The Obligations of Trustees

Trusts impose obligations on a trustee which the trustee is required to perform in obedience to the terms of that trust:1 breach of such obligations will render the trustee personally liable to account to the beneficiaries for any loss suffered and thus restore the value of the trust fund if the original trust property cannot be recovered.2 Equally significantly, under a trust the beneficiary acquires property rights in the trust property. 3 The Trustee owes fiduciary obligations to the beneficiary further to the trust.4

(1) Westdeutsche Landesbank v Islington LBC [1996] AC 669 {Link} (2) Target Holdings v Redferns [1996] 1 AC 421 {Link} (3) Saunders v Vautier (1841) 4 Beav 115 (4) Westdeutsche Landesbank v Islington LBC [1996] AC 669 {Link}

Duty to Act Honestly and in Good faith

An “irreducible core obligation” of any trustee is the obligation to act honesty and in good faith.5

(5) Armitage v Nurse [1997] EWCA Civ 1279 {Link}

A Trustee is the archetype “fiduciary”5b, who has a duty of loyalty to his Principal (ie beneficiary)5c.

(5b) Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 at 68 per Gibbs CJ

(5c) Bristol & West Building Society v Mothew [1998] Ch 1 at 18 per Millet LJ

Duty to Obey the Terms of the Trust

It is the trustee’s plainest duty to obey the terms of the trust. 6

(6) A-G (UK) v Downing (1767) Wilm 1 [97] ER 1] Wilmot LCJ at 23 {Link} ; Davey v Thorton (1851) 9 Hare 222 [68 ER 483].

A trustee must strictly adhere to and carry out the terms of the trust. 7

(7) Mendelssohn v Centrepoint Community Growth Trust [1999] 2 NZLR 88, 95.

This strict duty was described in the High Court of Australia as the duty “to adhere to the terms of the trust in all things great and small, important, and seemingly unimportant.8

(8) Youyang Pty Ltd v Minter Ellision Morris and Fletcher [2003] HCA 15 {Link}; (2003) 212 CLR at 498, quoting Augustine Birrell QC in The Duties and Liabilities of Trustees, 1896, p22}.

The definition of the “terms of the trust” is covered in more detail here.

In a superannuation trust the “terms of the trust” are also referred to as the “governing rules” of the fund.

 

Duty to “Get in the Trust Assets”

A newly appointed trustee as well as acquainting him or herself with the terms of the trust also has a duty to “get in the trust assets” and to take legal proceedings against a former or co-trustee where there has been a Breach of Trust causing a loss to the Trust Estate and the beneficiaries.

More details on this duty can be found here

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Duty to Account”

Another “irreducible core obligation” of a trustee is to account to the beneficiaries for his or her stewardship of the trust.

 
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This tab updated on 15 March 2015