Trustees—self-dealing, unauthorised profits and conflicts of interest
Trustees—self-dealing, unauthorised profits and conflicts of interest

The following Private Client guidance note provides comprehensive and up to date legal information covering:

  • Trustees—self-dealing, unauthorised profits and conflicts of interest
  • The self-dealing rule
  • The duty not to profit
  • No conflict rule
  • Exceptions to the rules
  • Remedies

The self-dealing rule

The self-dealing rule is connected to, but distinct from, the fair dealing rule as well as the genuine transaction rule. There is authority that the rules are not, on a correct analysis, part of the duties or discretions of a trustee; rather they are restrictions which inhibit a trustee from acting in certain ways. This has important consequences in terms of limitation of any action against trustees by beneficiaries.

The rule against self-dealing encompasses several slightly different rules which were considered in Right Reverend Hollis (Bishop of Portsmouth) v Rolfe:

  1. a trustee cannot make a contract with themselves (subject to statutory exception) so any attempt to do so is ineffective—this was described in Right Reverend Hollis (Bishop of Portsmouth) v Rolfe as the primitive self-dealing rule, although it has also been described as the two-party rule

  2. a trustee's power of sale cannot validly be exercised in their own favour (subject to any contrary provision in the trust instrument)—this was described in Right Reverend Hollis (Bishop of Portsmouth) v Rolfe as the ‘self-dealing rule’ proper

Dispositive powers

If the trust instrument gives a trustee a power of disposition over the trust property and the trustee is within the class of potential beneficiaries, the question arises as to whether they can exercise the power in their own favour.

It has been