Trustee’s statutory duty of care and skill: A comparative analysis

Recently, the High Court of Singapore (“High Court” / “Court”) in Devin Jethanand Bhojwani and others v. Jethanand Harkishindas Bhojwani1, had the opportunity to bring out the role of a trustee of private family trust. The ruling has brought the role of a trustee into sharp focus, specifically in relation to breaches of its fiduciary duties, the scope of ‘absolute discretion’ granted to trustees, commingling of funds and the maintenance of proper trust records.

Background

The dispute was between family members over the administration of a testamentary trust, set up by Harkishindas Bhojwani (“Trust”). The trust’s management was overseen by his son Sajan Bhojwani (“Sajan”), the appointed trustee, who was found to have breached several of his core duties. The beneficiaries’ main allegations which were dealt with the Court were:

1. Sajan as a trustee concealed the existence of the trust for nearly a decade. The trustee undertook multiple dealings related to the trust but none of them were revealed to the beneficiaries.

2. Sajan failed to maintain accurate accounts of the trust and handed over the responsibility of ensuring the correctness of the trust’s financial statements to his accountants. No separate bank account was created specifically for the money of the trust.

3. He mismanaged the funds of the trust and to that extent infused money into the trust and charged it with multiple expenditures over the years.

4. He tried to oust two named beneficiaries from the trust by executing deeds to amend the primary trust instrument in order to escape from the liability of his breaches.

   
   

While we have brought about what the High Court states for each of the above issues, we have also attempted to bring about a comparative between the duties of a trustee under the Trustees Act, 1967 (“Singapore Trustees Act”) and duties provided under the Indian Trusts Act 1882 (“Indian Trust Act”).

At the outset, it should be noted that the Singapore Trustees Act mandates a statutory duty of care and skill to be exercised by a trustee as is reasonably expected in the circumstances. Unlike the Singapore Trustees Act which provides for such a broad language with respect to the duty of a trustee and inference has to be drawn in specific circumstances as to what should be the duty of the trustee, the Indian Trust Act is slightly more detailed and lists down under various duties and liabilities of the trustee under Chapter III. Having said that, while there is difference in the manner in which the two laws are worded, the intent is common and both laws require that the fiduciary duty of the trustee must be carried out with care and skill at all times.

Duty to act in good faith

Sajan executed various deeds to oust two beneficiaries from the trust and protect himself from being liable for any loss as long as it was in good faith. Sajan also states that the reason for removing two of the individuals as beneficiaries from the trust was that he favoured the third beneficiary over the two and wanted to pass on everything to the third beneficiary. The reasoning given by Sajan justifying his acts was that he was given ‘absolute discretion’ in running of the Trust and hence had unfettered powers and could carry out all of the above acts.

The High Court held that absolute discretion does not abridge the trustee’s duties or enlarge his powers or exclude his personal liability for breaches under the trust. The Court ruled that while the acts and transactions which Sajan, as trustee, may enter into are spelled out, the use of the phrase “absolute discretion” does not mean that Sajan, in entering into such acts or transactions, is excused from the ordinary duties of a trustee when exercising his discretion to enter into such acts or transactions, including the duty to act in good faith, the duty to act impartially, or the duty to take only relevant matters into account, among others.

The Court ruled that Sajan acted in bad faith as it is a well-established principle that a trust instrument cannot purport to negate the trustee’s duty to act in good faith, as this is part of the “irreducible core” of a trustee’s obligations. In this regard, it was held that a trustee cannot escape liability for past wrongful acts or omissions by excluding beneficiaries from the trust after such lapses.

Similar principles are laid out in the Indian Trust Act. Section 11 of the Indian Trust Act provides that a trustee is bound to fulfil the purpose of the trust, and to obey the directions of the author of the trust given at the time of its creation, except as modified by the consent of all the beneficiaries being competent to contract. Thus, the trustee must always act within the realms of what has been stated in the trust deed and remain as the executor of the settlor of the trust. While unfettered powers may be given to the trustee, the trustee always remains bound by the wishes of the settlor. Further, Section 17 of the Indian Trust Act provides that where there are more beneficiaries than one, the trustee is bound to be impartial and must not execute the trust for the advantage of one at the expense of another.

Duty to inform beneficiaries of their rights under the Trust

In the ruling, Sajan conceals the existence of the Trust from its beneficiaries for nearly a decade after the settlor’s demise. Sajan tries to argue that he had apprised the beneficiaries, albeit orally, that they were beneficiaries under the Trust on several occasions from about 2009. Sajan points out that since the named beneficiaries lived with Sajan at all material times, Sajan would not have been so excessively formal as to write to them to declare that he held the Trust assets as a trustee under the Trust.

The Court, dismissing the arguments of Sajan, states that between the creation of the Trust and the named beneficiaries actually coming to know of the Trust, Sajan had carried out multiple dealings in the Trust assets which leads to the inference that Sajan’s non-disclosure of the Trust’s existence was deliberate on his part. The Court goes on to state that a trustee cannot keep the beneficiaries in the dark about a trust if he or she is to consider their wishes, needs, and interests. It further states that it is the trustee’s anterior duty to inform the beneficiaries of their right under a trust and this is logically concomitant to the principle of trustee accountability.

This is one of the most significant breaches highlighted by the Court. However, what is interesting to note is that Singapore Trustees Act does not specifically provide that the trustee is duty bound to inform the beneficiaries of the existence of a trust but the court states otherwise.

If a parallel is to be drawn with the Indian Trust Act, it would be seen that even the Indian Trust Act is \silent and does not explicitly mandate informing the beneficiaries of the existence of the trust. Typically, in a discretionary trust, the beneficiaries are generally not aware that they are beneficiaries - this is because a distribution is made by the trustee in its discretion and hence a beneficiary may or may not receive any distribution and hence may not be aware that he or she is a beneficiary of the trust. However, the Court’s ruling should be seen in light of the specific facts of the case. Sajan had carried out multiple dealings in the Trust and some of them were even considered to be against the benefit of the beneficiaries and hence he ought to have informed the beneficiaries of the existence of the trust.

Duty to maintain proper accounts

Sajan, as trustee of the Trust did not differentiate between the assets and money belonging to the Trust with his own. He tried to pass responsibility for ensuring the accuracy of statements of the Trust and made advances to the trust intended as gifts which were not accurately reflected in his accounts. The Court held that it is the duty of a trustee to maintain a proper account of the Trust irrespective of any consequential loss caused to the Trust and that such lapses amount to breaches of his duty of care in administering the Trust.

The Court held all of the above actions to be a breach of trust and breach of his duty of care in administering the Trust under common law. Under the Singapore Trustees Act, a trustee’s duty is incident to the office of a personal representative2. Further, as mentioned above Section 3A of the Singapore Trustees Act mandates a statutory duty of care and skill to be exercised by a trustee as is reasonably expected in the circumstances. Thus, it was imperative for him to have maintained proper accounts which reflected the true nature of the transactions which would be the statutory duty of care and skill that was expected from him as a trustee.

In this context, reference is made to Section 19 of the Indian Trust Act which provides that a trustee is bound to keep clear and accurate accounts of the trust-property. It in fact also goes on to state that the trustee shall at all reasonable times at beneficiary’s request furnish him with full and accurate information as to the amount and state of the property. Thus, even in the Indian context, if one tries to take shelter by arguing that the trustee was given ‘absolute discretion’ and hence did not maintain accounts, it would be ruled against the trustee because of the specific nature of the provisions requiring trustee to maintain clear and accurate accounts of the trust property.

Failure to do would be in clear violation of the Indian Trust Act resulting in necessary action being taken against the trustee. In the Indian context, the High Court in ChananMal v. Shiv Shankar Trust3, held that it is mandatory for the trust to maintain proper books of accounts under Section 19 of the Indian Trust Act and failure to do so warranted an inference against the trust. This principal was pivotal in the courts’ decision as the landlord’s inability to produce the account books undermined their claim regarding the arrears of rent. The Indian Trust Act also ensures transparency and accountability in trust administration by obliging the trustees to maintain comprehensive accounts that reflect true state of trust assets and liabilities.

Duty of prudence in investment decisions

Sections 6 (1) and 6 (2) of the Singapore Trustees Act, a trustee must, before exercising any power of investment, obtain and consider proper advice about the way in which the power should be exercised and whether the investment should be varied, having regard to the standard investment criteria.

Sajan tried to make retrospective decisions, including his determination of what constitutes as assets or investments; he allowed his gifts to the Trust to be retrospectively recorded as loans and advances and also tried to have abdicated to his accountants the responsibility for ensuring the accuracy of the Trust statements. Sajan converted the founder shares that were held by him in the capacity of a trustee into ordinary shares of the company, thereby making them less valuable. He sold the shares held by the trust in various companies without a reasonable justification and at an undervalue. This act caused the beneficiaries loss of rights associated with the share, monetary loss in terms of the value of share and a right associated with the share to the company’s annual net profits.

These acts were considered to be against the duty of a trustee to act in a prudent manner. The Court held that trustees comes under a statutory duty, along with a duty at common law, to take care when exercising their power of investment and come under statutory duties to “obtain and consider proper advice” about the way that their power of investment should be exercised, and whether the investments should be varied as per Sections 6 (1) and 6 (2) of the Singapore Trustees Act. Sajan did not exercise reasonable care and breached his management stewardship duty by converting a share with special rights of a company into a less valuable ordinary share. With respect to the sale of the

shares, Sajan tried to give reasons that because of the pandemic he sold the shares of the companies. However, the Court held that a trustee is not absolved of the breach in his duty for exercising his investment powers because he offers a reason for the exercise of those powers.

At a more generic level, the Indian Trust Act also provides that the trustee should act in a prudent manner and Section 15 states that a trustee is bound to deal with the trust-property as carefully as a man of ordinary prudence would deal with such property if it were his own. However, while the Singapore Trustees Act provides that the trustee should obtain and consider proper advice with respect to investment that is to be made under Section 20 of the Indian Trust Act provides that where the trust-property consists of money and cannot be applied immediately or at an early date to the purposes of the trust, the trustee shall, subject to any direction contained in trust deed, make investments as expressly authorised by the trust deed or in any of the securities or class of securities as specified by the Central Government. It further provides that where there is a person competent to contract and entitled in possession to receive the income of the trust-property for his life, or for any greater estate, no investment shall be made without his consent in writing. Thus, the provisions of the Indian Trust Act are narrower and provide for specifics as to how trust money should be utilised and in the absence of any specific direction under the trust deed, the trustee’s power are limited to making investment in securities specified by the Central Government4.

Duty to not use and deal with the trust property for personal gains

Sajan over the course of various dealings controlled the money of the trust by contributing money into it and paying expenses from it. He further used the money to offset other non-trust related expenses. Sajan did not maintain proper accounts of the Trust and also did not open a separate bank account for the Trust. Because of this there was no clear demarcation of the expenses incurred on account of the beneficiaries or his own personal dealings. Sajan’s commingling of the money and assets belonging to the Trust with his own resulted in the court reprimanding Sajan and wherein the Court held that his actions were a breach of statutory duty of care to protect the trust property in

accordance with Section 3A of the Singapore Trustees Act.

While under the Singapore Trustees Act, the act of maintaining separate accounts and a separate bank account also falls under the ambit of duty of care under Section 3A of the Singapore Trustees Act, specifically Section 51 of the Indian Trust Act provides that trustees are prohibited from using trust property for personal gain and must avoid conflicts of interest. Trustees are required to act in good faith, ensuring that their actions align with the trust’s objectives and the beneficiaries’ best interest. Under the Indian Trust Act trustees may not use or deal with the trust property for their own profit or for any other purpose unconnected with the trust.

Conclusion

Trustees play a crucial role in the administration of a trust and the fiduciary duty of the trustee cannot be taken lightly as was done by Sajan in the present case. While the duties of a trustee may be well defined under the laws of various jurisdictions (such as India), ensuring accountability and transparency in the management of the trust property and working towards the benefit of the beneficiaries should remain top priority for the trustee. In this context, it is relevant to mention the case of Dinshaw Rushi Mehta & Ors v. State of Maharashtra,5 where in the Supreme Court of India

held that interest of the trust and the beneficiaries should be uppermost and that would be the real selfless service to the trust and its beneficiaries.

This present case has profound implications not only in Singapore but also in jurisdictions like India where the legal framework surrounding trustee duties is similarly structured. The High Court’s decision in the present case underscores the critical responsibilities of trustees in managing trust assets with integrity, transparency and prudence. The parallels drawn between Singapore’s Trustees Act, 1967 and India’s Trusts Act, 1882 highlights the universal principles with which trustee should fulfil their fiduciary duties towards the trust and its beneficiaries.

In both jurisdictions, trustees are expected to uphold the highest standard of care, ensuring that beneficiaries’ interest are safeguarded. It is essential for trustees to understand and adhere to these duties to avoid breaches that could lead to legal liabilities, including removal from the position of trustee, being considered as a wilful defaulter and result in paying heavy penalties as seen in the present case with Sajan.

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1 [2024] SGHC 310

2 “personal representative” means the executor, original or by representation, or administrator for the time being of a deceased person;

3 1999 (2) RCR 203

4 The Finance Ministry vide Notification S.O. 1267(E) dated April 21, 2017 specifies the list of securities to which the powers of the trustee under Section 20 are limited.

5 2017 INSC 257