Administration of Trust

1. Chapter 3: Dutiesof Trustees
1. Fiduciaryduty.
2. Duty of trustee uponappointment.
3. Duty to distribute.
4. Duty to act inthe bestinterestof the BNFinall matters.
5. Duty to keepaccounts.
6. Duty to provide information tothe beneficiaries.
7. Duty to invest.
Fiduciary duty (companydirectors, trustees& secretprofit)
A trustee havingafiduciarydutytowardsthe beneficiariesisnot permittedtoreceive anybenefit
fromhis positionasa trustee.
That positionisone of personal confidence towardsthe beneficiaries.
The dutieshe owestothe beneficiaries,must notinanywaybe permittedto come intoconflictwith
hispersonal interest,andif he doso,he will be liable toaccountto the beneficiariesforanyprofit
made by him.
Brav V Ford(1896), Lord Herschell:
"It isan inflexible rule of aCourtOf Equitythata personina fiduciaryposition, isnotunless
otherwise expresslyprovided,entitledtomake aprofit,he isnot allowedtoputhimself inaposition
where hisinterestandhisdutyconflict."
1. Company directors
Who are ina fiduciary positiontowards itsmembers(shareholders)
2. Trustees
A trustee mustnotallowhisinterestanddutiesconflict
KeechV Sanford:
Involvesthe renewal of alease where amarketlease wasbequeathed byatestatorto a trustee to
holdforan infant.Before the expirationof the lease the trustee appliedfora renewal onbehalf of
the trust and wasrefusedsucha grant, the lessorsaidthe grant wouldonly be made if the trustee
heldthe lease beneficially.The trusteeapplied forandreceivedsuchagrant forhisown benefitbut
it washeldthathe wasa trustee forthe infantandwas liable toaccountfor all the profits.
As Lord KingLC said:
"One mustconsiderthisas a trust forthe infant,forIverywell see if atrustee,onthe refusal to
renew,mighthave alease forhimself,few trustestate would be renewedtoa cqt.Though one do
not saythere isa fraudin thiscase,yethe (the trustee) should have letitrunoutthan to have had
the lease tohimself.This mayseemhardthatthe trustee isthe only personof all mankindwho
mightnot have the lease,butitisveryproperthat the rule should be strictlypursued,andnotinthe
leastrelaxed;foritisobviouswhat wouldbe the consequencesof lettingtrusteeshave the leaseon
refusal torenewtothe cqt"
The above rule whichappearsto be harsh isintendedtoprevent apossibleconflictbetweeninterest
and dutyon the part of the trustee.

2. 3. Secretprofit(Purchase of trust property,director'sfees,competition&misuse of opportunities
and information)
A trustee mustnottake any secretprofitfromhisposition asa trustee unlessthese have been
authorisedbythe trust instrument,orbythe beneficiariesif theyare sui juris, orbythe court. Profits
usuallyarisesinthese situations:
a) Director’sfee
Trusteesmayfindthatthe trustestate comprisedseveral shareholdingsinpubliccompaniesor
familycompanies.
In suchcircumstancesitmay be necessaryforthe trustees toappointone of the co-trustees asa
directorof the companies concernedtoensure thatthe interestsof the trustare protected.
If any director'sfeesare receivedbya director-trustee,thenthey are subjectedtothe general
rule that the trustee must notprofitfromhistrust
Re Macadam (1946)
The trusteeshada powertoappoint2 directorstoa company in whichthe trust hada
substantial shareholding.The trustees appointed2of theirnumberas directorsandthe issue
arose whetherthese trusteescouldretainthe directorsfeesreceived bythem.- The courtheld
that theywere-liable toaccount.
CohenJ held:
Since the opportunitytoreceive the feeswasgained asa resultthe excise of adiscretionvested
inthe trustees, andtheyhadputthemselves inapositionwhere theirinterest andduty
conflicted,thereforethe courtcannotallow themto make a profitoutof doingso.
b) Competition
A trustee maybe liable toaccount for profitsmade byhimwhere he entersintocompetition
witha businessbelongingtothe trust
IDC V Cooley
Re Thompson(1930)
c) Misuse of Opportunitiesandinformation
A trustee mayinthe course of histrusteeshipbe offeredthe opportunitytoacquire propertyfor
the benefitof the trust,forexample,sharesorlandatlessthan marketvalue
BoardmanV Phipps
If the trusteestakesthese profits,he willbe liable toaccount for the propertysoacquiredplus
any profitsthereon. The positionissimilarwhere he misusesinformation

3. d) Purchase of trust property
General rule:A trustee cannotpurchase trustpropertyfor himself (self-dealingrule)
If a trustee purchasestrustpropertyhe can abuse hisposition andbuyat lessthanthe bestprice
obtainable.
Similarlyif he sellstothe trusthe maybe able todemandtoo higha price.
The effectof such a purchase that the transactionisvoidable atthe instance of anyinterested
beneficiary,nomatterhowfair,openandhonestitmay have been.
The self-dealingrule isverystrictwhere trustee are concerned,sothat there mustbe no
possibilityof the trustee totake advantage of his position,whetherhe doestake advantage or
not.
WriehtV Morean
a trustee whohad resigned,purchasedtrustpropertyat a price that had beenfixedby
independentvaluers.One mighthave thoughtthatnotevena possibilityof conflict of interest
arose here.But howeverasthe arrangements beenmade whilehe wasstill atrustee
PrivyCouncil:thissale mustbe setaside.
Duty of trustee uponappointment.
Where a trustee acceptsan appointmenthe must:
a) Acquainthimselfwiththe termsof the trustinstrument
b) Inspectthe trust instrument
c) Ensure the trustee propertyistransferredintotheirnamesandintheircontrol
d) Investigate anypriorbreachof trust bythe retired/removedtrustee/sandmusttake action
to claimthe propertyor take legal actionif necessary.
Re Broden
A sumof moneyowedbycertainpersonstothe trust fund. The trustee didnotpress for payment.
Subsequentlythe debtorbecame bankruptanda claimcouldnotbe successfully made againsthim.
The newtrusteesbroughtan actionagainst the priortrustees.
The retiredtrusteeswere heldliable astheyshould have takenstepstoclaimthe moneyearlier.
Duty To Distribute
Duty to distribute mayoccurin3 circumstances:
a) Paymentof income toBNF or the capital share of one of several BNFwhohas fulfilledthe
contingenciesunderthe trust.
b) Distribution of the whole of the trustfundwhenall the BNFhave reachedfull age andare
absolutelyentitledtotrustpropertybetweenthemselves,as wasthe principle inSaundersV
Vautler
c) Distributionwhenthe trustisone for immediatedistribution inthe case of giftsundera will
or on intestacy

4. Trustee isunderdutyto distribute propertytothe personswhoare rightfullyentitledthereto:
a) Failure todo sowouldresultinBreachOf Trust (BOT)
EavesV Hickson:
The trusteeswere heldliable whentheymade paymentto wrongpersonsonthe faithof a
forgedmarriage certificate.
HilliardV Fulford:
The trusteeswere heldliable forerroneousbutbona-fide construction(ie interpretation) of
the trust deed.
b) Whenindoubt the trusteesshould:
Enquire (whichshouldbe the prudentandpreliminarystep)
Applytocourt for directions
Duty to Act in the Best interestofthe BNF in all matters.
a) Trusteesmustnotput theirowninterestbefore thoseof the beneficiaries
CowanV Scargill:
The trusteesrefusedtoapprove anannual investmentplanfor£200 unlesscertainclauses
were amendedwhichwouldhave the effectthatthe investmentwouldnotcompete with
the coal miningindustry.
The trusteeshere,were heldtobe furtheringthe interestof the coal miningindustryand
were notacting inthe bestinterest of the beneficiaries.
b) The duty to the beneficiariesisparamount,therefore the trusteesshould:
-Investinhighyieldingportfolios
-Puttheirownpersonal viewsaside
-The bestinterestof the beneficiariesare usuallytheirfinancial interest
c) Convertthe trust property
- Certaincircumstances,the trustee hastoconvertthe trust propertyintosomethingthat
will benefitnotonlyaparticularcqt butall the cqt
- For example if one of the trustpropertyisa house andone of the bnfsis stayinginthe
house then,JFthe trust instrumentallows,thenthe house be rentedoutandthe rent be
dividedequally.
Howe V Dartmouth:
Here there isa dutyto convertwhateverpropertyof the trustinto somethingvaluable for
the interestof the beneficiaries,subjectof course tothe trust instrument.

5. Duty to keepaccounts
A trustee hasa duty to keepaccountsandmaintainaccurate accounts of the trust property
Pearse V Green:
A trustee mustallowthe bnfsorhisSolicitorstoinspectthose accountswhenrequestedtodo so
Wroe V Seed:
A trustee whowas illiterateandthereforecouldnotkeepaccountshimself,wasjustifiedin
employinganagent tokeepaccounts
Section28 of TA:
Powerof trusteestoemployagentsforinstancetomaintain accounts.
Duty to Provide Informationto the beneficiaries
General Principle:
Trusteesare underdutyto provide informationrelatingto the trustfundto the beneficiaries
O'Rourke V Darbishire:
A beneficiaryhasaright of access to the documenthe desiresbecause theyare beneficiariestothe
trust
Re Marquessof Londonberry'sSettlement
Exception:
While the beneficiarieshave the righttoaccessto see the decisionsof the trustee,theymaynotbe
givenaccessto documentsthatrecordsthe reasonsfor the decision of the trustees,andespecially
so indiscretionarytrusts.
Re Marquessof Londonberry'sSettlement:
The trusteeswere todistribute the trustfundinsuchproportions astheythinkfit,butone of the
recipientscomplainedthatshe receivedtoolittle andtherefore wantedtoinspectall documents
whichwouldhave indicatedthe reasonwhichledthe trusteestodoas theydid.The court didnot
allowthe bnfstosee the reasons.
Duty to invest