Trustee de son tort

Where a stranger assumes to act as a trustee and without being properly appointed, proceeds to administer the trust the stranger will be held liable for any loss caused by that administration as if he or she had been properly appointed a trustee. A person who assumes to act as trustee without proper appointment is called a trustee de son tort; a trustee by his or her own wrong.

A trustee de son tort is also referred to as a “de facto trustee”.

In Cuninngham v Cuninngham [2009] JRC 124, the Court the court considered the concept of a Trustee de son tort.

In a chapter entitled ‘Personal Remedies Against Recipients‘ Lewin on Trusts (18th Edition) says this at [42-74]:-

“If a person by mistake or otherwise assumes the character of trustee when it does not really belong to him, he becomes a trustee de son tort and he may be called to account by the beneficiaries for the money he has received under the colour of the trust. A trustee de son tort closely resembles an express trustee.  The principle is that a person who assumes an office ought not to be in any better position than if he were what he pretends; he is accountable as if he had the authority which has been assumed.  While it is essential, if a person is to become a trustee de son tort, that he consciously takes the office of trustee, it does not matter whether he knows all the trusts or the extent of his powers………

A person may not only act from the best of motives in assuming trusteeship, he may be quite unaware, perhaps without even carelessness on his part, that he has not been duly appointed to office.  Yet he will be a trustee because he has in fact acted as one and the court cannot regard the defect in his appointment in determining his accountability: it is no answer to show that he was not legally a trustee.  A trustee de son tort is liable to account for profits, like an express trustee.  If he has acted in good faith, he is entitled to indemnity in respect of costs and expenses.”

Thomas and Hudson, The Law of Trusts states at para 30.03″

“The liability of trustees de son tort as constructive trustees

The doctrine is comparatively straightforward to state.  Where a person who has not been officially appointed as a trustee of an express trust interferes with or involves himself in the business of the trust so as to appear to be acting as a trustee, then that person shall be construed to be a trustee of that trust.  On the basis that trustees de son tort are not expressly declared by the settlor to be trustees but  rather are deemed to be constructive trustees by operation of law, due to their meddling with trust affairs, they are therefore constructive trustees.  Smith LJ [in Mara v Browne [1896] 1 Ch 199 at 209] stated the nature of this form of constructive trust in the following way:

“…… if one, not being a trustee and not having authority from a trustee, takes upon himself to intermeddle with trust matters or to do acts characteristic of the office of trustee, he may therefore make himself what is called in law, trustee of his own wrong – i.e. a trustee de son tort, or, as it is also termed, a constructive trustee.”

Therefore, a trustee de son tort is a trustee who intermeddles with trust business.  What does not emerge from this formulation set out by Smith LJ is the usual prerequisite that the trustee de son tort must have trust property in his possession or control before this form of constructive trust will obtain.  If the property were not vested in the defendant then the appropriate form of liability would be that of a dishonest assistant and not a constructive trustee bearing proprietary obligations. …..” [Emphasis added]”

In Taylor v Davies [1920] AC 636, 651, Viscount Cave described such persons as follows:-

“though not originally trustees, [they] had taken upon themselves the custody and administration of property on behalf of others; and though sometimes referred to as constructive trustees, they were, in fact, actual trustees, though not so named.”

 

For liability as a trustee de son tort it is not necessary to show that the stranger was dishonest; acting with good intention can lead to liability {Life Association of Scotland v Siddal (1961) 3 De G.F &J 58; 45 E.R 800 and Lyell v Kennedy (1889) 14 App. Cas. 437 at 459}.

Trusteeship de son tort depends on acquisition of control; the stranger does not have to receive trust property for his or her own use {Knowing Receipt}.

The gist of the liability of a trustee de son tort lies in the voluntary assumption of office followed by conduct in breach of trust.

The fact that the stranger assumes the status of a trustee first distinguishes the stranger’s personal liability from the liability of other strangers who receive trust property {Selengor United Rubber Estates Ltd v Cradock (No. 3) [1968] 1 WLR 1555 at 1579 per Ungoed-Thomas J}.

The nature and extent of the liability of a person who assumes to act as a trustee for any loss will be the same as that of an express trustee {Pearce v Pearce (1856) 25 L.J. Ch 893}.

In Soar v Ashwell [1893] 2 QB 390, Lord Esher MR took the view that an intermeddling stranger must be treated, and therefore held liable, as if he were a properly appointed trustee:

“Where a person has assumed, either with or without consent, to act as a trustee of money or other property…a Court of Equity will impose upon him all the liabilities of an express trustee”.

 

Also refer to Mara v. Browne [1896] 1 Ch 199

A person who is not a trustee but acts as a trustee and who receives trust property and then deals with it in a manner inconsistent with the trust of which he is cognizant is not protected by Limitations of Actions statutes {Soar v Ashwell [1893] 2 Q.B. 390; North American Land Co v Watkins [1904] 2 Ch 233; 73 l.j. Ch 626}.

The Lord Sumpton in the UK Supreme Court in Williams v Central Bank of Nigeria [2014] UKSC 10 made the following statement at [9]:

It is clear that Lord Selborne regarded as a constructive trustee any person who was not an express trustee but might be made liable in equity to account for the trust assets as if he was. The problem is that in this all-embracing sense the phrase “constructive trust” refers to two different things to which very different legal considerations apply. The first comprises persons who have lawfully assumed fiduciary obligations in relation to trust property, but without a formal appointment. They may be trustees de son tort, who without having been properly appointed, assume to act in the administration of the trusts as if they had been; or trustees under trusts implied from the common intention to be inferred from the conduct of the parties, but never formally created as such. These people can conveniently be called de facto trustees. They intended to act as trustees, if only as a matter of objective construction of their acts. They are true trustees, and if the assets are not applied in accordance with the trust, equity will enforce the obligations that they have assumed by virtue of their status exactly as if they had been appointed by deed. Others, such as company directors, are by virtue of their status fiduciaries with very similar obligations. In its second meaning, the phrase “constructive trustee” refers to something else. It comprises persons who never assumed and never intended to assume the status of a trustee, whether formally or informally, but have exposed themselves to equitable remedies by virtue of their participation in the unlawful misapplication of trust assets. Either they have dishonestly assisted in a misapplication of the funds by the trustee, or they have received trust assets knowing that the transfer to them was a breach of trust. In either case, they may be required by equity to account as if they were trustees or fiduciaries, although they are not. These can conveniently be called cases of ancillary liability. The intervention of equity in such cases does not reflect any pre-existing obligation but comes about solely because of the misapplication of the assets. It is purely remedial. The distinction between these two categories is not just a matter of the chronology of events leading to liability. It is fundamental. In the words of Millett LJ in Paragon Finance Plc v DB Thakerar & Co (a firm) [1999] 1 All ER 400, at 413, it is “the distinction between an institutional trust and a remedial formula – between a trust and a catch-phrase.”

The Powers of a Trustee de son tort

Mann J in Jasmine Trustees Ltd v Wells & Hind [2007] 3 WLR 810, [2007] 1 All ER 1142, [2007] EWHC 38 (Ch) at [42] stated .

“However, the question in this case is not whether the de facto trustees are trustees; it is whether they should be treated as being trustees of the settlement. The status of a trustee de son tort is limited. He will be liable for breach of trust much as a properly appointed trustee would be but the doctrine is more about liabilities than anything else. The trustee de son tort will be obliged to hold the property for, and to account to, the beneficiaries, but on the other side of the coin will not have the powers of the trustee conferred by the settlement …. It would be contrary to principle to allow such a person to arrogate powers to himself by virtue of his “intermeddling“, even if that intermeddling is innocent”.

A Trustee de son tort retains the liabilities of a lawfully appointed trustee, however a Trustee de son tort cannot exercise the powers of a lawfully appointed trustee.

Australian Cases

The leading Australian cases are:

Meier v Dorzan Pty Limited & Anor [2010] NSWSC 664

This case involved a superannuation fund where the terms of the trust required a body corporate to be appointed as a Trustee of the fund.

A Deed of Variation purported to appoint a natural person as the Trustee of the fund instead of a corporate Trustee as required by the terms of the Trust Deed.

The purported new natural person trustee was held by the court to be a Trustee de son tort and the corporate Trustee remained the Trustee of the fund.

More information on this case can be found here.

NSW Masonic Youth Property Trust v Attorney-General [2009] NSWSC 1301

The Court ruled that a valid express trust was created on 2 March 1923 and that purported amendments in 1927 were not effective because they were no within the power to amend since no such power had been provided when the trust was created on 2 March 1923.

The purported amendments provided for a different class of Trustees to be appointed. These appointments were held by the Court to be invalid and the new purported Trustees were in fact Trustees de son tort.

More information on this case can be found here

Another case involving an alleged Trustee de son tort is Application of Uncle’s Joint Pty Ltd ACN 148 176 792 & Anor [2014] NSWSC 321 {Link}.

However in this case no allegations of misconduct were made against the alleged Trustee de son tort.

 
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This tab updated on 19 March 2015