fund

Where is it impractical? Devaynes v Noble; Clayton's Case (several yrs of deposits all mixed up in a running a/c. No computer system. Difficult and laborious to ascertain proportions)

FIRST IN FIRST OUT RULE

It is deemed that the first deposit is the first to be spent. Calculate the amts to be paid out from these figures of what trust money is left in the a/c

Always apply Re Hallett's Estate and Re Oatway rules first to separate the trustees own funds from trust funds. Then distribute trust money proportionately per pari passu

E.g. $5000 from Trust A; $5000 personal; $2000 Trust B

Expenditure - $5000 profitable investment; $5000 holiday; Shares now worth $7000. 

Ans: Deemed appreciating asset purchased with trust money (Re Oatway); dissipated money was trustees personal money (Re Hallett's Estate). 7000 of trust money in a/c originally; Trust A is entitled to 5/7 shares and Trust B entitled to 2/7 shares. Final $2000 is considered trust money (Re Hallett) and is distributed proportionately.

e.g. A trustee takes $5000 from money held by him on trust for B, makes gift to C, who has no notice. C uses money and $5000 of personal money to buy shares. Shares fell in value to $8000. 

Ans: 3rd party C is innocent (volunteer) as to breach of trust. B can trace into C's hands, who will have no defence against proprietary claim. Look at the respective contributions b/w estate and volunteer and they take proportionately. Exception to BFPw/oN rule from Re Diplock

Scott v Scott

HCA: if you elect to take ppty itself that is the full measure of the relief available. I.e. if you have a depreciated asset, you cannot assert the proprietary claim over the asset and seek a top up through compensation.

Reason: underlying rationale of proprietary claim is that you are adopting the breach of trust and treating it as though it was an authorized transaction. It would hence be contradictory to also claim compensation on the basis of it being an unauthorised transaction.

Proprietary claim over property in hands of third party

1. Rationale?

2. Liability rule? 

3. Type of Remedy?

1. Rationale - Vindicates P's pre-existing ppty right in ppty which can be traced into the 3rd party's asset

2. Liability rule - For as long as 3rd party continues to have something which the P's ppty is traceable, P can claim proportionate share subject to 3rd party being BFPV w/o N. NB: Constructive notice would prevent 3rd party relying on this defence.

3. Remedy - Transfer to P or entitlement to proportionate share enforceable by sale of asset

Personal Claim in Re Diplock

 1. Rationale?

2. Liability rule? 

3. Type of Remedy?

1. Rationale - D has rec'd something which is not entitled to rec've at expense of 'true' beneficiary

2. Liability rule - Strict liability subject to 'change of position' defence Trusts Act s113

3. D pays back amt rec'd i.e. restitution