What is a trustee?
A trustee is someone who has been given powers to administer assets or make decisions for the benefit of someone else, referred to as ’the beneficiary’.
How fiduciary duties arise
The trustees’ powers and duties (often referred to as “fiduciary duties”) may be defined by an agreement or by statute or can be implied in very many common situations and relationships, such as between company directors and a company, executors and those who inherit under a will, liquidators and creditors, investment managers and clients, trustees of a charity to the charity and its beneficiaries, or mortgagees, where the mortgagor is the beneficiary. They can also arise between solicitors or accountants and their clients, a bank and its customers, and even sometimes between estate agents and the seller.
Because the ways in which fiduciary duties can arise are so numerous, there are also very many ways of breaching them and hundreds of cases have come before the courts in the last few decades involving different kinds of unlawful exploitations. Examples could include the trustee:
- buying trust property himself at an undervalue
- selling trust property at an undervalue to a friend or family member
- making a secret profit out of trust assets
- failing to take any action at all to manage assets
- using assets for some purpose other than that envisaged by the trust
- taking unauthorised payment(s) for his work
- not disclosing a conflict of interest; and
- causing a loss by revealing confidential information.
The list could be very much longer, but most of them involve either the trustee exploiting his office for a personal gain or an outright failure, such as a case where the executors of an estate failed to distribute the deceased’s personal property to the beneficiaries of a will for over 20 years.
The core principle – acting in good faith
The fundamental principle is that trustees must always act diligently in the best interests of the beneficiaries and not in their own interests or those of anyone else. All fiduciary relationships involve a duty of good faith and, where a trustee is given discretion to make decisions, it must also be exercised in good faith. For these reasons, the starting point for the court is always the protection of the interests of the beneficiaries.
The standard of care under the Trustee Act 2000
These principles have been established in English law in the many hundreds of cases that have come before the courts over several centuries, but now Section 1 of the Trustee Act 2000 also provides that a trustee must exercise such care and skill as is reasonable in the circumstances having regard to:
- any special knowledge or experience he possesses or claims to possess; and
- if he acts as a trustee in the course of a business, knowledge or experience he is reasonably expected to have.
Accordingly, a trustee can be sued not only for a deliberate breach but also for incompetence in performing his duties, if he represents having special expertise, whether or not he charges for it.
When a breach of trust is suspected
In any case where breach of trust is suspected, as with other forms of exploitation, the facts are paramount: we will have to identify the powers and duties which are supposed to be exercised by the trustee, whether they have been breached, and how.
Possible remedies and court powers
Depending on the circumstances, the court has a wide range of powers which can help, including removing the trustee from office, or ordering him to pay compensation or return property or assets the trustee has misappropriated. Injunctions may be obtained, if necessary, to prevent dissipation of assets. Occasionally, criminal proceedings for theft or fraud may be more appropriate than civil action.
Defences available to trustees
However, there are some defences available to trustees if, for example:
- the trustee was appointed on terms specifically exempting him from the consequences of such claims
- where something has gone wrong, even though the trustee has acted honestly and competently
- where the beneficiary is an adult who has agreed to the course of action which has caused the loss; and/or
- if there has been an extended delay in bringing the claim (the ordinary limitation period is six years from the date of the breach, rising to 15 years in the case of fraud).
The importance of swift action
As in other types of unfair exploitation, swift action can be important in cases where breach of trust is suspected. Sometimes the beneficiary who feels that something has gone wrong may not know exactly what has happened or how, but court procedures allow for the production of information in certain circumstances. Prompt action may be particularly important in cases such as crypto fraud, where assets can be dissipated swiftly.
Overlap with other claims
Frequently, where claims for breach of trust are suspected, there may also be parallel claims for breach of contract or professional negligence and whilst double compensation is never possible, such claims are often pursued together and can also amount to a different form of unfair exploitation. Such claims will be explored in more detail in Part 4 of this ‘Unfair Exploitation’ series.
Part 1: Understanding ‘undue influence‘
Part 2: Unfair Exploitation – Duress
