The duties of trustees

166The manner in which trustees are obliged to carry out their fiduciary duties is the core of the trust – the trustees owe those duties to the beneficiaries in relation to the trust fund. Statute provides for limited situations in which trustees who are incapable of performing their duties can be removed from office and other trustees appointed in their place. ¹

The duties of the trustees in any particular trust are to be identified from the terms of its trust instrument. The principal 13 duties contained in the case law are as follows.

(1) The duties on acceptance of office relating to the need to familiarise oneself with the terms, conditions and history of the management of the trust. (2) The duty to obey the terms of the trust unless directed to do otherwise by the court. (3) The duty to safeguard the trust assets, including duties to maintain the trust property, as well as to ensure that it is applied in accordance with the directions set out in the trust instrument. (4) The duty to act ‘even-handedly’ between beneficiaries, which means that the trustees are required to act impartially between beneficiaries and to avoid conflicts of interest. (5) The duty to act with reasonable care, meaning generally a duty to act as though a prudent person of business acting on behalf of someone for whom one feels morally bound to provide. (6) Duties in relation to trust expenses. (7) The duties of investment, requiring prudence and the acquisition of the highest possible rate of return in the context. (8) The duty to distribute the trust property correctly. (9) The duty to avoid conflicts of interest, not to earn unauthorised profits from the fiduciary office, not to deal on one’s own behalf with trust property on pain of such transactions being voidable, and the obligation to deal fairly with the trust property. (10) The duty to preserve the confidence of the beneficiaries, especially in relation to Chinese wall arrangements. (11) The duty to act gratuitously, without any right to payment not permitted by the trust instrument or by the general law. (12) The duty to account and to provide information. (13) The duty to take into account relevant considerations and to overlook irrelevant considerations, failure to do so coupled with a breach of trust may lead to the court setting aside an 167exercise of the trustees’ powers if they have committed a breach of trust in so doing. ² The trustees’ liabilities for breach of trust are considered in Chapter 18.

The trustees bear only a limited obligation to give information to beneficiaries in relation to the administration and management of the trust fund and in relation only to that part of a trust fund in which they have a proprietary interest. Recent case law has emphasised the court’s inherent discretion to make orders relating to the administration of trusts and therefore the access of beneficiaries to information may be enlarged in the future or alternatively it may continue to be exercised in accordance with traditional principles. Trustees are not obliged to disclose to beneficiaries any matter in relation to any exercise of their fiduciary discretion, nor are they obliged to disclose any confidential matter. The court reserves discretion as to the manner in which trustees exercise their powers, but not as to the content of any such decision unless there has been palpable wrongdoing. ³

Trustees are entitled to have their liabilities for breach of trust and for negligence limited by the terms of the trust instrument. Such liability exclusion clauses are equitable devices and not contractual provisions. Trustees can limit their liability for negligence and gross negligence, but they may not limit their liability for dishonesty or fraud. There is a division in the authorities between a permissive approach to such exclusion clauses and an approach which prefers to limit them. ⁴

The trustees may be controlled by the beneficiaries by means of an application to the court. The court has an inherent jurisdiction to make orders in relation to the administration of a trust. The court may make orders by way variously of (a) giving directions, (b) assuming administrative control, (c) judicial review (in a private law sense) of the trustees’ actions, or (d) setting aside any decision of a trustee made by taking into account irrelevant considerations or failing to take into account relevant considerations. ⁵