Topic 7- Trust Administration, Breach and
Personal Liability of Third Parties
Lecture 1- Introduction and Fiduciary Duties
Questions that this topic poses:
1. What duties and obligations do the trustees owe the beneficiaries?
2. What must the trustees do with the trust property?
3. What powers do the trustees have?
4. What happens if the trustees breach their duties?
5. What happens if a third party assists or receives trust property resulting from a
breach of trust/fiduciary duty?
What is a fiduciary?
Trustees are in a fiduciary relationship to their beneficiaries- due to this the trustee owe a
certain duty to their beneficiaries
Bristol & West Building Society v Mothew (1998)
“A fiduciary is someone who has undertaken to act for or on behalf of another in a
particular matter in circumstances which give rise to a relationship of trust and confidence”
Fiduciary Duties
Key obligation is loyalty (Bristol & West Building Society v Mothew (1998))
Bray v Ford (1896)- no conflict rule and no profit rule
Standard of Liability? – STRICT
Boardman v Phibbs (1967)
Boardman breached his fiduciary duties
Their personal interests had gone against the trust
Even though the shares they bought increased in value Boardman was still liable due
to the strict liability
This strict liability was confirmed in Bray v Ford and Guinness v Saunders
Remuneration
Trustees are not entitled to receive any payment for their services
Dale v IRC (1954)
Secret remuneration is not valid, needs to be authorised:
1. Trust instrument- there could be a “charging clause” drawn out
2. If all beneficiaries agree, remuneration can be permitted
, 3. Trustee Act 2000, ss.28 and 29- can receive reasonable renumeration, doesn’t apply
to sole trustees or charitable trusts
4. The courts inherent, jurisdiction Re Duke of Norfolk’s ST (1982)
5. Solicitor Trustees, Cradock v Piper (1850)
Purchasing Trust Property
Not allowed to purchase trust property- There are two rules that apply:
Self- Dealing Rule:
This rule provides that a fiduciary is barred from dealing on behalf of him/herself and
the principal in the same transaction- Campbell v Walker (1800)- it can be
considered unfair
Can a retired trustee purchase trust property? - Holder v Holder (1968)
The rule cannot be evaded by the sale to a spouse or child- Re Thompson
Fair-Dealing
Fair dealing rule applies when the T and B transact over the trust property- B can
sometimes sell their beneficial interest in property to the trustee Thompson v
Eastwood (1877)
Incidental Profits
Trustee is not allowed to make any profit, but it can arise when:
1. Renewal of lease to trustee
Keech v Sandford (1726)
o Trustee was holding a lease
o Landlord refused to renew it for the beneficiary, so the trustee renewed it
himself
o This was allowed as the trustee was holding it for the beneficiary, he had
profited from knowing the beneficiary
2. Directors Renumeration- holds shares in a company and then appoints himself a
director so he gets some shares- not allowed Re Macadam (1946)
3. Competition with the trust
Re Thompson (1930)
o Trustee opened a yacht business in the same town
o This went against the best interest of the trust which was a yacht business
4. Bribes
A-G for Hong Kong v Reid (1994)
o Took numerous bribes not to prosecute people and then used this to
purchase many houses
o These houses were held on constructive trust for Hong Kong
, Remedies
1. Constructive trust in favour of the beneficiaries- if a trustee breaches his fiduciary
duty and pays for a property with the beneficiary’s money, we recognise the
existence of a constructive trust- what if the trustee uses his own money to purchase
trust property
A-G for Hong Kong v Reid (1994)
o When a fiduciary exploits their duty and use their own money to purchase
trust property a constructive trust will occur
Sinclair Investments Ltd v Versailles Trade Finance Ltd (2011)
FHR European Ventures LLP v Cedar Capital Partners LLC (2014)
o 2004- FHR purchased share capital of a Monte Carlo Hotel
o Cedar acted as FHR’s agent in negotiating the purchase
o Cedar owed FHR a fiduciary duty but also entered an agreement with the
seller of the hotel- pay them secret commission
o FHR wanted the commission that Cedar received during the purchase
o FHR could choose a constructive trust or equitable compensation- CT is
stronger, if the value of the property increases then you can receive more
and if it decreases in value you can get EC for the full amount
2. Equitable Compensation- fiduciary needs to be solvent and in a position to pay you
that money
Lecture 2- Investment
The Duty to Invest
Duty of the trustee to preserve the trust over a period of time
The process of investment varies due to different trusts (its nature)
Inflation- prices increase and therefore value of money decreases
Due to this, there is a duty to invest the trust money to keep the value
Two principles-
a) Trustees must safe guard the trust fund by preserving the capital value of the trust
fund- conservative approach which avoids taking significant risk Learoyd v Whiteley
(1887) and Nestle v Westminster Bank plc (1993)
b) Trustees must maximize returns for the benefit of beneficiaries: Re Wragg (1919)
Powers of Investment
Only entitled to carry out investments that are authorised under the express terms of the
trust, either a:
Statutory Power- Trustee Act 2000 s.3- general power of investment, gives trustee a wide
range of powers
Personal Liability of Third Parties
Lecture 1- Introduction and Fiduciary Duties
Questions that this topic poses:
1. What duties and obligations do the trustees owe the beneficiaries?
2. What must the trustees do with the trust property?
3. What powers do the trustees have?
4. What happens if the trustees breach their duties?
5. What happens if a third party assists or receives trust property resulting from a
breach of trust/fiduciary duty?
What is a fiduciary?
Trustees are in a fiduciary relationship to their beneficiaries- due to this the trustee owe a
certain duty to their beneficiaries
Bristol & West Building Society v Mothew (1998)
“A fiduciary is someone who has undertaken to act for or on behalf of another in a
particular matter in circumstances which give rise to a relationship of trust and confidence”
Fiduciary Duties
Key obligation is loyalty (Bristol & West Building Society v Mothew (1998))
Bray v Ford (1896)- no conflict rule and no profit rule
Standard of Liability? – STRICT
Boardman v Phibbs (1967)
Boardman breached his fiduciary duties
Their personal interests had gone against the trust
Even though the shares they bought increased in value Boardman was still liable due
to the strict liability
This strict liability was confirmed in Bray v Ford and Guinness v Saunders
Remuneration
Trustees are not entitled to receive any payment for their services
Dale v IRC (1954)
Secret remuneration is not valid, needs to be authorised:
1. Trust instrument- there could be a “charging clause” drawn out
2. If all beneficiaries agree, remuneration can be permitted
, 3. Trustee Act 2000, ss.28 and 29- can receive reasonable renumeration, doesn’t apply
to sole trustees or charitable trusts
4. The courts inherent, jurisdiction Re Duke of Norfolk’s ST (1982)
5. Solicitor Trustees, Cradock v Piper (1850)
Purchasing Trust Property
Not allowed to purchase trust property- There are two rules that apply:
Self- Dealing Rule:
This rule provides that a fiduciary is barred from dealing on behalf of him/herself and
the principal in the same transaction- Campbell v Walker (1800)- it can be
considered unfair
Can a retired trustee purchase trust property? - Holder v Holder (1968)
The rule cannot be evaded by the sale to a spouse or child- Re Thompson
Fair-Dealing
Fair dealing rule applies when the T and B transact over the trust property- B can
sometimes sell their beneficial interest in property to the trustee Thompson v
Eastwood (1877)
Incidental Profits
Trustee is not allowed to make any profit, but it can arise when:
1. Renewal of lease to trustee
Keech v Sandford (1726)
o Trustee was holding a lease
o Landlord refused to renew it for the beneficiary, so the trustee renewed it
himself
o This was allowed as the trustee was holding it for the beneficiary, he had
profited from knowing the beneficiary
2. Directors Renumeration- holds shares in a company and then appoints himself a
director so he gets some shares- not allowed Re Macadam (1946)
3. Competition with the trust
Re Thompson (1930)
o Trustee opened a yacht business in the same town
o This went against the best interest of the trust which was a yacht business
4. Bribes
A-G for Hong Kong v Reid (1994)
o Took numerous bribes not to prosecute people and then used this to
purchase many houses
o These houses were held on constructive trust for Hong Kong
, Remedies
1. Constructive trust in favour of the beneficiaries- if a trustee breaches his fiduciary
duty and pays for a property with the beneficiary’s money, we recognise the
existence of a constructive trust- what if the trustee uses his own money to purchase
trust property
A-G for Hong Kong v Reid (1994)
o When a fiduciary exploits their duty and use their own money to purchase
trust property a constructive trust will occur
Sinclair Investments Ltd v Versailles Trade Finance Ltd (2011)
FHR European Ventures LLP v Cedar Capital Partners LLC (2014)
o 2004- FHR purchased share capital of a Monte Carlo Hotel
o Cedar acted as FHR’s agent in negotiating the purchase
o Cedar owed FHR a fiduciary duty but also entered an agreement with the
seller of the hotel- pay them secret commission
o FHR wanted the commission that Cedar received during the purchase
o FHR could choose a constructive trust or equitable compensation- CT is
stronger, if the value of the property increases then you can receive more
and if it decreases in value you can get EC for the full amount
2. Equitable Compensation- fiduciary needs to be solvent and in a position to pay you
that money
Lecture 2- Investment
The Duty to Invest
Duty of the trustee to preserve the trust over a period of time
The process of investment varies due to different trusts (its nature)
Inflation- prices increase and therefore value of money decreases
Due to this, there is a duty to invest the trust money to keep the value
Two principles-
a) Trustees must safe guard the trust fund by preserving the capital value of the trust
fund- conservative approach which avoids taking significant risk Learoyd v Whiteley
(1887) and Nestle v Westminster Bank plc (1993)
b) Trustees must maximize returns for the benefit of beneficiaries: Re Wragg (1919)
Powers of Investment
Only entitled to carry out investments that are authorised under the express terms of the
trust, either a:
Statutory Power- Trustee Act 2000 s.3- general power of investment, gives trustee a wide
range of powers
