Trusts 4 Fiduciary Duties and Accessory Liability

Trustee Duties

Comply with the terms of the trusts and exercise functions in accordance with the prescribed standards of care and skill

Fiduciary Duties

Not to create conflicts between personal interests and duties to beneficiaries and not to make an unauthorised profit from their role as a trustee

No Conflict

A fiduciary must not put themselves in a position where their personal interests conflict with their duties to their principal

No Profit

Fiduciary must not obtain unauthorised benefit as a result of their position as a fiduciary, either for themselves or for a third party

Self-Dealing (Tito v Wadell)

Involves a trustee purchasing from/ selling to the trust

Using a company for self-dealing

Where the trustee is the controlling mind of the company, this is still self-dealing however where the trustee is merely a shareholder it is more nuanced and depends on the control of the shareholding

Fair Dealing

Invovles transacting directly with a beneficiary to buy their beneficial interest under the trust

Consequences of Fair-Dealing

Transactions is voidable unless the trustee can show they made full disclosure to he beneficiary, acted honestly and fairly and did not take advantage of the beneficiary

Conflict between Principals

Fiduciaries can proceed only if they have the fully informed consent of their principals or the transaction will be voidable

Remedy for a Transaction where there is a conflict between principals

Will depend on whether there is a profit or loss to the principal, this may required compensation or simply ending the fiduciary relationship

Direct Profit

Income which has been made directly out of the principal’s property belongs to the principal

Brown v IRC

A solicitor who used interest gained from the principal’s bank account had to compensate the principal

Indirect Profit (Re Macadam)

Where a trustee is appointed as a director of a company as part of a trustee and receives remuneration, this must be paid to the trust fund

Re Llewellin’s Will Trusts

A trustee may retain indirect profit where stated in the trust instrument

Keech v Sandford

A fiduciary may not exploit any opportunities that arise from the course of their appointment, in this case leasing a property for themselves as the landlord was unwilling to lease to the minor beneficiary

Boardman v Phipps

1. A beneficiary can develop a fiduciary relationship by taking on the burden of the trust
2. Trustees cannot provide consent, it must be the beneficiaries
3. Failure to provide total information to the beneficiaries will void the defence of consent

Attorney General for Hong Kong v Reid

A fiduciary cannot accept bribes and will be stripped of them

FHR European Ventures v Ceder Capital Partners

Remedies for breach of no-profit rule are: account of profits and constructive trust

Account of Profits

A personal claim which requires the trustee to pay the principal an amount equivalent to the profit they have made

A Constructive Trust

Provides protection against insolvency of the fiduciary and allows the principal to trace any subsequent profits made by the fiduciary

Accessory Liability

A personal claim against the person who dishonestly assisted or procured the trust

Group Seven Ltd v Nasir

Requirements for a Dishonest Assistance Claim: Trust in existence at the material time; Trustee committed a breach of that trust; Defendant assisted the trustee to commit the breach of trust; and Defendant’s assistant was dishonest

Assistance

Defendant must assist the trustee/ fiduciary in connection with the breach: it is sufficient if they help to plan, commit or cover up the breach

Ultrafam Ltd v Fielding

Assistance must be more than minimal, it must make the commission of the breach or its concealment easier than it would otherwise have been

Eaves v Hickson

Assistance is sufficient if the defendant procures or instigates the breach of duty

Dishonesty

A person who assists a trustee or fiduciary to commit a breach of duty is only liable if they act dishonestly

Royal Brunei Airlines v Tan

“Acting dishonestly or the lack of probity, which is synonymous, means simply not acting as an honest person would in the circumstances”

Ivery v Genting Casinos

“When dishonesty is in question, the fact-finding tribunal must ascertain subjectively the actual state of the individual’s knowledge or belief as to the fact”

Starglade Properties Ltd v Nash

The dishonest misapplication of trust property will amount to dishonest assistance even if the defendant does not know that there is a trust in place

Proof for Dishonest Assistance

Claimant must show that the assistance was the real or effective cause of the profits, not just the “but for” cause

Novoship Ltd v Mikhaylyuk

Dishonest assistant is potential liable for profits but this depends highly on their participation in the breach