Term
| Lord Walker in Schmidt v Rosewood Trust Ltd: |
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Definition
It is fundamental to the law of trusts that the court has jurisdiction to supervise and if appropriate intervene in the administration of a trust, including a discretionary trust.
Endorsed Holland J in Randall v Lubrano. |
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Term
| s 73 of the Trustee Act 1956 |
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Definition
| The court is empowered to relieve a trustee wholly or in part for a breach of trust if the trustee has acted honestly and reasonably, and ought fairly to be excused for the breach of trust. |
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Term
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Definition
| The Act is a statement of what powers trustees will generally have unless the trust deed says otherwise. This includes the powers of management (sale, lease etc); investment and disposition, appointing agents (s 29), delegation if absent or incapacitated (s 31), carry on the testator's business (s 32) |
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Term
| Who originally spoke of the irreducible core of obligations owed by the trustees? In what case? |
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Definition
| Millet LJ in Armitage v Nurse. |
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Term
| What was the irreducible core as Millet LJ conceived it comprised of? |
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Definition
| The duty to perform the trust honestly and in good faith for the benefit of the beneficiaries: basically anything excepting fraud. |
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Term
| What was Professor Penner's criticism of Millet LJ's conception of the irreducible core? |
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Definition
| Professor Penner notes that to conceptualise the irreducible core as one of fraud, the core becomes a standard of fault rather than an obligation/duty, which confuses the nature of duty with that of liability. |
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Term
| What was Professor Hayton's suggestion for the irreducible core of trustee's duties? |
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Definition
the duty to disclose trust information
the duty to account to beneficiaries for the stewardship of the trust property |
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Term
| Butler and Flinn's four irreducible duties for trustees: |
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Definition
- a duty to perform the trust
- a duty to act for the benefit of the beneficiaries
- a duty to ensure that the trust property can be identified at any given time
- a duty to act in good faith |
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Term
| The Butler list of default duties: |
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Definition
(a) to make acquaintance with the trust’s terms;
(b) to adhere to the trust’s terms;
(c) to maintain impartiality between beneficiaries;
(d) to act in the beneficiaries’ best interests;
(e) not to profit from trusteeship;
(f) to act gratuitously;
(g) to invest;
(h) not to delegate;
(i) to be active;
(j) to act unanimously;
(k) to pay correct beneficiaries;
(l) to keep proper accounts and give information as required. |
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Term
| The trustee's duties according to Mark: |
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Definition
acquaint oneself with terms of the trust deed
comply with the trust deed - perform the trust- including investment; distribute to correct beneficiaries
take possession of property and safeguard it; keep identifiable
act impartially as between beneficiaries
keep accounts and provide info as required
act with due diligence/prudence including investing trust fund
fiduciary duties:
loyalty: act in beneficiaries’ best interests
not to profit or self-deal
not to act with improper motives
not to charge for trustee services - act gratuitously
be active, and act personally (not to delegate), and jointly (act with other trustees unanimously) |
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Term
| Remedies for a Breach of Trust: |
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Definition
Personal liability of trustee(s) to restore trust property, compensate trust fund, and remedy and consequential losses
Personal claims against those who dishonestly assist in the breach of trust, or receive property knowing of the breach of trust
Proprietary claims against third parties who currently control the trust property or its substitute (tracing). |
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Term
| The duty of Impartiality: |
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Definition
| Even-handedness or lack of bias in decisions may have an effect on different beneficiaries’ entitlements. |
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Term
| Re Mulligan (dec’d) [1998] |
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Definition
In Re Mulligan, Pankhurst J confirmed that:
“It is elementary that a trustee must act with strict impartiality and endeavour to maintain a balance between the interests of life tenant and remaindermen. Put another way, a trustee must be even-handed as between income and capital beneficiaries”
The residual beneficiaries, being the niece and nephew of the settlor, claimed there had been a breach of the trustee’s duty to be impartial. The major asset of the estate was a farm, and the farm was sold after the life tenant’s death. The widow was the income beneficiary (she received income from the fixed interest investments), and the niece and nephew were the capital beneficiaries (receiving money from the sale of the farm). There was a significant difference in value of the income that the widow received and the capital of the farm at its sale. Pankhurst J held that although the Trustees were entitled to exercise discretion and take into account the close relationship between the testator and the widow, but in this instance the trustees went too far and consistently favoured the widow over the residual beneficiaries. The trustees were liable for the consequential diminution in capital. |
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Term
| Duty of impartiality w/r/t discretionary family trusts: |
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Definition
The duty of impartiality can give rise to difficulty in discretionary family trusts, as there is often a tacit understanding that the settlor will benefit from the trust during their lifetime, after which the settlor’s children will be the beneficiaries. It is clear that the duty of impartiality can be overridden by the trust deed, and it often is.
When deciding who will benefit from a discretionary trust, the trustee must consider relevant information and may not consider irrelevant information.
E.g. McPhail v Doulton (which created the ‘open list’ rule for beneficiaries): “equal division (of the assets between all the beneficiaries) is surely the last thing the settlor ever intended: equal division among all, may, probably would, produce a result beneficial to none. Why suppose that the court would lend itself to a whimsical execution? And as regards authority, I do not find that the nature of the trust, and of the court’s powers over trusts, calls for any such rigid rule.” |
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Term
| Duty to impart information |
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Definition
At the court’s discretion.
There must be a balance between giving beneficiaries information on needed to know rights, and keeping confidential and commercial information safe from a possibly large class.
The Act says nothing about the provision by a trustee of information to beneficiaries. Butler’s Equity and Trusts rights described this duty as “controversial” due to the competing interests; being the beneficiaries’ interest in accessing trust information if trustees are to be held accountable for their administration of the trust, as well as the interests of the trustee to not be impeded by constant demands from beneficiaries for a raft of information, as well as the interests that may be altered if a trustee imparts valuable information that is commercially sensitive. |
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Term
| Clarke v Earl of Ormonde [1821] |
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Definition
| one of the first cases on accessing trust information, and the court held that access to information could be ordered by the Court as part of its supervisory jurisdiction of trustees. In the latter part of the 19th century onwards the courts adopted what was described as the proprietary approach in trust information cases: if the beneficiary had a proprietary interest in the assets of the trust, it followed that the beneficiary was entitled to see the documents and information. This right subsequently didn’t apply to discretionary beneficiaries without proprietary rights as they only have a hope or expectation of receiving trust property. |
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Term
| Duty to impart information: Schmidt v Rosewood Trust Ltd version |
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Definition
| he Privy Council rejected the proprietary approach in favour of basing the right to information on the inherent jurisdiction of the court to supervise and intervene if necessary. The Court held that even if a beneficiary could be said to have a proprietary interest in trust property, it did not automatically follow that they should be privy to trust information; and the reverse was also possible: a beneficiary without a proprietary interest should not be denied access to information solely due to their lack of proprietary interest. |
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Term
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Definition
| NZ case which endorsed Rosewood Trust Ltd: Potter J also identified a list of factors that may be taken into account by a court in exercise of its supervisory jurisdiction |
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Term
| Potter J's list of factors in Foreman v Kingstone: |
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Definition
whether there are issues of personal or commercial confidentiality;
the nature of the interests held by the beneficiaries;
the impact on the trustees, other beneficiaries, and third parties;
whether some or all of the documents can be disclosed in full or in redacted form;
whether safeguards can be imposed on the use of the documents (for example, undertakings, professional inspection);
whether, in the case of a family trust, disclosure may embitter family feelings and the relationship between the trustees and beneficiaries to the detriment of the beneficiaries as a whole. |
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Term
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Definition
| “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 other people for whom he felt morally bound to provide.” – Re Whiteley (1886) |
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Term
| Due diligence w/r/t investments |
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Definition
c.f. s 13E of the Trust Act
Without limiting the matters that a trustee may take into account, a trustee exercising any power of investment may have regard to the following matters so far as they are appropriate to the circumstances of the trust:
(a) the desirability of diversifying trust investments:
(b) the nature of existing trust investments and other trust property:
(c) the need to maintain the real value of the capital or income of the trust:
(d) the risk of capital loss or depreciation:
(e) the potential for capital appreciation:
(f) the likely income return:
(g) the length of the term of the proposed investment:
(h) the probable duration of the trust:
(i)the marketability of the proposed investment during, and on the determination of, the term of the proposed investment:
(j) the aggregate value of the trust estate:
(k) the effect of the proposed investment in relation to the tax liability of the trust:
(l) the likelihood of inflation affecting the value of the proposed investment or other trust property. |
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Term
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Definition
– CL rule that Trustees are to act gratuitously
– Reflected in the Trustee Act 1956, s 38(2): • “A trustee may reimburse himself or pay or discharge out of the trust property all expenses reasonably incurred in or about the execution of the trusts or powers; but, except as provided in this Act or any other Act or as agreed by the persons beneficially interested under the trust, no trustee shall be allowed the costs of any professional services performed by him in the execution of the trusts or powers unless the contrary is expressly declared by the instrument creating the trust: provided that the court may on the application of the trustee allow such costs as in the circumstances seem just.” |
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Term
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Definition
Spencer is a relationship property dispute. the family trust has been split in two; one for the benefit of the children with the wife’s control and the other for the benefit of the husband and the children. This case relates to the second trust, which Barry Spencer is involved in. Later on Barry Spencer becomes one of the trustees.
The Court determined the trustees were in breach of their duties:
to make proper efforts to recover a debt due to the Trust
in allowing a trustee (through his company) to charge management fees; and
in failing to collect rents that were payable to the Trust. |
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Term
| Clayton v Clayton at the High Court |
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Definition
Mr. Clayton was settlor, sole trustee, and a discretionary beneficiary of the Vaughan Road Property Trust. His wife and daughters were also discretionary beneficiaries, and his daughters were the final beneficiaries of the trust. It is not uncommon for one person to be settlor, trustee, and a discretionary beneficiary of a trust, but there were two less common features contained within the Trust Deed:
As a trustee, Mr. Clayton was able to deal with trust property entirely in his own interests (and to the exclusion of other beneficiaries); and
In his personal capacity, Mr. Clayton had the power to add and remove beneficiaries (including final beneficiaries).
It was crucial that Mr. Clayton’s power to add or remove beneficiaries was to be exercised in his personal capacity as “Principal Family Member” rather than in his capacity as a trustee. His exercise of that power was therefore not subject to fiduciary obligations and nothing would stop him removing all other beneficiaries, effectively transferring all the trust property to himself. It was this degree of control over the trust property that the High Court found rendered the trust illusory. |
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Term
| Clayton v Clayton at the NZCA |
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Definition
It found that the trust met the minimum requirements for a valid discretionary trust and had been created for legitimate business purposes. It agreed with the High Court that the trust could not be set aside as a sham. The Court of Appeal then considered the concept of an illusory trust, which the High Court had found was distinct from a sham. The Court of Appeal decided that the terms “sham” and “illusion” were effectively synonymous and were not separate legal concepts. A sham would be found where the settlor never intended to create a valid trust, but there was no “illusory” halfway house where an otherwise valid trust would be set aside because a settlor/trustee had wide powers of control over the trust property. The Court of Appeal found that the concept of an illusory trust “undermines the court’s acceptance of the existence of a valid trust and overlooks the trustee’s irreducible core obligations and the rights of beneficiaries to have them enforced”. As the trust was not a sham, it was to be upheld. Mrs. Clayton could not use an illusory trust argument to access trust property for the purposes of her relationship property claim.
Although there was no suggestion that Mr. Clayton had any intention of transferring the full beneficial ownership of the trust property to himself, the power to do so was very valuable. As the power was acquired during the course of the relationship (when the trust was settled), it was relationship property. The Court of Appeal held that the value of the power was equivalent to the full value of the trust property. Mrs. Clayton was therefore entitled to half of the value of that power, i.e. to the value of half of the trust property. |
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