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Summary EQUITY AND TRUST EXAM NOTES (COMPREHENSIVE)
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EQUITY AND TRUST EXAM NOTES (COMPREHENSIVE)- Everything you need to know including academic commentary from required readings.
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Express Powers of AppointmentWhen a settlor creates a trust in her lifetime, she will usually appoint the first trustees of the
trust, e.g. by declaring herself trustee, or by including a clause in the trust instrument
appointing herself and/or others as the trustees.
Once the trust has come into existence, however, the settlor has no right to appoint new trustees
unless she reserves a power of appointment to herself in the trust instrument. Alternatively she
may give such a power to another person.
In the case of a testamentary trust, the settlor obviously can do no more than appoint the first
trustees, but again she may give a power to appoint new trustees to another person.
Power to appoint new trustees and a power to remove existing trustees are both fiduciary
powers, with the result that they cannot be exercised by the donee of the power in a way that
creates an actual or potential conflict between her personal interest and the interests of the
beneficiaries.
- Authority = Re Skeats Settlement, a case concerning a marriage settlement under which
the husband and wife were empowered to appoint the trustees; they appointed the
husband and Kay J set this appointment aside.
- However, David Pollard and Dawn Heath have persuasively argued that this decision
was context-specific and should not necessarily be followed in every case.
- The question of whether a power is fiduciary must turn on the circumstances of the case,
and in the context of pension scheme trusts there are good reasons for thinking that a
power of appointment vested in an employer will often not be fiduciary, including: the
ongoing interests of the employer in the scheme; the fact that employer powers under
pension schemes are generally not fiduciary; and the existence of other limits on
employer’s powers, and especially its implied duty of good faith.
If no power to appoint new trustees is conferred by the trust instrument-, then they may be
appointed either under the statutory powers contained in the Trustee Act 1925 s.36 or the
Trusts of Land and Appointment of Trustees Act 1996 s.19, or by the court.
Note that a person appointed trustee may disclaim the office, for “a man cannot have an estate
put into him in spite of his teeth”. The disclaimer of a trust by a person appointed trustee must
be a disclaimer of the whole trust; it cannot be partial.
- Ideally it should be in writing (or by deed), but it may also be oral,9 by conduct,10 by
mere inactivity (it seems),11 or signified on behalf of the person appointed trustee by
counsel at the Bar.
Note, too, that trusts do not fail for want of trustees. If a testator creates a trust in her will, but
fails to appoint trustees or appoints trustees who refuse or are unable to act or have ceased to
exist, then the trust does not fail (unless its operation was conditional upon a specific trustee
undertaking the trust).
- Nor does it fail if the intended trustees disclaim ownership of shares or land secretly
transferred into their names by a settlor. The property or the beneficial interest therein
remains in the settlor or the personal representatives of the testator to be held upon the
trusts of the settlement or the will as the case may be.
,Distributive and Administrative Roles of Trustees
Trustees have two roles to perform: a distributive role, concerned with distributing income
and capital to authorised beneficiaries (or applying them to authorised purposes), and an
administrative role, concerned with safeguarding and developing the value of the trust fund.
When performing her distributive role a trustee must ensure that trust property is distributed
only to those entitled to benefit under the trust (or applied only to those purposes authorised by
the trust).
1. She must act in the beneficiaries’ exclusive interest and must not favour her own, or
anyone else’s, interests over theirs when taking decisions about the trust affairs.
2. She must exercise her discretionary powers impartially, taking account of all and only
relevant factors
3. and must not exercise such powers capriciously or in a way that is contrary to the
sensible expectations of the settlor.
4. When performing her administrative role, the trustee must comply with the limits of her
authority, act in the exclusive interest of the beneficiaries and act with reasonable care.
Co-Trustees
Where there is more than one trustee, each trustee is personally responsible for acts
performed in the administration of the trust.
Trustees can’t collectively delegate their duties to another person, except where this is
authorised by the trust instrument or by the Trustee Act 2000, which gives them broad
powers to delegate their managerial, but not their distributive, functions.
The trustees must act unanimously except where the settlement or the court directs
otherwise,8 although the trustees of charitable trusts and pension trusts may act by a
majority.
MAIN DUTIES OWED BY TRUSTEES
A. Duty to Comply with the Terms of the Trust and the General Law
A trustee owes a duty to hold the trust property in an authorised form for the beneficiaries (or
for the charitable purposes) identified by the settlor, and to account to them for her dealings
with the property (or in the case of charitable trusts, to the Charity Commission and Attorney
General).
- To enable the trustee to carry out her managerial and distributive roles, she is typically
given powers—to buy and sell trust property, to accumulate income, to distribute
income and capital, and so on—but she must not exercise these powers in a manner that
would be inconsistent with the terms of the trust, for example by distributing property
to anyone who is not a beneficiary (or by applying charitable funds to some
unauthorised purpose18).
- Additional limits may also be placed on the trustee’s powers by the settlor or by the
general law: for example, she may be forbidden to sell particular trust assets, or to buy
particular types of property for investment purposes.
- When describing such limits on the trustee’s powers it can be said that she owes a duty
to comply with the terms of the trust and the general law.
Youyang Pty Ltd v Minter Ellison Morris Fletcher the High Court of Australia said that “perhaps
the most important duty of a trustee is to obey the terms of the trust”, and in AIB Group (UK) Plc
, v Mark Redler & Co, Lord Toulson spoke of a trustee owing “a duty to preserve the assets of the
trust except in so far as the terms of the trust permit [her] to do otherwise”.
The claims which beneficiaries can bring, and the remedies to which they are entitled, in cases
where the trustee purports to dispose of trust property in an unauthorised transaction:
- In such cases, the courts do not fix the trustee with a personal compensatory liability.
- Courts generally treat the unauthorised disposal of trust property as ineffective to
discharge the trustee from her continuing duty to keep the trust property in an
authorised form, with the result that she must either return the misapplied assets in
specie, or obtain and deliver replacement property, or pay in the current monetary
value of the missing property.
The duty owed by trustees and other stewards of property to obey instructions and comply with
the terms of their authority when dealing with the property is quite often described as a
“fiduciary duty.’’
- However, Charles Mitchell - it would be best if the courts were to avoid this usage, as it
creates a serious risk of confusion with a different duty that is even more commonly
termed a “fiduciary duty”, namely the duty owed by a person in whom trust and
confidence are reposed to act exclusively in the interests of her principal.
B. Fiduciary Duty to Act Exclusively in the Beneficiaries’ Interests
i. The Duty Stated
A trustee must not allow her personal interest to come into conflict with the
beneficiaries’ interests, for example by contracting to buy trust property,33 or by taking
some other profit-making opportunity for herself that was offered to her in her capacity
as trustee.
ii. The Duty Distinguished from Other Duties
Millett LJ’s judgment in Bristol and West Building Society v Mothew,- he stresses the importance
of distinguishing clearly between fiduciary duties and the other duties which trustees and other
fiduciaries can owe.
- Facts: The defendant solicitor acted for the purchasers of a house and also for the
claimant building society which made the purchasers a loan towards the purchase on
condition that the balance of the purchase price would be paid by the purchasers
without further borrowing. The loan was to be secured by a mortgage over the house.
The claimant instructed the defendant to report any proposal by the purchasers to
create a second mortgage or otherwise borrow money to finance part of the purchase
price. The solicitor knew they were arranging to create a second charge on the property
to secure an existing debt, but failed to report this, due to an oversight. The claimant lent
the money, the purchase was completed, the borrowers defaulted on their mortgage
repayments, the claimant foreclosed, and the house was sold at a loss. The claimant
sought to recover its loss on the transaction from the defendant. The Court of Appeal
held that the claimant could recover damages for negligence, but that the defendant had
committed no breach of fiduciary duty since his reporting failure was unconnected to
the fact that he was also acting for the purchasers.
MILLETT L.J.: ‘’The expression “fiduciary duty” is properly confined to those duties which are
peculiar to fiduciaries and the breach of which attracts legal consequences differing from those
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