Trusts and Fiduciary Relationships

The High Court has held that the senior creditors of an insolvent structured investment vehicle were not entitled under the security arrangements to give directions to the security trustee as to the time, manner and place where its assets were to be sold.

The Court of Appeal has held that the purported assignment of a debt, made before consent to the assignment was deemed given, was invalid, and, obiter, that a restriction on assignment of a debt may not prohibit a claim by a beneficiary of a declaration of trust over that debt.

The High Court has held that where a claimant could not claim payment of debts under a facility as an assignee of them (due to the facility's terms), it could not instead claim as the beneficiary of a declaration of trust over them.

The High Court has held that a voting agreement, which included a power of attorney giving an agent shareholder absolute discretion in certain matters, imposed no fiduciary duties on the agent shareholder.

The Court of Appeal has held that, where a fiduciary made a profit following a breach of his fiduciary duties, he would be liable to account for all the profits made within the scope of the duty that conflicted with his personal interest.

On 24 March 2005, the Finance Bill 2005 and explanatory notes were published, although the explanatory notes are not yet available on the HMSO site. For background, see Legal update, Budget 2005: implications for property.

On 19 January 2005 the NAPF published a 'voting made simple' guide for trustees. The guide reminds trustee boards that they must exercise their responsibilities in their beneficiaries' best interests, and states that to this end they should: (1) introduce, develop or review written voting policies which provide for regular, considered voting; (2) confirm that the investment management and custodial agreements properly cover responsibilities for executing a considered voting policy; (3) record the policy on voting in the Statement of Investment Principles and explain the policy in appropriate documentation which is available for scrutiny by pension scheme members; (4) verify that, where voting has already been delegated to investment managers or other agents, voting has occurred regularly and in accordance with the agreed policy; and (5) embrace, as good practice, the principles on voting contained in the Combined Code and in guidance issued by member associations and other relevant bodies. (For some background, see PLC practice notes, Corporate governance: the environment and Trusts in commercial transactions)

The Court of Appeal has held that the rule against recovery of reflective loss applies to a claim for breach of fiduciary duty: the rule is not concerned with barring causes of action, but with barring recovery of certain types of loss. The Court also held that the rule extends to claims by a shareholder in his capacity as a creditor.

Warborough Investments Ltd v Berry, 18 December 2003 (High Court).The High Court has considered the construction of a standard clause used in leases limiting the liability of charity trustees for tenant covenants. It has held that the trustees' liability was limited to the extent of the charity's assets and that this limitation continued to apply even though the lease had been determined.

The High Court has held that a trust created by a company in financial difficulties to ring-fence funds to pay 'urgent suppliers' failed for lack of certainty of the beneficiaries of the trust.

On 3 April 2003 the Charity Commission announced a change in its procedures for authorising the purchase of trustee indemnity insurance from the funds of the charity.

On 12 February 2003 the Charity Commission issued a new version of its guidance paper CC14 - Investment of Charitable Funds, updated to take into account changes arising from the Trustee Act 2000 as well as innovations in investment vehicles. The revisions include new areas covering what the commission means by 'investment', the general power of investment and other new powers given by the Trustee Act 2000, and a more detailed section on ethical investments.

The Law Commission has recently published Consultation Paper 171 on trustee exemption clauses. The Commission is concerned with the extent to which trustees can exclude or restrict their liability to beneficiaries for breach of trust. It believes that the current law is too deferential to trustees, in particular professional trustees. The paper examines current law and practice relating to trustee exemption clauses, considers the economic implications of regulation of such clauses, sets out options for reform, makes several provisional proposals which would require legislation (including prohibiting professional trustees from relying on clauses which exclude their liability for breach of trust arising from negligence) and invites views on other options for reform of the law. Responses are requested by 30 April 2003.

On 27th February, 2002 the Charity Commission made available on its web site expanded Operational Guidance on the Trustee Act 2000.

Goodman v Carlton, 29 June, 2001 (High Court). A resulting trust in favour of one of two joint proprietors was found to have arisen on the facts of this case. The case is a reminder of the need for an express declaration of trust on transfers to joint proprietors where a prescribed Land Registry form of transfer is not used, for example, on a conveyance inducing first registration.

Notting Hill Housing Trust v Brackley, 24 April, 2001 (Court of Appeal). A trustee of a trust of land is under a duty to consult with the trust beneficiaries when exercising any trustee function in relation to the trust land (section 11, Trusts of Land and Appointment of Trustees Act 1925). The Court of Appeal held that a notice to quit a joint tenancy is not a 'function' relating to trust land exercisable by a trustee within the meaning of section 11. A trustee giving a notice to quit is therefore under no obligation to consult with its co-trustee as beneficiary, before giving the notice to quit.

The Trustee Act 2000 (Commencement) Order 2001 (SI Number 2001/49) brought into force on 1 February, 2001 those provisions of the Trustee Act 2000 which did not come into force when the Act received Royal Assent. The Act is principally concerned with the creation of a new, wider statutory power of investment to replace the limited powers under the Trustee Investments Act 1961. This item contains a link to the text of the Trustee Act 2000.

Kingsalton Ltd v Thames Water Developments Ltd, 19 January, 2001. When called on to rectify the Register, the Land Registry will favour the proprietor in possession of registered land being allowed to keep its title and leave the party seeking rectification to take the indemnity instead.This Court of Appeal case is a helpful reminder of how the discretion to grant rectification is likely to be exercised. It is also a reminder that where rectification is the consequence of a court order, it is not relevant for the court to consider whether or not it would be unjust to order rectification.

The Court of Appeal has held that the six year limitation period applicable to claims based on contract and tort will be ordinarily applied by analogy to a claim for breach of fiduciary duty in accordance with section 36(1) of the Limitation Act 1980.

A Quistclose special purpose trust was upheld by the High Court in connection with sums paid to an administrator.

The High Court has given rulings on two points concerning trustees' powers to make payments from a final salary scheme.

The Court of Appeal has considered an informal agreement for a rent free lease of part of a premises.

The Court of Appeal has held that a solicitor should use current conveyancing procedures and apply requisite standards of care and skill when retained by a bank to execute a legal charge over property.

CRESTCo has published a paper describing the implementation of the first phase of settling unit trust and open ended investment company (OEICs) shares in CREST.

The High Court has overturned a decision of the Pensions Ombudsman that pension scheme trustees failed to follow proper procedures when making a discretionary payment of a lump sum death benefit.

It has been held that a remedial constructive trust could not be granted in respect of the assets of a company in administration, since the effect of such trust would be to give preference to a creditor who enjoys no preference under the statutory schemes.

To hold someone liable as a constructive trustee in a case of alleged assistance with a breach of a director’s duty in relation to the management of a company’s affairs, but where there was no breach of trust affecting property, would be an unwarranted extension of that authority.

An individual creditor of an insolvent company is not entitled to sue a director of the company for acting in breach of his fiduciary duties by transferring assets out of the reach of creditors.

The Court of Appeal has held that the relationship between a broker and finance house which was at all times at arm’s length did not give rise to a fiduciary duty. But disclosure by a finance house to a prospective client of the broker of confidential information that may prejudice the broker may amount to breach of confidence and unlawful interference with the broker’s business.

The High Court has considered whether the director of a trustee company has the same personal liability to beneficiaries of the scheme as an individual who is a trustee in his own right.

The Company Accounts (Disclosure of Directors` Emoluments) Regulations 1997 have been issued in draft form. It is intended that they will come into force on 31st March, 1997.

A trustee in bankruptcy can recover profits made by a person who has invested money legally owned by the trustee.

A solicitor acting for both the mortgagor and mortgagee is liable in negligence if he fails to pass on information to the mortgagee which could affect marketability and the property to be mortgaged.

A company acting as agent had paid sums due to its principal into an account with a third party bank, thus reducing the company's overdraft. The company subsequently went into receivership and the principal was not entitled to trace these funds into the hands of the third party bank. It would, however, have a claim for unjust enrichment against the bank.

There could be no equitable tracing of trust money paid into an overdrawn bank account. Traced property had to be identifiable at all relevant times. However, in certain circumstances it might be possible to identify, a misappropriation of trust money with the acquistion of a particular asset and this could result in the creation of an equitable charge over the asset.

Certain of the remaining disadvantages of investing through such a trust, compared with direct investment in underlying shares and securities, have been eliminated by amendments to the Bill, which is likely to become a law on or before 5th May, 1994.

The Institute of Chartered Accountants has issued guidance to accountants on the responsibility of pension scheme trustees as regards the preparation of scheme accounts.

The Disclosure of Interest in Shares (Amendment) Regulations 1993 were made on 19th July, 1993 and will come into force on 18th September, 1993.

The tax treatment of corporate unitholders and non-UK resident unitholders will be affected by amendments made to the Finance Bill and further legislation to be included in the Autumn Finance Bill. A consultative document is to be published on open-ended investment companies.

The failure of a director to disclose his interest in a contract under section 317 of the Companies Act 1985 is not necessarily fatal to its validity where non-compliance is wholly technical and it would be inequitable to permit rescission of the contract.

The press has reported the publication by LAUTRO of proposals under which unit trust investors would have to be told what they might get back from their investment if they cash it in within five years.

The Department of Trade and Industry (DTI) has issued draft regulations which will amend the rules governing disclosure of interests in shares.

The Law Commission recently published a Consultation Paper on Fiduciary Duties and Regulatory Rules, which was commissioned by Mr John Redwood, then Minister for Corporate Affairs, in April 1990.

The Securities and Investments Board (SIB) has published a guidance release on the operation of powers of attorney in relation to the Financial Services Act 1986 (FSA).

Unit trust bonus schemes are defeated by new regulations.

The Securities and Investments Board (SIB) has reorganised the existing provisions relating to authorised unit trust schemes.

The Inland Revenue has published an Extra-Statutory Concession removing capital gains tax on certain asset transfers to beneficiaries by the trustees of an employee trust. Under the Concession, the trustees will not be charged to capital gains tax if, as a result of the transfer, the employee-beneficiary is charged to income tax under Schedule E on the full value of the asset.

Regulations have been made concerning the requirement to appoint an independent trustee. (The Occupation - Pension Scheme) (Independent Trustees Regulations 1990).

Following the withdrawal of a number of large unit trust groups, the unit trust ombudsman scheme has ceased to exist as an independent service. Its role will be undertaken by the existing insurance ombudsman.

The Securities and Investments Board (SIB) and the Investment Managers Regulatory Organisation (IMRO) have issued a joint consultative paper on the position of trustees under the Financial Services Act 1986 (FSA).

The Securities and Investments Board (SIB) has published its views on whether futures and options funds and property unit trusts should be incorporated in the authorised unit trust regime. Its paper (Consultative Paper 37) proposes two tiers of authorised futures and options funds - high exposure and low exposure - which would be subject to different levels of regulation.