Q7) Breach of Trust “Auctor in rem suam”
Trusts are in a fiduciary relationship both to the truster and to the beneficiaries. There is a requirement for the trustees clearly separate their personal interests from the interests of the trust. They must avoid placing themselves in a position where two interests conflict. This puts trustees in a strong position as it makes it relatively easy to commit fraud. Therefore to prevent this, the law precluded a trustee from being Auctor in rem suam.
Trustee must act in the best interests of the beneficiaries personal considerations, if allowed to interfere, would clash with this fiduciary capacity. The trust is entitled always to independent advice. Trustees have knowledge of trust affairs which 3rd parties dealing with at arm’s length would not have and it would be regarded as unfair if they used this knowledge for their own benefit as seen in the case of Hamilton v Wright 1842. The rule of a trustee being Auctor in rem suam is strictly applied. It’s irrelevant whether a transaction is perfectly fair or if the trust estate would gain a benefit and suffer no loss. The trustee would be in breach and the transaction would be voidable. Any profit made would have to be paid back to the trust estate. Transaction voidable at instance of beneficiaries or co-trustee or judicial factor appointed by court.
There are certain exemptions of this principle. A trustee may act as Auctor in rem suam when it is expressly sanctioned by the truster who has foreseen the conflict of interests. This was illustrated in the Buckner v Jopps Trs 1887 case. Section 32 of the Trust Act states to still act honestly and reasonably.
A trustee must not transact with the trust estate, trustee may not borrow from trust estate, may not sell property to trust and may not buy property from trust. If a trustee agrees with a 3rd party that the latter will purchase the trust property and then sell it on to him, it would be possible to seek interdict to prevent the transfer to the trustee or have it reduced if it had taken place as illustrated in the case of Clark v Clarke Exrx 1989 offer received from third party for farm this qualified acceptance issued purchaser failed to pay price missives assigned to widow (also trustee). Notary public London held that this was a clear conflict of interest granted reduction of assignation of contractual rights .