Social Dilemma
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[We gonna discuss about it soon]
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Administration of Trust [9th Post (Case Extract)]
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Title
Re Vickery, Vickery v Stephens [1931] 1 Ch 572.
Judge
Maugham J
Facts of the case
An executor of a will employed a solicitor to obtain payment of sums of money due to the estate and furnished him with signed authority to collect money on deposit with the Post Office. Six month later, a beneficiary under the will informed the executor that the solicitor had previously been suspended from practice and objected to his being employed in connection with the estate. The executor pressed the solicitor for settlement, finally placing the matter with another solicitor but by this time the solicitor made away with the money and it was said that having regard to what the executor had learnt of the reputation of the solicitor in question he ought to have cancelled the authority given him before the money got into his hands.
Ratio
1. Section 23 of the Trustee Act 1925 empowered the executor to employ the solicitor for the purpose in question in the first instance and Section 30(1) of the Act provided, inter alia, that a trustee should not be liable for the defaults of any person with whom any trust money or securities might be deposited unless the resulting lost happens through his own wilful default.
2. The meaning of ‘wilful default’ within Section 30(1) of the Act is relied upon the construction reached in Re City Equitable Fire Insurance Co. Ltd where in that case a person guilty of wilful default ‘knows that he is committing and intends to commit a breach of his duty, or is recklessly careless in the sense of not caring whether his act or omission is a breach of duty.’
Held
The executor not liable, finding that the appointment had been made validly and in good faith.
Note (Suggested hints)
Section 23 of the UK Trustee Act 1925 is identical with Section 28 of ours and so does their Section 30(1) with Section 35 of ours.
Administration of Trust [8th Post (Case Extract)]
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It is first Ramadhan and ‘first’ recalls me to the very first post of my blog – posted in July last year. This is the 8th post of Administration of Trust and ‘8’ symbolises ‘lucky’. I shall dedicate this new post to Faizal, another professional colleague of mine whose ears are always open to my words and, whose lessons and philosophies always redirect my short mind. Your source of help is the genesis of my career, dude!
Title
Re Lucking’s Will Trust [1967] 3 All ER 726, [1968] 1 WLR 866, Chancery Division.
Judge
Cross J (on Lucking’sliability)
Facts of the case
Nearly 70% of the shares of a private company (Stephen Lucking Ltd) were held by two trustees, Mr Lucking and Mr Block, as part of the estate of the deceased, Marry Lucking; about 20% belonged to Mr Lucking in his own right, and 1% belonged to Lucking’s wife. The directors in 1954 were Mr and Mrs Lucking and Mr Dewar, who was also the manager of the business. In 1956, Block was appointed as trustee to act jointly with Lucking. The company, which was engaged in the manufacture and sell of shoe accessories, had a small factory employing about 20 people. Dewar wrongfully drew some £15,000 from the company’s bank account in excess of his remuneration, and later became bankrupt. The money was lost, and a beneficiary sued the trustees for breach of trust.
Ratio
1) The preposition that, a trustee who is carrying on an unincorporated business is only liable for negligence in his supervision of a manager employed by him if the negligence amount to ‘wilful default’, used by counsel was relied on the decision in Re Vickery, Vickery v Stephens..
2) ‘Wilful default’ does not enter into the picture in this case at all. The conduct of the defendant trustees is to be judge by the standard applied in Re Speight; Speight v Gaunt that a trustee is only bound to conduct the business of the trust in such a way as an ordinary prudent man would conduct a business of his own.
3) What steps does a reasonably prudent man who finds himself a majority shareholder in a private company take with regard to the management of the company’s affair? He does not content himself with such information as to the management of the company’s affairs as he is entitled to as shareholder, but ensures that he is represented on the board.
4) Trustees holding a controlling interest ought to ensure so far as they can that they have such information as to the progress of the company’s affairs as directors would have. If they sit back and allow the company to be run by the minority shareholders and receive no more information than shareholders are entitled to, they do so at their risk if things go wrong.
Held
1) Lucking was in breach in failing adequately to supervise the manager, Dewar.
2) Block, on the other hand, was entitled to rely on what Lucking had told him about the company’s affairs, unless he had a positive reason to disbelieve him.
Note (Suggested hints)
1) Section 35 of our Trustee Act 1949 provides;
‘A trustee... shall be answerable and accountable only for his own acts, receipts, neglects, or default, and not for those of any order trustee, nor for any banker, broker, or other person with whom any trust money or securities may be deposited... nor for any other loss, unless the same happens through his own wilful default.’
2) This case is not covered by Section 30 of UK Trustee Act 1925 (Section 35 of our Trustee Act 1949), because Dewar was a manager of the business, rather than an agent. If a trustee validly appoints an agent, then on the authority in Re Vickery the trustee is only liable for the default of the agent in the event of his own ‘wilful default’ in lack of supervision.
3) The distinction between the present case and Vickery is that;
A higher standard ought in principle to be applied to supervision of an employee than of a professional agent (e.g. solicitor or accountant).
Administration of Trust [7th Post (Case Extract)]
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I shall dedicate this new post to Ku Amir, a professional colleague of mine whose endeavours, jokes and lessons teaches me a lot.
Title
Holder v Holder [1968] Ch 353. Court of Appeal.
Judge
Harman LJ
Facts of the case
The defendant (third defendant), Victor Holder, was appointed one of the executors of his father’s will. He was also tenant of two farms which were part of the estate. After the death of his father, Victor purported to renounce his office as executor, but the renunciation was technically ineffective. Nevertheless, probate was granted to two of the other executors named in the will. They put the two farms of which he was tenant up for sale by auction, where Victor, through an agent, bid successfully for them. The plaintiff, another member of the family, started an action to set aside the conveyance to Victor.
Ratio
1) A man may not both be vendor and purchaser; but Victor was never in that position here. He took no part in instructing the valuer who fixed the reserves or in the preparations for the auction.
2) Everyone in the family knew that he was not a seller but a buyer. Victor never assumed the duties of an executor. It is true that he concurred in signing a few cheques for trivial sums and endorsing a few insurance policies, but he never interfered in any way with the administration of the estate. It is true he managed the farms, but he did that as tenant and not as executor. He acquired no special knowledge as executor. What he knew he knew as tenant of the farms.
3) There was never be a conflict of duty and interest since Victor made no secret throughout that he intended to buy. The beneficiaries never looked to Victor as to protect their interests. They all knew he was in the market as purchaser. The price paid was a good one and probably higher than anyone not a sitting tenant would give.
Held
The sale would not be set aside.
Note (Suggested hints)
[First ratio] A trustee may not purchase trust property. If a trustee purchases trust property, he can abuse his position and buy at less than the best price obtainable. If he sells to the trust, he may be able to demand too high a price. The rule is very strict where trustees are concerned, so that there must be no possibility of the trustee taking advantage of his position.
[Third ratio] With regard to the proper disclosure of trustee interest to buy.
Administration of Trust [6th Post (Case Extract)]
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Title
Bartlett v Barclays Bank Trust Co. Ltd (o. 1) [1980] 1 All ER 139, [1980] Ch 515. Chancery Division
Judge
Brightman J (on the duty of the bank)
Facts of the case
The bank, as trustee under a settlement of shares in a private company, Bartlett Trust Ltd, had a controlling interest in that company. From 1960 the board of Bartlett Trust Ltd had no director representing the settlor’s family or acting for the bank. The bank made no objection at the annual general meeting of Bartlett Trust Ltd in 1961, when Bartlett Trust Ltd altered its investment policy to go into property development. The board of Bartlett Trust Ltd accordingly embarked on two hazardous development projects, without consulting the bank, and the bank did not insist on receiving a regular flow of information on the progress of these projects. Although one of these projects, at Guildford, was successful, the project at Old Bailey, London, which involved buying at a high price on the chance that planning permission for development would be granted, was unsuccessful, and Bartlett Trust Ltd sustained a large loss. The beneficiaries under the settlement sued the bank.
Ratio
1) It is the duty of a trustee to conduct the business of trust with the same care as an ordinary prudent man of business who would extent towards his own affairs.
2) The duty of a trustee is not to take such care only as a prudent man would take if he had only himself to consider. The duty rather is to take such care as an ordinary prudent man would take if he were minded to make an investment for the benefit of people for whom he felt morally bound to provide.
3) Businessman of ordinary prudence may, and frequently do, select investment which are more or less of a speculative character, but it is the duty of a trustee to confine himself to the class of investments which are permitted by the trust, and likewise to avoid all investment of that class which are attended with hazard. That does not mean that the trustee is bound to avoid all risk and in effect act an insurer of the trust fund.
4) Higher duty of care is plainly due from someone like a trust corporation which carries on a specialised business of trust management. A trust corporation holds itself out in its advertising literature as being above ordinary mortals. The trust corporation hold itself out as capable of providing an expertise which it would be unrealistic to expect and unjust to demand from the ordinary prudent man or woman who accepts, probably unpaid and sometimes reluctantly from a sense of family duty, the burden of trusteeship.
5) Under the law of contract, a professional person possessed of a particular skill is liable for breach of contract if he neglect to use the skill and experience which he professes, so a professional corporate trustee is liable for breach of trust if loss is caused to the trust fund because it neglects to exercise the special care and skill which it professes to have. Counsel for the bank did not dispute that the bank hold themselves out as possessing a superior ability for the conduct of trust business.
6) The prudent man of business will act in such manner as is necessary to safeguard his investment. If facts come to his knowledge which tells him that the company’s affairs are not being conducted as they should be, he will take appropriate action. What the prudent man of business will not do is to content himself with the receipt of such information on the affairs of the company as a shareholder ordinarily receives at annual general meetings. Since he has power to put him on enquiry, he will go further and see that he has sufficient information to enable him to let matters proceed as they are proceeding or to intervene if he is dissatisfied.
7) The bank wrongfully and in breach of trust neglected to ensure that it received an adequate flow of information concerning the intentions and activities of the boards of Bartlett Trust Ltd and Bartlett Trust Holdings Ltd. It was not proper for the bank to confine itself to the receipt of the annual balance sheet and profit and loss account, detailed annual financial statements and the chairman’s report and statement, and to attendance at the annual general meetings and the luncheons that followed, which were the limits of the bank’s regular sources of information.
Held
The bank failed in its duty whether it is judged by the standard of the prudent man of business or of the skilled trust corporation.
Administration of Trust [5th Post (Principle in Re Tempest; Miller v Cameron)]
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In re Tempest [L R] 1 Ch App 485
The discretion which the court exercises in appointing new trustees is not a mere arbitrary discretion, but is to be exercised in accordance with certain principles. Among them are the following:
a) In selecting a person for the office, the court will have regard to the wishes of the author of the trust, expressed in, or plainly deduced from, the instrument creating it.
b) The court will not appoint a person with a view to the interest of some of the beneficiaries, in opposition to the interest of others.
c) The court will have regard to the question whether the appointment will promote or impede the execution of the trust.
The mere fact of the continuing trustee refusing to act with the proposed new trustee would not be sufficient to induce the court to refrain from appointing him. For this would be to give the continuing or surviving trustee a veto upon the appointment of the new trustee. In such a case, it must be the duty of the Court to inquire and ascertain whether the objection of the surviving or continuing trustee is well founded or not, and to act or refuse to act upon it accordingly.
Miller v Cameron (1936) 54 CLR 572
The jurisdiction of the court to remove is exercised with a view:
a) to the interest of the beneficiaries;
b) to the security of the trust property; and
c) to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee.
In deciding to remove a trustee, the court forms a judgment based upon considerations to show that the welfare of the beneficiaries is opposed to his continued occupation of the office. Such a judgment must be largely discretionary.
It is fundamental that a trustee must carry out the terms of the trust. If he fails to do so, he may be removed as trustees by a court even if no harm has been done to the beneficiaries or to the trust.
Administration of Trust [4th Post (Appointment of Trustee)]
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Appointment of trustee
The court has an inherent power to appoint trustees as part of its supervisory jurisdiction over trusts which is supplemented by section 45 of the Trustee Act 1949. Under this section, the court may appoint whenever it is expedient that an appointment should be made and it is inexpedient, difficult or impracticable to bring this about without the assistance of the court. Application to the court may be made by a beneficiary or by a trustee, but if it is possible to appoint under a power in the trust instrument. If there is some person having power to appoint and seeking to exercise that power in good faith, the court will not interfere even if the proposed appointment is not one which it would itself have made.
The court’s assistance may properly be sought when no one has power to appoint, or no one is willing and able to exercise it, or where there is some doubt about whether the power has become exercisable. Recourse to the court may be the only way of replacing elderly or sick trustees who have become incapable of acting for the trust.
In Re Phelp’s ST (1885) 31 ChD 351, where the sole trustees was 85 years old, deaf, and failing in intellect, or of meeting the case where only person having power to appoint is too old or ill, or too young, to be able to exercise it.
The court will not, make an appointment which favours the interest of certain beneficiaries above others, nor will it willingly appoint against the known wishes of the settler.
In Re Tempest (1866) LR 1 Ch App 485 a trustee had predeceased the testator, and there was strong disagreement between the surviving trustee and a fiction among the beneficiaries over who should replace him. It was clear that the surviving trustee would be unwilling to act with the person appointed by the court at first instance.
Turner LJ considered that it would be going too far to say that a court would refuse to appoint a person with whom the existing trustees refuse to act since that would amount to giving them a veto. The court should inquire whether the objection is well founded ad act accordingly. Regard will be had to whether a proposed appointment will promote or impede the execution of the trust.
If you find it useful and/or there are some mistakes (be it in theory, in practice or grammatically) please leave comments as a small token of your appreciation for my work done. Your feedback is so important for the continuation of my carrier as a new-generation-blogger.
Administration of Trust [3rd Post (Standard of Care)]
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Standard of care
1. Speight v Gaunt (1883) 9 App Cas 1, 19
‘all those precautions which an ordinary prudent man of business would take it managing similar affairs of his own’.
The selection of investments involve additional considerations, for although ordinary business prudence may sometimes involve accepting a degree of risk or speculation, trustees must confine themselves to securities which are authorised by the trust instrument or by statute, and avoid hazardous investment.
2. Bartlett v Barclays Bank Trust Co. Ltd (o. 1) [1980] 1 All ER 139, [1980] Ch 515. Chancery Division.
A higher standard of care is required of paid trustees than of unpaid, non-professional trustees, in that the former will be held to the standards of skill and expertise which they claim to possess.
3. Re Whitely, Whitely v Learoyd (1886) 33 ChD at 355 per Lindley LJ.
‘He must take such care as an ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide’.
That duty includes the duty to seek advice on matters which the trustee does not understand, such as the making of investments, and on receiving that advice to act with the same degree of prudence. This requirement is not discharged merely by showing that the trustee has acted in good faith and with sincerity. Honesty and sincerity are not the same as prudence and reasonableness. Some of the most sincere people are the most unreasonable.
Although a trustee who takes advice on investments is not bound to accept and act on that advice, he is not entitled to reject it merely because he sincerely disagrees with it, unless in addition to being sincere he is acting as an ordinary prudent man would act.
4. Cowan v Scargill [1984] 2 All ER 750, [1985] Ch 270. Chancery Division.
Trustees must not refrain from acting in the best interests of the beneficiaries on grounds of personal conscience.
Where trustees for sale had struck a bargain for the sale of trust property but had not bound themselves by legally enforceable contract, they were held to be under a duty to consider and explore a better offer that they received, and not to carry through the bargain to which they felt in honour bound. In other words, the duty of trustees to their beneficiaries may include a duty to ‘gazump’, however honourable the trustees. Trustees have an overriding duty to obtain the best price which they can for their beneficiaries.
Administration of Trust [2nd Post (Choice of Investment)]
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Trustees must not make unauthorised investment and in selecting those which are authorized they must exercise the usual standard of care, bearing in mind that the trustees are not acting for themselves, but for others. In this context, the usual standard of care is that which ‘an ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide (in Re Whitely and later affirmed in Bartlett v Barclays Bank Trust Co. Ltd (No. 1). This may require the trustee to set aside their personal views as to the desirability of particular investments. They must not refuse to invest in armament or South Africa, if such investment is in the best financial interests of the beneficiaries, although if all the beneficiaries were adult they might take into account their views on the impropriety of a proposed investment (in Cowan v Scargill). The trustee must aim to seek the best return for the beneficiaries, judged in relation to the risks of the investment in question. For instance, they should not invest merely to accommodate the wishes of the settler (ibid).
By virtue of Section 6(1) of the Trustee At 1949, trustees are required to have regard both to the need for diversification and the suitability of the proposed investment to the trust. Any investment in a manner specified in Section 4 of the Trustee Act must be made on the basis of advice on the question of whether the investment is satisfactory with the matters of suitability and the need for diversification (subsection 2). The advice must be in writing (subsection 5) and must come from either a stockbroker obtained through the trustee’s bank manager, or the advice of an authorized accountant (subsection 3) unless the advice is being given by a trustee to his fellow trustees (subsection 6).
Obtaining advice does not permit the trustee to place blind faith in his adviser because the final decision cannot be delegated. He must consider the advice, and reach his own decision as a prudent man of business (subsection 2). Where advice was initially required, trustees must also consider at what intervals further advice should be sought upon the retention of the investment (subsection 4) and may incur liability if failure to exercise due consideration result in a loss.
If you find it useful and/or there are some mistakes (be it in theory, in practice or grammatically) please leave comments as a small token of your appreciation for my work done. Your feedback is so important for the continuation of my carrier as a new-generation-blogger.
