DUTIES & POWERS OF TRUSTEES

1) Trustees have a duty to invest. What are the investments allowed to trustees?
-Where the trust does not expressly prohibit certain investments, investments
authorised under the trust instrument may be made. (Re Harari’s Settlement, Re Lake)
-Trustees may also choose to make investments approved under sec. 4 provided that
they are not in contrary to the authorised investment clauses in the trust instrument.
*Loans to approved companies (subject to requirements in sec 4(2))

2) Discuss the standard of care expected of a trustee when exercising his duty to invest.
Is the standard of care the same for professional and non-professional trustees? Why?
Standard of care required from trustees in making an investment(non-professional)
Speight v Gaunt: Trustees must exercise the standard of care of an ordinary prudent
businessman acting in his own affairs. The trustee is not expected to posses knowledge of
a specialist in investments.
Re Speight: Jessel MR “….a trustee ought to conduct the business of the trust in the same
manner that an ordinary prudent man of business would conduct his own…”
Learoyd v Whiteley: The general rule requires a trustee to exercise a degree of diligence
in the execution of his office no higher than a man of ordinary prudence would exercise
in the management of his own private affairs. However, he is not allowed to exercise the
same discretion in investing the money of the trust as if he were a person dealing with his
own property.
Cowan v Scargill: “Honesty and sincerity are not the same as prudent and
reasonableness”. Good faith is not enough.
Standard of care required from professional trustees(trust corporations or banks)
Bartlett v Barclays Bank Trust: Where professional trustees view themselves as having
expertise which would be unrealistic to expect a prudent man to have, they must be
judged by the standard of skill and expertise that they profess to have.

3) Discuss the significance of Cowan v Scargill [1984] in relation to the trustees’ duty of
investment.
Facts: The defendant was president of the mineworker’s union and trustee of the miner’s
pension fund (which had an investment plan including investments in South Africa and
the oil industry). The defendant felt investing the miner’s pension fund in oil companies,
which were in direct competition with the coal industry, would not be in beneficiary’s
best interest, so he proposed to withdraw this investment.

Held: The trustee has a duty to maximise returns on the trust fund and it was not up to the
defendant to reject the investment advice on the basis that he had personal/moral
objections to the investment; the defendant therefore lost the case and had to take the
advice from the miner’s pension fund investment plan
Trustees’ investment duty

Megarry V-C “The starting point is the duty of trustees to exercise their powers in the
best interests of the present and future beneficiaries of the trust… When the purpose of
the trust is to provide financial benefits for the beneficiaries, as is usually the case, the
best interests of the beneficiaries are normally their best financial interests.”

Additional points:

1. In considering what investments to make trustees must put on one side their own
personal interests and views. Trustees may even have to act dishonourably though
not illegally.
2. The standard of care required of a trustee is that 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” (Re Whiteley,
1886). This duty includes the duty to seek advice on matters the trustee does not
understand .

4) How does a trustee avoid a financially lucrative investment due to his personal views
without being in breach of trust?

5) April 2011 Part A Questions 1 and 4

1. Rick and Aron are the trustees of a trust fund held for the benefit of Robert for life and
the remainder for his children, who are minors in equal shares. Rick told Aron that since
Robert is a teetotaler and non-smoker, none of the trust funds should be invested in any
company, which engaged in the alcohol or tobacco industry, although the trustees knew
that the best returns on investment could only be achieved from these two industries.
Advise Aron.

2. What standard of care is imposed by the law of trusts upon trust investments made or
to be effected by its trustee?
6) April 2010 Part A Question 5

Harry and Alan are trustees of a trust fund set up by the late Dato Raymond. They wish to
invest the trust fund by providing a loan to TRZ Sdn Bhd. Advise the trustees as to their
duties and responsibilities, particularly in relation to investments in the said company

7) Define ‘fiduciary’. Give examples of relationships which give rise to fiduciary duties.
-A fiduciary is someone who had undertaken to act for on behalf of another in a particular
matter in circumstances which give rise to a relationship of trust and confidence. The
distinguishing obligation of a fiduciary is the obligation of a fiduciary is the obligation of
loyalty. The principle is entitled to single-minded loyalty of his fiduciary. The various
obligations of a fiduciary merely reflect different aspects of his core duties of loyalty and
fidelity. Breach of fiduciary obligation, therefore, connotes disloyalty or infidelity.
-The most common circumstance where a fiduciary duty will arise is between a trustee,
whether real or juristic, and a beneficiary.
- Others, such as corporate directors, may be held to a fiduciary duty similar in some
respects to that of a trustee. This happens when, for example, the directors of a bank are
trustees for the depositors, the directors of a corporation are trustees for the stockholders.
- The fiduciary functions of trusts and agencies are commonly performed by a trust
company, such as a commercial bank, organized for that purpose.

8) How are trustees’ fiduciary duties different from trustees’ other duties?
9) June 2014 Part A Question 1
A trustee is a fiduciary. With reference to decided cases, describe what is meant by
‘fiduciary’ and briefly discuss TWO(2) duties of a fiduciary.

Definition of fiduciary duty in Bristol and West Building Society v Mothew :

‘A fiduciary is someone who has undertaken to act for or on behalf of another in a
particular matter in circumstances which give rise to a relationship of trust and
confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The
principal is entitled to the single-minded loyalty of his fiduciary. The core liability has
several facets. A fiduciary must act in good faith; he must not make a profit out of his
trust; he must not place himself in a position where his duty and his interest may conflict;
he may not act for his own benefit or the benefit of a third person without the informed
consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to
indicate the nature of fiduciary obligations. They are the defining characteristics of the
fiduciary.’

George Bray v John Rawlinson Ford

Lord Hershell said: ‘It is an inflexible rule of the court of equity that a person in a
fiduciary position, such as the plaintiff’s, is not, unless otherwise expressly provided,
entitled to make a profit; he is not allowed to put himself in a position where his interest
and duty conflict.

Duties of a fiduciary
1. Trustee must not profit from the trust
A trustee must not make any unauthorised profit from his position as a trustee. Trustee
should not make any profit from the trust. Any profit made by the trustees due to their
position as trustees belongs to the trust and beneficiaries. To make a profit would be a
breach of trust. Unless it is authorized by the trust instrument or with the consent of all
beneficiaries or by the court.

Keech v Sanford: A market lease was bequeathed by a testator to a trustee to hold on for
an infant. Before the expiration of the lease the trustee applied for a renewal on behalf of
the trust and was refused such a grant as the lessor said the grant would only be made if
the trustee renewed the lease in his own favour and not the trust’s. The trustee applied for
and received such a grant for his own benefit, but was then held liable to account for all
the oprofits made.
Held: Lord King, where it is the trustee’s duty to hold the lease on trust for the
beneficiary, the trustee should have let the lease expire rather than have it renewed in his
favour.

Boardman v Phipps
2. Trustee must not make any secret profit
A trustee has a duty to not take any secret profit, unless authorised by the trust
instrument, by the beneficiaries (in full legal capacity) or by the court.
Keech v Stanford: Trustee of a lease sought to renew the lease for the benefit of the infant
beneficiary. The owner refused to renew the lease, but was prepared to renew with trustee
as tenant. Held: Trustee held the lease on a constructive trust for the benefit of the infant.

Director’s fees
Applies to where trustees are appointed as directors of a company due to the trust’s
shareholding in the company.
Re MacAdam: Trustee used their position to appoint themselves as directors of a
company. Held: Trustees were liable to account to the trust all the fees they received as
directors. There must be a link between the position and the profit made.

Purchase of trust property (self-dealing rule)

General rule: Trustees cannot purchase trust property for himself. The self-dealing rule is
strict in order to prevent any remote possibility of a trustee taking advantage of his
position, whether he does take advantage or not.
Tito v Waddell: per Megarry J “ the self dealing rule is…that if a trustee sells the trust
property to himself the sale is voidable by any beneficiary…however fair the
transaction.”
Wright v Morgan: The will stated that the property was to be offered for sale to the
trustee beneficiary at a price fixed by an independent valuer. The trustee beneficiary
assigned this option to purchase to another trustee who purchased the property at a fixed
price by an independent valuer. Held: there was a conflict of duty and interest and the
sale would be set aside on the application of a beneficiary, even though there was
independent valuation.

10) June 2013 Part A Question 4

11) December 2013 part B Question 1(b)
12) June 2012 Part A Question 4

13) What were the documents under discussion in the case of Re Marquess of
Londonderry Settlement [1964]? What was the court’s decision relating to those
documents? What was the court’s definition of ‘trust documents’?

14) Amin has recently been appointed as a trustee. What are his immediate duties on
appointment? In your answer, explain what is meant by ‘immediate duties’ and
explain the rationale for these duties being immediate duties.

15) Why are trustees required to act unanimously?

16) Are duties of original trustees the same as duties of replacement/additional trustees?

17) June 2012 Part A Question 4

18) June 2012 Part C (a)
19) June 2012 Part A Question 1
20) April 2011 Part A Question 5
21) Oct 2009 Part A Question 1
22) Dec 2013 Part B Question 2