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Trust Law News October 2011

Duties owed by trustees to beneficiaries with respect to income-earning assets such as an investment property

The recent High Court decision of Byrnes v Kendle [2011] reinforces the strict duties that apply to trustees with respect to the management and preservation of trust assets.

The defendant, Mr. Clifford Kendle, purchased a property in South Australia during the course of his marriage to a Ms. Joan Byrnes, the plaintiff. Kendle subsequently signed an Acknowledgement stating that he held a one-half-share of the property, as tenant-in-common, on trust for his wife. When Kendle and Byrne vacated this property in 2002, Kendle’s son, Kym, commenced to occupy the property and agreed to pay a weekly rent of $125. However, over the course of the five years that Kym occupied the property, he paid a grand total of just $250 by way of rent.

Byrnes and Kendle were subsequently estranged, and Byrnes assigned her share in the property to her son, Martin.  Martin sued Kendle for breach of trust for a half-share of the rent that ought to have been paid by Kym for the term of his occupation of the property.  Martin argued that Kendle, as trustee, owed a duty to the beneficiary of the “trust” allegedly created in respect of the property, to collect the rent that was payable in respect of the property.  It was argued for Martin that Kendle’s duty here presented him with a clear choice: either to evict Kim from the premises and find a paying tenant, or collect all of the back-rent owed by Kym in respect of his tenancy.

The High Court found in favour of Martin, holding that Kendle did in fact owe a duty to Byrne and subsequently Martin as beneficiaries of the trust to let the property and recover the rent payable by Kym as tenant.  The Court iterated that a trustee owes a duty to use the assets of a trust for the benefit of the beneficiaries, such that, if an asset is capable of yielding income, the trustee has a duty to pursue such income.

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