Honesty

Jacobs’ Law of Trusts in Australia (7th Edition) at [2920] with reference to Trustees of superannuation funds states:

The first {of the statutory covenants in Section 52 of the Superannuation Industry (Supervision) Act 1993} is to act honestly in all matters concerning the superannuation entity; s52(2)(a). This must correspond substantially with the general law. The Trustees have a duty to act bona fide in the best intrests of the beneficiaries…there is a more fundamental duty to obey the law {Cowan v Scargill [1985] Ch 270 at 287; [1984] 2 ALL ER 750 at 760}, and dishonest conduct will very often be unlawful.

In Rankine v Rankine [1998] QSC 48 de Jersey CJ referred to an irreducible core of obligations to perform the trusts honestly and in good faith for the beneficiaries

Other “core duties” include:

  • the duty to perform and adhere to the terms of the trust;
  • the duty to keep and render accounts; and
  • the duty to act personally
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    Subsection 52(2)(a) of the Superannuation Industry (Supervision) Act 1993 includes a covenant that the Trustee or Trustees of a government regulated superannuation must must act honestly in all matters related to the entity.

    Subsection 52A(2)(a) states:

    (2) The covenants referred to in subsection (1) are the following covenants by each director of a corporate trustee of the entity:

    (a) to act honestly in all matters concerning the entity;

     

    The Test for Dishonesty

    According to Armitage v Nurse [1998] Ch 2421 ‘dishonesty’ connotes action by a trustee:

    (1) knowing that it was contrary to the interests of the beneficiaries or

    (2) recklessly indifferent whether it is contrary to their interests or not.

    Walker v Stones [2001] QB 902 adds a third category:

    (3) the honest belief that it was proper, but which is objectively so unreasonable that no reasonable professional trustee could have thought it for the benefit of the beneficiaries.

    In Fattal v Walbrook Trustees (Jersey) Ltd (2010) EWHC 2767 (Ch) at 81-82 Lewison J said:

    “After all the twists and turns in the legal definition of dishonesty (see Twinsectra Ltd v Yardley [2002] AC 164; Barlow Clowes v Eurotrust International Ltd [2006] 1 WLR 1476 and Abou-Rahmah v Abacha [2006] EWCA Civ 1492), all parties accepted that the law about the interpretation of exoneration clauses was still to be found in Walker v Stones. Although Sir Christopher limited his observations to the case of a solicitor-trustee, I did not understand Mr Taube to argue that a different principle was applicable to a professional trustee. Based on this common ground, therefore, what is required to show dishonesty in the case of a professional trustee is:
  • (i) A deliberate breach of trust;
  • (ii) Committed by a professional trustee:
  • (a) Who knows that the deliberate breach is contrary to the interests of the beneficiaries; or
  • (b) Who is recklessly indifferent whether the deliberate breach is contrary to their interests or not; or
  • (c) Whose belief that the deliberate breach is not contrary to the interests of the beneficiaries is so unreasonable that, by any objective standard, no reasonable professional trustee could have thought that what he did or agreed to do was for the benefit of the beneficiaries.

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    Hasluck J stated in Green v Wilden Pty Ltd [2005] WASC 83 at [480]:

    “Actual fraud equates with dishonesty, which is determined objectively viewed in the light of the role and calling of the trustee in question. It connotes, at the minimum, an intention on the part of the trustee to pursue a particular course of action, either knowing that it is contrary to the interests of the beneficiaries or being recklessly indifferent whether it is contrary to their interests or not. If the trustee acts in a way which he does not honestly believe is in their interests, then he is acting dishonestly. It does not matter whether he stands or thinks he stands to gain personally from his actions. A trustee who acts with the intention of benefiting persons who are not the objects of the Trust is nonetheless dishonest because he does not intend to benefit himself. Armitage v Nurse (1998) Ch 241 at 251.” {See below}

    Also refer to Pullin J in Rowena Nominees Pty Ltd (in liqu) v St George Bank Ltd [2002] WASC 270 [9-13] and Austin J in Aequitas Ltd v AEFC Leasing Pty Ltd (2001) 19 ACLC 1006; [2001] NSWSC 14 at [392].

     

    Dishonesty not a requirement for “Knowing Receipt”

    In Farah Constructions v Say-Dee [2007] HCA 22at 147 the High Court stated:

    “It is not necessary to go beyond the considered dicta of the three members of the majority in Consul Development Pty Ltd v DPC Estates Pty Ltd[119].  Those dicta are based on the numerous cases in the past, and conform with the numerous later authorities, in which the traditional understanding of the first limb of has been affirmed”

     

    The High Court unanimously rejected restitution as an alternative to knowledge under the first limb (Say-Dee at [130] to [158]). As stated at [151], a claim of restitution based upon unjust enrichment does not include “recipient liability for breach of trust”. If permitted it would make it “unnecessary” for the plaintiff to prove knowledge of the breach of the fiduciary duties (see [139]) among other things. The Court confirmed the need to establish notice if a third party was to be held liable as a constructive trustee under the first limb of Barnes v Addy.

    Armitage v Nurse

    Millett J discussed the test for honesty in Armitage v Nurse [1997] 2 All ER 705.

    A&N


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    This tab updated on 15 March 2015