At this stage, we are talking about the administration (running) of the trust and execution of duties of
trustees. In addition to duties, trustee is given powers which he may need to exercise in order to run this
trust.
Subject matter of trust has been transferred in line with the formalities and completely constituted.
Now the trust is running and is valid and enforceable as a private trust. Settlor drops out of picture here.
Settlor more or less a stranger even if they’re alive. Settlor cannot be called in to resolve a dispute with
the trust now. Pure horizontal relationship between beneficiary and trustee.
Once trust is fully functional, without a B a trustee is left all to himself. Trustee can do whatever they like
with no one to restrict them.
Fiduciary duties of trustees:
(a) Fiduciaries must not retain any secret profit
Trustee is also a fiduciary. A fiduciary is somebody who asks for another person being bound by duties of
loyalty by that other person. Various persons which occupy different fiduciary positions including a
trustee. In equity, the specific duties that attach to anybody acting as a fiduciary. If you are a fiduciary no
matter the position, then there are specific duties which attach to you just by virtue of being a fiduciary.
Trustee has 2 categories of duties to discharge in administration of trust- (1) fidcuairy duties (2) non-
fiduciary duties. Where T violates this fiduciary duty, the remedy is proprietary. Duty to not make secret
profit or accept bribes in administration of a trust. If bribe is received, court could be asked to compel
trustee to transfer bribe money to beneficiary so beneficiary can own it.
If F makes secret profit, the B is entitled to have that accounted for. Sometimes known as bribes or
unauthorised profit.
In Reading v. A.G., Reading was an army staff-sergeant stationed in Egypt between 1943-1944. He
was paid substantial sums by local civilians to ride in uniform in their lorries carrying contraband
goods. His presence enabled the lorries to pass civilian police check-points unsearched. He was
caught and the British govt. confiscated £19,000 from him. Held that Reading was in a fiduciary
relationship to the crown and was, therefore, under a duty to account for the profit made. Reading
was a British Sergeant who was stationed in Egypt. He was corrupt. He worked with local
businessmen who dealt in contraband goods to enable them to go through police checkpoints
without being searched. They paid him a lot of money to ride in their lorry, so they were passed
without search when they reached the checkpoints. Reading made a lot of money but he was
discovered and arrested. £19,000 was found in his position. Crown seized the money saying it
belonged to the Crown as he was an fiduciary to the crown and obtained his bribe money in his
course of his fiduciary responsibilities.
At the Court of Appeal stage, the fiduciary relationship was attributed in this case to “the user of the
uniform and the opportunities and facilities attached to it, and the suppliant obtained the sums
claimed by acting in breach of the duties imposed by that relation.” CoA agreed and Reading was
asked to surrender the money to the crown. By virtue of his uniform he was able to obtain that
money and that uniform represented authority from the crown so put him in a fiduciary relationship
with the crown. Money was confiscated as obtained as a result of breach of fiduciary duty.
, (b) The trustee must not purchase the trust property (self-dealing rule)
Equity imposes this obligation on trustee for stopping him from buying the trust property. If he’s
allowed to buy it, he will be dealing with himself, both vendor and purchaser.
Keech v. Sandford – defendant/trustee obtained renewal of lease held on trust for himself, though it
was due to the refusal of the landlord to renew the lease for the infant beneficiary. Held that the
defendant held the renewed lease on trust. Trustee held a lease on trust for an infant beneficiary.
When lease expired, he wanted it to renew on behalf of the infant. Landlord refused as beneficiary
was still an infant. However, landlord said trustee would take the lease for himself, he would grant a
renewal so trustee though there wasn’t another choice but to do so. If the trustee was going to take
the lease for himself, he would grant the renewal. There was no other choice but to take the lease
for himself otherwise landlord would have taken it back and given it to third party. He pursued it on
behalf of the infant. Trustee was sued. Court held the lease would be held on constructive trust for
the infant as the trustee wasn’t allowed to get the lease even though he was acting honestly. Equity
held him liable to account for the beneficiary even though he was honest. Inflexibility of the self-
dealing rule- it has nothing to do with dishonesty, contrast with previous situation with Reading
where he actually engaged in fraud. Here, he was honest, but he was still liable.
Compare Holder v. Holder where an executor purchased at an auction two farms belonging to the
estate. Sale held to be valid on the special circumstances of the case: The executor/purchaser was
only technically an executor because he had performed only minor acts of administration before
renouncing his executorship. Mr Holder (D) was appointed executor of will. When he was aware of
his appointment, he didn’t want to be an executor and renounced it asap. After that renunciation,
the estate auctioned property belonging to estate, and he bought 1 of the properties. He was sued
by the estate and told he was liable to account as he was an executor. Even though he renounced his
executorship, there was evidence that before he renounced, he has performed some minor acts of
executorship so technically he was still an executor when he purchased the property. This argument
wasn’t successful as the minor acts meant he was practically not an executor, and the transaction
was allowed. Too minor acts. This shows that so long as you aren’t in a fiduciary relationship, you can
buy trust property.
NB: where the trustee has obtained the fully informed consent of the principal to the transaction or
the consent of the court, the transaction will be valid. Doesn’t mean trustee can never purchase
trust property, he can if he satisfied certain conditions such as obtaining full informed consent of the
beneficiary and other trustees. If you are a well informed trustee, go to court and put application to
court asking for courts permission to buy property. Court may grant permission so entitled to keep
property.
(C) The trustee must not purchase the beneficiary’s interest (fair-dealing rule)
Similar to self-dealing. Here, trustee not allowed to purchase the beneficiaries beneficial interest.
Trustee in certain conditions can so long as he did it with fully informed consent of the beneficiary
and made full disclosures and purchased at market value. If these are met, then he can purchase the
beneficial interest. Transaction not automatically void, only voidable so the beneficiary has a right to
apply to court to set it aside and in that application, court can look into details of transaction to see
if the conditions are met.
“... if a trustee purchases the beneficial interest of any of his beneficiaries, the transaction is not
voidable ex debito justitiae, but can be set aside (by the beneficiary) unless the trustee can show
that he has taken no advantage of his position and has made full disclosure to the beneficiary, and
that the transaction is fair and honest.” (Tito v Waddell (No 2) [1977] 3 All ER 129, per Megarry V-C)
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