Relief of Liabilty for Breach of Trust

The Court has a statutory power to relieve a trustee from a personal liability for a Breach of Trust if the trustee has acted honestly, reasonably and ought fairly be excused for the breach of trust and for failing to obtain directions from the court in the matter in which the trustee committed the breach.

Cozens-Hardy MR in Re Allsop; Whittaker v Bamford [1914] 1 Ch 1 at 13 held that this jurisdiction requires great care and caution in its exercise as the procedure by originating summons to determine a question of construction is not time consuming or expensive, the trustee should resort to it when the proper construction of the document is open to serious doubt.

The High Court of Australia has also emphasised the important of trustees seeking judicial advice before they rely on the provisions for seeking relief for a Breach of Trust.

Honesty

The criterion of honesty means that the trustees must have acted in good faith and for the welfare of the trust, which is viewed objectively. Thus, a trustee who has behaved dishonestly, for example, a trustee who has misappropriated trust funds, cannot be excused under this jurisdiction.

Reasonableness

Reasonable‘ means reasonably in the interest of the estate, not in the interests of the trustees themselves. It also means acting with a degree of prudence that a person of ordinary intelligence and diligence can be expected to exhibit in the conduct of their own affairs. Conduct by a trustee that is unreasonable includes:

  • (1) conduct that is negligent or careless;
  • (2) acting in an unauthorised manner without having taken steps to ascertain whether the conduct was or was not authorised;
  • (3) doing nothing and simply accepting without inquiry what his or he co-trustees have done;
  • (4) placing a co-trustee in a position to handle trust funds where he or she suspects that the co-trustee may have misappropriated funds;
  • (5) failing to become acquainted with the terms of the trust; and
  • (6) engaging in a clear breach of fiduciary duty.
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    Professional Trustees

    A professional trustee is not beyond the protection of the court’s jurisdiction. However, professional trustees carry a more onerous burden to show that they acted reasonably.1

    Jacobs Laws of Trusts in Australia (7th Ed) states at [2220]:

    “It is equally clear that a trustee who is a professional trustee has a particularly heavy task to make out a title to relief. 2

    (1) National Trustees Co of Australasia Ltd v General Finance Co Of Australasia Ltd [1905] AC 373; Re Windsor Steam Coal Co [1929] 1 Ch 151 at 164-5;In re Paulings’s Settlement Trusts (No.1) [1964] Ch 303 at 338-339; [1963] 3 All ER 1 at 11.

    (2) Elder’s Trustee and Executor Co Ltd v Higgins (1963) 113 CLR 426 at 452;[1964] ALR 408 at 425.

    The High Court noted in Elder’s Trustee and Executor Co Ltd v Higgins which concerned a breach of trust of a trust established in South Australia at [33]:”

    The directors of a trustee company are not concerned merely with the interests of shareholders in a business. They are concerned with the interests of the beneficiaries on whose behalf the company is administering trusts. The legislature empowered the company to be a trustee. It holds itself out to the public as ready and able to perform properly the duties of a trustee. But that does not mean that the directors must themselves supervise all aspects of the administration of all its trusts. A trustee company, like any other company, acts by its officers. It discharges its futy if its officers are competent to perform, and to properly perform, the trusts it undertakes. If they fail to do so, it is responsible. (at p453)

    The High Court also noted at [32]:

    Moreover, although a professional trustee is not beyond the protection of the section, “such a trustee . . . would have to establish a strong case before the court would apply the section in its favour”3

    (3) Partridge v. Equity Trustees Executors and Agency Co. Ltd. (1947) 75 CLR 149, at p 165 and see National Trustees Executors and Agency Co. of Australasia v. Dwyer (1940) 63 CLR, at p 23 . (at p452)

    The High Court noted in Partridge v Equity Trustees Executors & Agency Co Ltd [1947] HCA 42; (1947) 75 CLR 149 which concerned a breach of trust of a trust established in Victoria, where Starke, Dixon and Williams JJ stated:”

    The defendant has also pleaded s. 61 of the Trustee Act. This section provides that “if it appears to the court that a trustee … is or may be personally liable for any breach of trust … but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the court in the matter in which he committed such breach, then the court may relieve him either wholly or partly from personal liability for the same.” We are of opinion that a professional trustee like the defendant is not beyond the protection of the section: see National Trustees Executors & Agency Co. of Australasia Ltd. v. Dwyer [1940] HCA 5; 63 C.L.R. 1, at pp. 30-31.. But such a trustee should be particularly careful to act strictly within the line of its duty and would have to establish a strong case before the court would apply the section in its favour.

    Black J stated In the matter of Metal Storm Ltd (subject to Deed of Company Arrangement) [2014] NSWSC 813 at [159]:

    The question whether ANZ Trustees should be relieved from liability under s 85 of the Trustee Act depends on whether it acted honestly and reasonably in respect of the failure to appoint a controller in the decision period, which is a question of fact to be determined having regard to all the circumstances of the case: H Ford and W Lee, Laws of Trusts (4th ed, 2010, Thomson Reuters) at [18.430]. ASOF refers to the observation of the Supreme Court of South Australia in Maelor Jones Investments (Noarlunga) Pty Ltd v Heywood-Smith (1989) 54 SASR 285 at 295 that the requirement of “honesty” requires that the trustee has:

    “acted honourably, fairly, in good faith and in a commonsense manner as judged by the standards of others of a similar professional background”.

    ANZ Trustees contends that, in considering whether a trustee has acted reasonably within the meaning of the section, the terms of the instrument creating the trust ought to be taken into consideration and, if an ordinary business man or woman might reasonably entertain a particular view of the construction of the instrument, and the action of the trustee would have been justified if that view had been the true one, the trustee cannot be said to have acted unreasonably merely because this view of the construction of the instrument is wrong: Partridge v Equity Trustees Executors & Agency Co Ltd [1947] HCA 42 ; (1947) 75 CLR 149 at 165 . ASOF contends that it will be more difficult for a professional trustee, which is remunerated for its work, to make out a case for relief: Elders Trustee & Executor Co Ltd v Higgins [1963] HCA 48; (1963) 113 CLR 426 at 452; National Trustees Executors and Agency Co of Australasia Ltd v General Finance Co of Australasia [1905] AC 373; Port of Brisbane Corporation v ANZ Securities Ltd [2001] 2 Qd R 51; Jacobs Laws of Trusts in Australia above at [2219]-[2220].

    Acting on Advice

    A Trustee’s pleas that, in committing the breach of trust, he or she acted on the advice of another person, such as a solicitor, will only be accepted by the court as reasonable if that reliance is justified.

    However, simply acting on the advice of a legal practitioner will not automatically entitle a trustee to relief.

    A Trustee who is in doubt as to a proper course of action should seek the directions of the court. Action based on reliance on judicial advice will not constitute an actionable breach of trust.

    The Privy Council in a case on appeal from the Supreme Court of Victoria, National Trustees v General Finance Co [1905] A.C. 373 made reference to a ruling of Lord Redesdale in Doyle v Blake 2 Sch. & Lef, 231 at p.243:”

    “I have no doubt that they (the executors) meant to act fairly and honestly, but they were misadvised; and the Court must proceed, not upon the improper advice under which the executor may acted, but upon the act he has done. If, under the best advice he could procure, he acts wrongly, it is his misfortune; but public policy requires that he should be the person to suffer”. And there are many similar decisions in the books.”

    This case related to a professional trustee company paid for its services.

    {Refer to case summary below}

    Jacob’s Law of Trusts in Australia (7th Edition) at [2218] notes:

    But a Trustee does not act reasonably when he or she acts in plain breach of the trust instrument even though the trustee’s solicitor advises such a course4.

    “However, if a trustee acts on the advice of counsel on a matter not arising directly out of the interpretation of the trust instrument, he or she will be entitled to relief.5

    (4) Re Dive [1991] 1 Ch 328.

    (5) Perpetual Trustees Co v Watson (no. 2) (1927) 28 SR (NSW) 43; Dundee General Hospitals Board v Walker [1952] 1 All ER 896.

    Ought fairly be excused

    Relief from a breach of trust does not follow as a matter of course simply because the trustee proves that he or she has acted honestly and reasonably; the court must look at all the circumstances to ascertain whether the trustee ought fairly to be excused for the breach. ‘Fairly’ means in fairness to the trustee and to other persons who may be affected.

    A professional trustee must establish a strong case before the court will grant its relief.

    Conduct of Trustee Directors

    Pagone J in Reader and Ors v Fried and Ors [2001] VSC 495, a case relating to a superannuation trust commenting on the action of the Directors of the corporate Trustee seeking relief for a Breach of Trust noted:

    “Their subsequent conduct was less than the full and open candidness that should be the hallmark of fiduciaries, even when (if not especially when) they are called upon to account for their conduct.:

    Case Summaries

    PC 5005 p1

    PC 1905 p2


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