EQUITY & TRUST II UEQ2622

TUTORIAL 3

(a) Rosie appointed Remy, her nephew as one of her trustees before she died. After the fulfilment of the
trust properties conditions, Remy renounced the position and took no part in the further transaction of
the trust property. Remy is a tenant of a corner lot single storey house, which is part of the trust
properties. Through an auction, Remy had purchased the house.

Tizz, one of beneficiaries do not agree and claiming that the transaction or the transfer of the
house should not be done since Remy was a trustee of the trust property. Tizz then seeking your
advice and wish to take legal action against Remy.

Advise Tizz.

Issue – Whether Remy could be liable for the secret profits he received as Rosie’s trustee?

 whether Remy has breached his fiduciary duty as a trustee upon purchasing the trust property?

Law:

- If a trustee, being in a fiduciary relationship, secures a benefit for himself by taking advantage of the
trust, equity will not allow him to retain the same and he or she shall hold the benefit under a
constructive trust.
- Keech v. Sandord – A trustee must not use his position as a trustee so as to enrich himself. This case
extended to all instances where one stands in a fiduciary relationship with another. The fiduciary has to
account for the profit and the profiteer cannot escape the risk of being called upon to account. Facts: A
child (the future Mr Keech) inherited a property. Mr Sandford was entrusted to look after this property
until the child was of age. However, the lease expired before Mr Keech had grown up. The landlord had
told Mr Sandford that he did not want the child to have the renewed lease. There was clear evidence of
the refusal to renew the lease for the benefit of the infant. Yet the landlord was happy to give Mr
Sandford the opportunity of the lease instead. Mr Sandford entered into the lease. When Mr Keech grew
up, he sued Mr Sandford for the profit that he had been making by getting the lease. Issue: Was Mr
Sandford, as trustee, in breach of the no conflict rule? Held: Lord King LC held that by entering into the
lease for the property, Mr Sandford had breached his duty as trustee.
- Purchase of trust property
- General rule: A trustee cannot be involved in self-dealing with property belonging to the trust even if
the trustee has retired
- Campbell v Walker – Any trustee purchasing the trust property is liable to have the purchase set aside, if
in any reasonable time the cestui que trust (beneficiary of a trust) choose to say, he is not satisfied with.

Application – Remy as Rosie’s trustee could not secure a benefit from the trust and equity shall not allow him
to retain the same and he or she shall hold the benefit under a constructive trust. Which as illustrated in
Keech v. Sandford’s case. Remy also not allowed to purchase the trust property as he is a trustee for Rosie,
even Remy has renounced his duties based on the given facts.

Conclusion – Remy could be held liable for the secret profits he received as Rosie’s trustee.
(b) Quick build Ltd is a property development company. They employ Good Cost Ltd as their surveyors.
Alex is one of the Good Cost surveyors. He goes to value a development plot for Quick Build Ltd.

Alex then tells his friend John about the plot. Alex and John goes ahead and successfully outbids
Quick Build for the plot. Discuss.

Issues –

1) Whether Alex owes a fiduciary duty as a trustee to Quick Build Ltd?

- What is FD
- Not limited to trustee relationship only
- Case of Re Goldcorp (persons who may fall under ppl who owes FD)
-
2) Whether Alex had breached his fiduciary duty as a trustee of Quick Build Ltd when he received/made
secret profits behind Quick Build Ltd?
3) Whether Alex’s actions amounts to breach in his fiduciary duties when he competes for the same plot
of land interested by Quick Build Ltd

FIDUCIARY NATURE OF TRUSTEESHIP –

- Snell's Equity: two core elements governing the trustees in the discharge of their duties are –
a. Prohibits fiduciary duty from acting in situation where there is a conflict between the fiduciary
duties and his/her interest
b. Prohibits the fiduciary duty from making a profit out of his/her position

SECRET PROFITS –

- If a trustee, being in a fiduciary relationship, secures a benefit for himself by taking advantage of the
trust, equity will not allow him to retain the same and he or she shall hold the benefit under a
constructive trust.

Circumstances where secret profits may occur:

 Rule in Keech v Sandford

- A trustee must not use his position as a trustee so as to enrich himself. This case extended to all
instances where one stands in a fiduciary relationship with another. The fiduciary has to account for
the profit and the profiteer cannot escape the risk of being called upon to account.
- Keech v Sandford – Facts: A child (the future Mr Keech) inherited a property. Mr Sandford was
entrusted to look after this property until the child was of age. However, the lease expired before Mr
Keech had grown up. The landlord had told Mr Sandford that he did not want the child to have the
renewed lease. There was clear evidence of the refusal to renew the lease for the benefit of the infant.
Yet the landlord was happy to give Mr Sandford the opportunity of the lease instead. Mr Sandford
entered into the lease. When Mr Keech grew up, he sued Mr Sandford for the profit that he had been
making by getting the lease. Issue: Was Mr Sandford, as trustee, in breach of the no conflict rule?
Held: Lord King LC held that by entering into the lease for the property, Mr Sandford had breached
his duty as trustee.
 Arising of the use of confidential information
- Lac Minerals Ltd v International Corona Resources Ltd: Principle: The court adopted the view that
the imposition of a constructive trust maybe an appropriate remedy in cases where a trustee has been
unjustly enriched on account of a breach of confidence at the beneficiary’s expense.
- Facts: Corona and Lac were negotiating for a joint mine exploitation venture. It discussed with Lac
Minerals about options and provided them with private information. Including the possibility of
purchasing the Williams property. Lac Minerals acquired the Williams property but never informed
Corona. Issue: Was there a fiduciary obligation from Lac to Corona even if no contract was formed?
Held: Yes, and it was breached.

 Purchase of trust property

- General rule: A trustee cannot be involved in self-dealing with property belonging to the trust even
if the trustee has retired
- Campbell v Walker: Any trustee purchasing the trust property is liable to have the purchase set aside,
if in any reasonable time the cestui que trust (beneficiary of a trust) choose to say, he is not satisfied
with.
- Exception: Is seen in the case of Holder v Holder – The testator appointed his son as one of his
executors but the son took no part in the further administration of the estate. The court decided not to
set aside the transaction on the following grounds:
(i) The executor had not interfered in the administration of the estate.
(ii) He had not taken part in organising the auction.
(iii) There was no conflict of interest and duty as the beneficiaries were not looking to him to protect
their interests.
(iv) Any special knowledge he had about the property was acquired as tenant and not as executor. The
principle here is that a trustee or executor who has once involved himself in his office is affected by
the rule for a considerable period after retirement.

 Purchase of beneficial interests.

- Coles v Trecothick: A trustee may buy from the trust, provided that there is a distinct and clear
contract proving that the trust intended the trustee should buy, there is no fraud, no concealment, no
advantage taken, by the trustee of information acquired by him in the character of trustee.

 Director’s fees
- Any director’s fees received will be subject to the general rule that a trustee is not to profit from the
trusteeship.
- Re Macadam: Issue: Did the trustee acquire the position in respect of which he drew the
remuneration by virtue of his position as trustee? In this case, the only way in which the plaintiffs
became directors was by the exercise of the powers vested in the trustees of the will, although the
remuneration was for services as director of the company, the opportunity to receive that
remuneration was gained as a result of interest and duty conflicted.
- Re Dover Coalfield Extension Ltd: The rule does not apply if a trustee secures directorship not by
virtue of his position as a trustee. Thus, where an appointment as a director of a company in which
the trust has shares was made before the person’s appointment as trustee, he or she is not to account
for the director’s fees received.
- Re Llewellin’s Will Trusts: The trust instrument may provide for a trustee to appoint himself as a
director and be remunerated.

 Competing with the trust

- A trustee is prohibited from competing with any business belonging to the trust.
- Re Thomson: The testator’s estate was involved in yacht-broking business. One of the trustees set up
his own similar business. Held that it amounts to a breach of fiduciary duty because it was ‘an
engagement in which he would have a personal interest conflicting or which might possibly conflict
with the interests of those he was bound to protect’.

 Receiving bribes
- AG of Hong Kong v Reid: Bribes or secret commissions belong to the principal and constructive trust
creates a right over the property.

Issues – Whether Alex had breached his fiduciary duty as a trustee of Quick Build Ltd when he
received/made secret profits behind Quick Build Ltd?

Laws –

- Define what nature of fiduciary duty is  Snell's Equity establishes the two core elements governing
the trustees in the discharge of their duties are –
i) Prohibits fiduciary duty from acting in situation where there is a conflict between the fiduciary
duties and his/her interest
ii) Prohibits the fiduciary duty from making a profit out of his/her position
- Secret Trustee  If a trustee, being in a fiduciary relationship, secures a benefit for himself by taking
advantage of the trust, equity will not allow him to retain the same and he or she shall hold the benefit
under a constructive trust.

Circumstances where secret profits may occur:

 Rule in Keech v Sandford

- A trustee must not use his position as a trustee so as to enrich himself. This case extended to all
instances where one stands in a fiduciary relationship with another. The fiduciary has to account for
the profit and the profiteer cannot escape the risk of being called upon to account.
- Keech v Sandford – Facts: A child (the future Mr Keech) inherited a property. Mr Sandford was
entrusted to look after this property until the child was of age. However, the lease expired before Mr
Keech had grown up. The landlord had told Mr Sandford that he did not want the child to have the
renewed lease. There was clear evidence of the refusal to renew the lease for the benefit of the infant.
Yet the landlord was happy to give Mr Sandford the opportunity of the lease instead. Mr Sandford
entered into the lease. When Mr Keech grew up, he sued Mr Sandford for the profit that he had been
making by getting the lease. Issue: Was Mr Sandford, as trustee, in breach of the no conflict rule?
 Held: Lord King LC held that by entering into the lease for the property, Mr Sandford had breached
his duty as trustee.
 Arising of the use of confidential information
- Lac Minerals Ltd v International Corona Resources Ltd: Principle: The court adopted the view that
the imposition of a constructive trust maybe an appropriate remedy in cases where a trustee has been
unjustly enriched on account of a breach of confidence at the beneficiary’s expense.
- Facts: Corona and Lac were negotiating for a joint mine exploitation venture. It discussed with Lac
Minerals about options and provided them with private information. Including the possibility of
purchasing the Williams property. Lac Minerals acquired the Williams property but never informed
Corona. Issue: Was there a fiduciary obligation from Lac to Corona even if no contract was formed?
Held: Yes, and it was breached.
 Competing with the trust
- A trustee is prohibited from competing with any business belonging to the trust.
- Re Thomson: The testator’s estate was involved in yacht-broking business. One of the trustees set up
his own similar business. Held that it amounts to a breach of fiduciary duty because it was ‘an
engagement in which he would have a personal interest conflicting or which might possibly conflict
with the interests of those he was bound to protect’.

Application – Based on the facts stated in the situation, it can be seen that Alex is a surveyor working for
GC. However, it was stated that QB has appointed GC to become their surveyors, and Alex was one of
the GC surveyors. Hence, in this situation, Alex owes a form of fiduciary duty to ensure that the main
reason he was appointed by QBL is fulfilled. However, it was seen in the facts that Alex had shared
information with his friend John, about the plot of land and instead of Alex bidding for QB as per
instructed to him, he and his friend John outbids QB instead and got the said plot of land for them their
benefit.

Conclusion – Alex has therefore, breached his fiduciary duties against QB as he has not acted in his best
interest for QB. But has acted for his benefit instead