By Tony Johnson - 25 Oct 2013
The recent Court of Appeal decision in Spencer v
Spencer is a further indication of the Court's renewed
interest in the actions of trustees. In this case, the Court found
the trustees were personally liable for losses arising out of the
various breaches of duty.
The Court determined the trustees were in breach of their
duties:
- to make proper efforts to recover a debt due to the Trust
- in allowing a trustee (through his company) to charge
management fees; and
- in failing to collect rents that were payable to the
Trust.
The Court then turned to the issue of whether the trustees would
be personally liable for losses arising from the breaches.
The trustees relied on a clause in the Trust Deed that
indicated:
"NO trustee acting or purporting
to act in the execution of the trusts of these presents, shall be
liable for any loss not attributable to his or her own dishonesty
or to the wilful commission or omission by him or her of an act
known to be a breach of trust…"
The trustees' argument was that they thought their decisions
were appropriate and that they had not acted, or intended to act,
dishonestly.
The Court had no problem rejecting the trustees'
position.
The critical first step for the Court was to establish whether
the trustees actually knew about the terms of the Trust relevant to
the breach and whether the trustees knew their conduct amounted to
a breach of trust. Importantly, the trustees' knowledge might
include constructive knowledge arising from wilful blindness.
Honesty was to be assessed on an objective basis. A trustee who
believed his or her actions or omissions were in the best interest
of the beneficiaries, was not necessarily entitled to
protection.
Here, the Court determined the trustees had acted
dishonestly.
This decision again reiterates the need for caution on the part
of trustees. Trustees are the guardians of assets held on behalf of
all beneficiaries. If you are a beneficiary or a trustee and issues
have arisen from a decision that has been taken or a decision that
is being contemplated, obtaining legal advice is often the most
prudent way forward. We are available to assist.
Links
Spencer v
Spencer
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Court steps up
focus on action of trustees
Less
wriggle room when wrong decision made by trustee
Further warning to
passive trustees
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