Horatio appointed Caine, his son as one of his trustees in his trust before he died. After the the fulfilment of the trust properties conditions, Caine renounced the position and took no part in the further transaction of the same.
Caine through an auction had purchased a house which was part of the trust property, where he actually was a tenant.
Wolfe, one of beneficiary do not agree and claiming that the transaction or the transfer of the house should not be done since Caine was a trustee of the trust property.
Advise both parties.
This question is mainly about the position of Caine as a trustee and Wolfe as a beneficiary in relation to the self dealing with property belonging to a trust.
The principle laid down if trustee makes secret profits from a trust, equity will not allow him to retain the same and shall hold the benefit under a constructive trust as stated in the case of Keech & Sandford. A trustee owed a fiduciary duty to beneficiary. In the case of Campbell v Walker, Arden MR had stated any trustee purchasing the trust property is liable to have the purchase set aside, if in any reasonable time the cestui que trust chooses to say, he is not satisfied with it.
Wolfe may rely on the general rule that a trustee cannot be involved in self dealing with property belonging with trust because Caine through an auction had purchased a house which was part of the trust property where he was a tenant. It was clearly conflict of interest and Caine is deemed to gain some secret profits from the auction. Even when Caine’s paid market price to property or the highest bidder at auction, The case of Tito v Waddell , the transaction has ben set aside by beneficiary unless the trsutee can show that he has taken no advantage of his position and has made full disclosure to the beneficaiary to ensure the transaction is fair and honest. The case of Wright v Morgan further illustrated that as there was a conflict of duty and interest, the sale would be set aside on the application of a beneficiary. Caine as a trustee may have been aware of information relating to the property, where he actually was a tenant that others may not have been aware of.
However, there is an exception to the general rule to prohibit self dealing. Wolfe may rely on the case of exp James and exp Lacey that allow the trustee to purchase trust property from himself. In the case of holder v holder, an executor purported to renounce his executorship under a will after having carried out certain acts that amounted to intermeddling. Later, he purchased two farms owned by the estate but of which he was the tenant of at an auction. He paid a price, which was probably higher than would have been paid by anyone else. The facts of the case is similar to the question where the court of appeal held that the sale would not be set aside. The acts of administrattion which he had undertaken were minimal, and the knowledge which he acquired about the property was in his position as tenant, rather than as an executor. As he had not influenced the other executors, it was propert in the special circumstances of this case to allow the sale. It is a question of fact to prove that Caine did not take an action part in the administration of the estate as he was merely one of the trustees of the will. It must be proved that Caine had taken no part in arranging for the sales and not inluenced the other executor, it was propert to allow the sale.
The other exception may allow a trustee to purchase trust property where the trust instrument authorises it as stated in the case of Sergeant v National Westminister Bank where the trustee’ rights predated the will, they had not put themselves in a position of conflict of interest and duty. Further, the express provision in the will allowing the trustees to purchase the trust property excluded the rule that a trustee could not purchase trust property. Thus if Caine was a tenant predated to the auction without conflict of intrest, he may purchase the house at the best price.
Caine may also purchse the beneficial interest if provided there is a clear and distinct contract, and there is no fraud, concealmenat, or advantage taken by Caine of information obtained as a trustee as seen in the case of Morse v Royal where the sale of the property was not set aside. It was followed by the case of Coles v Trecothick where the different contract is essential in the purchase of property in the character of trustee. Thus, it is a onus of Caine to prove that there are separate contract existed to prevent the conflict of interest in self dealing.
In conclusion, Caine will be more likely to purchase the property successfully provided that he had proven the exceptions to the general rule.