Duty to Account

A Trustee is the archetype fiduciary.

A agent is also a fiduciary and like a trustee has a duty to account to the principal.

The accounts are required to give an accurate record of the trustees’ management of the trust. {Springett v Dashwood (1860) 2 Giff 521; Burrows v Walls (1855) 5 De GM & G 233; Newton v Askew (1848) 11 Beav 146}.

The beneficiaries are also entitled to have such trust accounts and documents provided to their accountants and legal advisers {Hawkesley v May [1956] 1 QB 304}, except for those sorts of documents to which those beneficiaries have no entitlement.

The duty to account cannot be excluded by the trust instrument because it is one of the core obligations of trusteeship.{Armitage v Nurse [1998] Ch 241, 253 per Millett J}

The duty to account survives the term of the fiduciary relationship.

In the case of an agency relationship, the fiduciary relationship can be terminated by either the Principal of the Agent. In the case of a pension fund, the fiduciary relationship cannot be terminated by the Trustee and survives until the death of the member.

In the case of some lump fund superannuation funds, the fiduciary relationship terminates with the termination of the Contract of Employment, however the Trustee still has a legal obligation to account to the member after the relationship has terminated in relation to matter relevant to the fiduciary relationship up until the time of termination.

Ward J in the New South Wales Supreme Court stated in Barkley v Barkley Brown [2009] NSWSC 76 at [100-103}:

Liability of Agent (Fiduciary) to Account

100 As her agent (and absent any attenuation by Mrs Farrell of such a duty) the first duty of Mrs Barkley -Brown was to keep and, at least when requested, communicate a clear account of the moneys passing through her hands. That duty was described in the following terms in Pearse v Green [1819] EngR 773; (1819) 1 Jac & W 135 at 140; [1819] EngR 773; 37 ER 327: “It is the first duty of an accounting party, whether an agent, a trustee, a receiver, or an executor, for in this respect, as was remarked by the Lord Chancellor in Lord Hardwicke v Vernon (14 Ves. 500 And see White v Lincoln, [1803] EngR 541; 8 Ves. 363) they all stand in the same situation, to be constantly ready with his accounts.

101 An agent who fails to render an account when called upon to do so will be in breach of that duty. The obligation to provide an account (again, absent express agreement to the contrary) survives the termination of the agency – Yasuda Ltd v Orion Underwriting Limited [1995] QB 174 for the reasons give by Colman J at 185-186. In that cause it was said that: There is no suggestion in any authority – decided case or textbook – that, if there is merely a gratuitous agency, there is no duty to provide records or accounts.

Because the agent’s duty to provide records of transactions to the principal is founded on the entitlement of the principal to the records of what has been done in his name, termination of the agent’s authority to enter into further transactions should have no bearing on the continuance of the duty to provide pre-existing records pertaining to the period when transactions were authorised. Accordingly, in the absence of express agreement to the contrary, the agent’s duty to provide to his principal the records of transactions effected pursuant to the agency must subsist notwithstanding termination of the agent’s authority. That, as I have held, is a duty that is imposed by law in consequence of the existence of the agency relationship and is not founded on the existence of a contract of agency.

In Yasuda Fire & Marine Insurance Co of Europe Ltd v Orion Marine Insurance Underwriting Agency Ltd [1995] QB 174 Colman J stated on page 185:

The nature of the defendant’s mandate was such that, subject to express qualifications by the terms of any agency agreement, they were to keep and provide records of all transactions into which they had entered on behalf of the plaintiff including those which were in the process of being run-off: see Halsbury’s Laws of England, 4th ed vol. 1 (1973). P. 466, para 780, Bowstead on Agency, 15th ed. (1985), pp 191-193, art 51, Pearce v Green (1819) 1 Jac & W 135 and Gray v Haig (1855) 20 Beav 219. The nature of the duty to keep and provide records in such a case would, by necessary imputation, involve full disclosure of records of all transaction and the current state of premium, outstanding claims.

That obligation to provide accurate account in the fullest sense arises by reason of the fact the agent has been entrusted with the authority to bind the principal to transactions with third parties and the principal is entitled to know what his personal contractual rights and duties are in relation to those third parties as well as what he is entitled to receive by way of payment from the agent. He is entitled to be provided with those records because they have been created for preserving information as to the very transactions which the agent was authorised by him to enter into. Being the participant in the transaction, the principal is entitled to records of them.

Although in modern commercial transactions agencies are almost invariably founded upon contract between principal and agent, there is no necessity for such a contract to exist. It is sufficient if there is consent by the principal to the exercise by the agent of authority and consent by the principal to the exercise by the agent of authority and consent by the agent to his exercising such authority on behalf of the principal. See Garnac Grain Co Inc v HMF Faure & Fairclough Ltd [1968] AC 1130,1137 , per Lord Pearson……..

Because the agent’s duty to provide records of transaction to the principal is founded on the entitlement of the principal to the records of what has been done in his name, termination of the agent’s authority to enter into further transactions should have no bearing on the continuance of the duty to provide pre-existing records pertaining to the period when transactions were authorised….

That, as I have held, is a duty that is imposed by law in consequence of the existence of the agency relationship and is not founded on the existence of a contract of agency.

Falsifying and Surcharging the Accounts

In modern parlance “falsifying the accounts” as the process by which a trustee is subject to a personal liability to account to the beneficiaries in cash or equivalent value for any loss suffered by the trust as a result of a breach of trust 1.”

In contrast, “surcharging the accounts”, refers specifically to an argument that some asset ought to have been recorded in the trust accounts but has not been recovered as a result of the trustee’s failure to get the trust property in2 . If the trustees have been guilty of wilful default in failing to get the trust property in, then the trustees will be liable for any property or value which might have accrued to the trust but for the trustee’s wilful default3.

Notes:

(1) Clough v Bond (1883) 3 May & Cr 490,496; Knott v Cottee (1852) 19 Beav 77; Re Massingberd (1890) 63 LT 296; Wallersteiner v Moir (No. 2) [1975] QB 373,379; Target Holdings v Redferns [1996] 1 AC 421.

(2) Bristol & West Building Society [1998] Ch 1, 17; Bank of New Zealand v New Zealand Guardian Trust Co. [1999] 1 NZLR 664,687.

(3) Partington v Reynolds (1858) 4 Drew 253; Coulthard v Disco Mix Club [1999] 2 All ER 457.


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This tab updated on 30 May 2015