Given that the primary obligation of a trustee is to hold properties belonging to others and to preserve them for the benefit of the beneficiaries, it is no surprise that trustees are generally expected ‘to use such due diligence and care as men of ordinary prudence and vigilance would use in the management of their own affairs’. When investing, they are expected ‘to take such care as an ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide’. This focus on integrity rather than ability ties in with the conventional wisdom that `[t]he importance of preservation of a trust fund will always outweigh success in its advancement’ .

When investment has become a sophisticated business, with theobjective of the trust moving away from the preservation of assets towards the preservation of the capital value, managerial skill has become more prominent and equity has developed a second standard for those who profess to be professional trustees or with special skill. They are expected to possess a higher standard of diligence and knowledge. As Brightman J explained:

FundsI am of opinion that a higher duty of care is plainly due from someone like a trust corporation which carries on a specialised business of trust management. . . . With a specialist staff of trained trust officers and managers, with ready access to financial information and professional advice, dealing with and solving trust problems day after day, the trust corporation holds itself out, and rightly, as capable of providing an expertise which it would be unrealistic to expect and unjust to demand from the ordinary prudent man or woman who accepts, probably unpaid and sometimes reluctantly from a sense of family duty, the burdens of atrusteeship.’

What is the general nature of these duties? An undisputed answer is that these standards of care are part of equity’s trust jurisprudence. The duties of skill and prudence in the implementation of the trust are part of the fiduciary duties of the trustee. Proceedings against trustees for negligence are equity proceedings for breach of trust. There is no question that in a private trust, the relationship between the trustee and the beneficiaries is generally not a contractual one and accordingly there is noimplied contractual duty of care between them.

Logically, it might be possible to fit the trustee-beneficiary relationshipinto the sort of neighbourhood principle enunciated in Donoghue v. Stevenson. Doctrinally, however, short of a revolution at common law, this is impossible. This is because common law does not recognize the trust; nor does common law recognize equitable ownership or equitable interests. A legal owner, the trustee, therefore cannot owe any common law duty of care to equitable owners. In Fletcher v. National Mutual Life Nominees Ltd., a money market operator invited deposits from the public. Pursuant to statutory requirement in New Zealand, a trust deed was executed between the operator and a trustee for the depositors which imposed certain duties on the trustee as trustee of the debts. On a preliminary question of law whether the liability of the trustee arose only from the breach of duty as trustee and not in tort, Henry J answered in the positive. On the question of negligence, Henry J observed:

The relationship between the parties is one which exists only by reason of [the trustee] having entered into the trust deed. It is the trust deed which defines the duties of the trustee, and it also confines those duties to those which are therein expressed or can properly be implied . . . The position is that [the trustee's] liability to the depositors rests only on its breach of what are express provisions of the trust deed. The deed apart, [the trustee] has no relationship to any depositor which could give rise to a duty of care . . . The proposition that the general law requires a party to a deed (or a trustee) to exercise care to see it observes the term of the deed (or of the trust), breach of which would constitute the tort of negligence, is in my view conceptually unsound. The terms of the deed or trust impose the duty— nothing else. Historically a trustee’s liability for lack of diligence has been classed as breach of trust, and under the control of the Courts of equity, not as constituting the tort of negligence under the jurisdiction of the common law.

The trust arrangement in Fletcher is no different from a unit trust. Henry J’s decision is highly persuasive.

In a unit trust, the trustee will however be liable in contract as well as under trust law,” as the trust relationship with unitholders is created by the contract. The content of the trustee’s obligation may be modified by the contract. Where a question is covered by the terms of the unit trust deed, it is a question of construction. Where the trust deed is silent, the court may have to consider whether a particular incident is an implied term or an equitable duty. Where necessary, there is no reason to deter the court from reaching a conclusion that there are concurrent duties in trust and in contract. For example, under trust principles, a professional trustee is liable to maintain the higher standard of skill that it professes to have.’ Equally, as a matter of contract, a professional person who possesses a particular skill is liable for breach of contract if he or she neglects to use that skill as other reasonably competent members of the profession. The test is not by reference to the reasonable man on the Clapham omnibus. The unit trustee is such a professional person.

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