Trusts; duties of trustee; duty to follow instructions; liability of trustee for breach of trust.
Facts: Youyang Pty Ltd paid $500,000 to Minter Ellison Morris Fletcher (MEMF), a firm of solicitors. MEMF received this money as a trustee, with instructions to pay it as a subscription to an investment company, EC Consolidated Capital Ltd. MEMF was instructed to obtain a bearer deposit certificate to secure the sum paid to EC Consolidated Capital. Instead, MEMF paid the money to EC Consolidated Capital without obtaining the security. Two and a half years later, EC went insolvent and Youyang lost the whole sum it had invested. Youyang sued MEMF to recover its loss on grounds that, as trustee, MEMF had not carried out the terms of the trust.
Issue: Was MEMF liable to Youyang on the basis of its failure, as trustee, to obtain a bearer certificate as instructed?
Decision: MEMF had breached the terms of the trust, and was liable to Youyang for the consequential losses, being the total amount of the subscription money ($500,000 plus interest to the date of the court order).
Reason: A trustee is obliged to obey the terms of the trust. The duty is not absolute, but any divergence from instructions is only excused in limited circumstances. The court said (at [33]):
"In Victoria, s 67 of the Trustee Act 1958 (Vic) empowered the Supreme Court to relieve from personal liability trustees who had acted in breach of trust but who had done so 'honestly and reasonably' and who 'ought fairly to be excused for the breach'. MEMF did not attempt to place any reliance upon s 67 or comparable provisions in legislation of any other State. The facts discouraged any such attempt."