Administration of Trust [16th Post (Fiduciary Nature of Trusteeship)]
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To Enong, welcome to my blog (again!). Up till now, for trustee, feel free to review my post on fiduciary nature of trusteeship, power of advancement, power of maintenance, tracing at equity, appointment of trustee, choice of investment and standard of care. More to come; remuneration and other relevant cases on demand. J
Fiduciary nature of trusteeship
1. The nature of a trustee’s duty towards a beneficiary is fiduciary. Examples of other fiduciary relationships are those of agent and principal, company director and company, and partner and co-partner. Additionally, the duties owed by solicitors, accountants, guardians and receivers are sometimes regarded as fiduciary.
2. Where a fiduciary has a discretion, he must not have a personal interest in exercising the discretion in a particular way. A trustee must be motivated to benefit the trust, not to himself. That is not to say that fiduciaries are not entitled to receive any benefit for their services but the amount of their reward must not depend on the manner in which their discretion is exercised. Banks, accountants and solicitors are after all unaccustomed to work for nothing.
3. A trustee must not set himself up in competition with the trust.
Facts
In Industrial Development Consultant Ltd v Cooley [1972] 1 WLR 443, the defendant, managing director of the plaintiff company, had been negotiating on its behalf a contract with the Eastern Gas Board. The negotiations failed and it was clear that the Eastern Gas Board objected to the plaintiff company particularly. The Eastern Gas Board then began negotiations with the defendant personally and the end result was that he terminated his contract with the plaintiff company and contracted with the Eastern Gas Board himself on similar terms to those originally proposed on behalf of the plaintiff company.
Held
The defendant was constructive trustee for the company of the benefit of the contract.
4. Duty not to make secret profit. A trustee must not make any profit by virtue of his position.
a) Facts
In Keech v Sandford (1726) Sel Cas Ch 1, the trustee took over the benefit of a lease, which had been devised to the trust, when that lease expired. The trustee would not have been in a position to do so had he not been trustee. The lessor had refused to renew the lease for the trust on the ground that the beneficiary was an infant against whom it would be difficult to recover rent. The trustee thereupon took the lease for his personal benefit and profited from it.
Held
The trustee was the one person in the world who could not take the lease for his own benefit because by doing so h would be profiting from his position. He had to assign the benefit of the lease to the infant and account for the profit received.
b) Facts
In Re Macadam [1946] Ch 73, trustees who used their position to appoint themselves to directorships of a company were held liable to account to the trust for all the fees they received as directors. This type of situation can commonly arise in private company because eligibility for appointment to directorships can depend on the legal ownership of a minimum number of shares, and indeed trustees may be under a duty to procure their representation on the board if it is necessary in order to safeguard the value of the trust share.
The causal connection between position and profit must be established. It was not in Re Dover Coalfield Extension Ltd [1908] 1 Ch 65. A case similar to Re Macadam, but where a trustee had already become a director before becoming trustee.
5. Misuse of opportunities and information.
Facts
In Boardman v Phipps [1967] 2 AC 46. House of Lord, Boardman was solicitor to a trust, whose property included a large but not majority holding in a company, Lester & Harris Ltd. He became worried about the competence of the management of the company, tried to persuade the managing trustee of the trust to acquire a majority holding in the company. His attempts at persuasion were unsuccessful, so Boardman decided to make the acquisition himself. He did so and then, by selling off some of the assets of the newly acquired company, Boardman made a large profit for himself. Additionally, because the trust still had a large share in the same company, his activities resulted in a large profit for the trust as well. It appeared that in negotiating for the majority shareholding he had obtained information in his capacity as solicitor to the trust which he would not otherwise have obtained. Phipps, a beneficiary under the trust, sued for an account of profit.
Held
Boardman held the shares acquired as constructive trustee for the trust and he must account for any profits made.
However, he was entitled to remuneration on a quantum meruit basis as payment on a liberal scale in respect of the work and skill employed in obtaining the shares and the profits therefrom.
6. A trustee may not purchase trust property.
For Holder v Holder and Wright v Morgan, please refer to the other worksheet / post.
It is imperative to bear in mind that the term 'trustees' not in all circumstances necessarily means the one who are to be regarded as the close relative of the testator who were appointed base on their personal quality of trustworthy and good values. 'Trustee' can be a solicitor, bank, and accountant who are to be recognized as paid trustee. They are paid not for the manner in which they exercise their discretion but for any expertise or skill employed. With regards to 'trustees' the one who have blood relationship with the testator and beneficiaries aforementioned, they are generally not entitled to any money whatsoever unless sui juris beneficiaries has consented to it or it is the intention of the testator through the trust instrument.