Are trustees too powerful?

It is within this jurisdiction that the question arises as to the powers of trustees. It can be seen that trustees have a lot of responsibility of looking after trust interests, however with all there duties which in general gave rise to powers of discretion, the law extending to the protection of the beneficiaries interests, when trustees breach their duties. It was therefore that different forms of trust have arisen, as it was viewed as general defense mechanism of protecting the interests of the beneficiaries, these in general branch out to areas such as:

 Express trusts, where a “settler makes a declaration that certain trust property is to be held upon trust for certain objects or persons, a simple trust can be described as one which does not itself impose any active duties on the trustees, but leaves the law to impose. Protective trusts are set up to prevent a beneficiary disposing of all or any of his beneficial interests so long as the trust subsists, private and public trusts, where they are created for the benefit of a individual or class. Secret trusts usually arise under a will and is intended to enable provisions to be mad for an object or purpose without this being revealed on the face of the will. Charitable trusts can be described as public trusts designed to promote some object recognized by the courts as being of the benefit to the community in a way the courts regard it as charitable. Resulting trusts here it can be described as a presumed attention of the settlor where he has failed to express his intentions adequately or not at all. And lastly the purpose trust and the discretionary fixed trust .It is in the context of the full discretionary trust that total power and control over the assets is handed over to the trustees because if the settler retained control over the assets then this could render a sham trust either by the Inland Revenue or disinherited heirs, disappointed relatives, former spouses and creditors.  If power is not given away to the trustees then trusts may be set aside and assets claimed by relatives, creditors and revenue authorities for a variety of reasons A Full Discretionary Trust is an irrevocable trust under which the trustee have wide powers to decide how the trust fund should be invested and ultimately distributed. The function of a purpose trust can be seen when private trusts are intended to benefit the purpose rather than the beneficiaries, and are seen to be sometimes referred to as a trust s of imperfect obligation.”

   

The ideology of these different forms of trusts have helped safeguard individuals interests as, it could be argued that in deciding who should be appointed as a trustee really does have to be taken into consideration as courts have had a constant battle when dealing with individual trustees being appointed by a settler, it is within such cases that it may be seen that trustees may misuse their powers by deceit, by a trustee holding absolute power it can be said that, they have easy access into funds. Therefore it can be seen that corporate companies or any companies as such are not advisable to be appointed as trustees in question, however larger companies such as banks are seen as safer as they have higher cliental basis, higher fees as well as on constant watch, which would be harder for them to be deceitful in their dealings in any way. The fundamental differences between each trust involves the levels of control and protection that each offer. In broad terms, the more protection provided by a Trust, the less control for the settler and relegation of power to the trustees.

As described above it can be seen that on many occasions trustees have abused the powers that they have been given and used it for their own use, this is one of the areas the law has had constant battle as, how can one entrust that his interests or land onto an individual or a group without having a constant fear that they would not be misled and have their money dishonestly taken. Therefore legislation has come along way as in the Trustees Act 1925, trustees were seen to be held responsible for the “default or misconduct of an agent only if the trustee had been guilty of willful default, as under common law trustees may appoint other agents to carry out the ordinary course of business”. An example of this could be seen in the case of Re Vickery where the defendant had employed a suspended lawyer, unknown to his knowledge and had asked him to wind up his estate, one of the beneficiaries on hearing of the solicitors past history asked the defendant to find another solicitor, but he failed to do so, the suspended solicitor made off with some money which was later irretrievable, it was held by the HL that the defendant was not to be held liable for “ an error of judgment made on the solicitor, as the defendant sought to rely on the 1925 Trustees Act (TA) s 23, as only the executor was not found guilty of willful deceit under s30 of TA 1925., it has been argued that prior to the 1925 act, a trustee would be found liable if he was negligent, as the Trustee Act. The 1925 were seen as a consolidating Act.”

With the new implementation of the Trustees Act 2000, trustees being held on account for an appointed agent was seen to be scraped out, (s23 and 30), however under the new legislation with the edition of s 22(4) TA 2000 it now extends to full protection of the trustees on the dishonest behavior of an “agent or nominee, as the trustees now have the obligation to firstly consider the appropriateness of the agent and has full power to intervene or revoke the appointment, it is therefore under s22 that the courts determine the extent of the trustees liability for the acts of the default of the agent, a trustee would therefore only be held responsible if he had failed to comply with his duty of care in the appointment or caring out his duties under the section mentioned above.” In the case of Re Lucking’s Will Trusts where it was held that the trustee was held liable under the “ordinary prudent man of business, as he had failed to supervise, and had the knowledge that the agent was dishonestly. This has been implemented into the TA 2000 where a duty of care amounts to liability.”

It can therefore be seen that the courts have ruled mostly in favor of the trustees in the past as, therefore arguing the point that they are well protected by the law, therefore increasing their powers as the courts have often found it vigorous to water down the trustees powers, however as we mentioned above it can viewed that trustee have a lot of obligations to fill therefore the courts have found it in their power to protect them to an extent, however the question to be addressed is to how far will the courts push to find the trustees liable if they have breached their duties, or acted in a deceitful and unfaithful way towards the  beneficiaries of the trusts.

Above we have looked at the different forms of trusts that can be set up, as well as briefly touched on the implementation of the Trustees Act 2000 and the changes made to it from the 1925 act, however case law has also played its part, as it clearly shows how trustees have been able to establish and hold on to their powers, as well as it was clearly seen before that the courts did not intervene in the trustees exercise of discretion, unless there was some evidence proof of fraud “Historically the courts were reluctant to interfere with trustees' discretionary powers. The decision in Gisborne v Gisborne meant the court will never intervene in the exercise of trustee discretion unless there is evidence of mala fides” however in the case of Re Beloved Wilkes' Charity where it could be clearly seen that trustees not to give a substantial reason due to the failed duty’s of the courts in giving a accurate conclusion as it was described by Truro L.C. as "most prudent and judicious" however extending further the courts would seem to intervene where a duty to exercise seems to exist , as seen in the case of  Re Manisty's Settlement, where powers were upheld by Templeman J. where it was seen that where trustees did not exercise the powers the court would take charge and take over the place of the trustees, as well as exercise the powers with the benefit of hindsight this was further established in the case of Klung v Klung  where if one trustee is willing to exercise discretion where as the other refuses the courts would be wiling to intervene, however in the case of Mettoy Pension Trustees Ltd v Evans and othersWarner J said “courts can positively intervene in respect of fiduciary powers in the same way that they can positively intervene in respect of discretionary trusts in the manner best calculated to give effect to the settlor's intentions”

The use of access to information was also seen as a way that trustee could gain more power, from the beneficiaries in Schmidt v Rosewood Trust Ltd, was a substantial case where the establishment of trust documents had seem to have arisen, where the “privy council recognized the courts general discretion to supervise trusts and so to order accesses to information in favor of the applicant whenever they see fit” however in comparison to the case of Re Londonderry’s Settlement. Where it was held if the trustees were seen to be on good terms and acting in a faithful manner, the discloser of any information in regards to the beneficiary to view the trust documents or have any access to any information, even thought the beneficiary had the ownership over the assets in question, and therefore hold the trustees accountable for their overall truthfulness.  “Where the right to seek disclosure is simply one area of intervention of the trustee’s discretion, as held by Walker LJ in the case of” Schmidt.

In Scott v National Trust a process of administrative review arose when the courts looked mostly into how the overall decision arose, when looking at reasonableness, where the also held that they would be willing to intervene.

The ongoing constant battle that the courts had to consider was the beneficiaries application for disclosure, on information that should be confidential, as doubts on the case where there had been a breach of that duty arose and was under constant scrutiny as seen in the case of Re Londonderryhere the courts had to re consider interests between the beneficiaries interests on the request of information and the overall interests arising form the concerns of the other beneficiaries of the trust, as stated above if a beneficiary held some interest they should be able to access the information but, to a partial extent.

In Re Beloved Wilkes Charity  here in this case it showed fraudulent behavior on the part of the trustees as the “trustees were required to select a boy from among a list of given parishes, they chose a boy who was a brother of one of the ministers. Who had sought from the trustees help for his brother, the courts found that where trustees fail to explain the reasons for their decision or explain it, the would be in question as Lord Truro set aside the trustees selection on the basis that it was done solely to benefit a person who had a nexus to the trustee and was therefore not proper exercise of the power.” Here it can be argued that the courts did not argue with how the trustees came to their decision, they just rather concluded on the overall basis, in which it could be interpreted as.

Where trust law had a rather sudden and drastic change was in the case of Mcphali v Doutton

“Where settlement was mad of shares for the benefit of employers of the company and their relatives and dependents. The trustees had absolute discretion as to how, whether or when they should distribute money from fraud. The executors of the settler’s estate argued that the settlement was void for uncertainty HL held that on certainty for a discretionary trust. The logic behind the new test was that a trustee could discharge his duty within the terms of the discretion without necessarily knowing at any one time who all the potential beneficiaries were.”

Exclusion clauses which arose out of Armitage v Nurse could be described to exclude courts further’.

It can therefore be said that trustees have the favor of the courts as with the implementation of the trustees act 2000, giving them more power then before, it was from the 20th centaury onwards that the change in the trustees powers began to being watered down, as they were seen to be gaining and being able to hold more power, as seen from the cases above. Though trustees still hold a great deal of power they also have a great deal of obligations to fulfill, it is through the case law we see that the courts and a shift in legislation that they are trying to address the problem and limited the powers of the trustees.

Bibliography

- Equity and Trusts, fifth edition, by Margaret Halliwell and Claire De Than, printed by old Baileys press

 - Keeton and Sheridan law of trusts 10th Ed professional book ltd 1974

- A.J. Oakley, Parker and Mellows: The Modern Law of Trusts 6th ed. S & M Ltd 1994

- S Worthington, Equity 1st Ed Clarendon Law Series 2003

- P Pettit, Equity and the Law of Trusts 8th Ed Butterworths 1997

- G Moffat, Trusts Law: Texts and Materials 4th Ed Cambridge Univ Press 2005

- Halliwell, M. (2004) Equity and Good Conscience in a Contemporary Context. London: Old Bailey Press.

- Holdsworth, History of English Law (HEL), I, 395-410  

• Hudson (2005) Equity and Trusts, 4th Ed, London: Cavendish
• Nutcases, Equity and Trusts, third edition, Chris Chang & John Weldon, Thomson, sweet & Maxwell,

Journals & Articles

- D Hayton, Beneficiaries' And Objects' Rights To Information, JITCP, ITCP 10.3(139) 2003

- Hayton & Marshall, Commentary and Cases on the Law of Trusts and Equitable Remedies, (11th ed.), 2001

- D. J. Hayton Developing the Obligation Characteristic of the Trust, L.Q.R. 2001

- D Hayton Some Major Developments in Trust Law P.C.B. 2001

- D Hayton, Developing the Law of Trusts for the Twenty-First Century, L.Q.R. 1990

- Maitland, Selected Essays (1936)

- Maitland ‘The Unincorporated Body’ (The date of this paper is probably between 1901 and 1903.)

- P. Matthews, The New Trust: Obligations without Rights? 1996 in A.J Oakley, Ed, trends in contemporary Trust - Law (Oxford UP, Oxford, 1996)

- Moffat, ‘pension funds: A Fragmentation of Trust Law?’

- Prof Waters, The protector: New Wine in Old bottles? In Trends in Contemporary Trust Law, 1996 - in A.J Oakley, ed, Trends in Contemporary Trust Law (Oxford UP, Oxford, 1996

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