If you hold investments as a trustee you must act, and only act, in the interests of the beneficial owners of the investments – the beneficiaries of the trust.  You are not there to look after yourself – or your mates, footy club, political party, union, or government.  And if one of them asks you to do so, you know immediately that you have a conflict of interests – between your duty as a trustee and an interest in looking after someone close to you.  So, you just say ‘No’ – and move on.

For good reason, the federal government wants to apply pressure to Russia by persuading Australians to get rid of investments in Russia.  They want super funds to do the same.  Those funds are held on trust.  Two ministers said they had a ‘strong expectation that Australian superannuation funds will review their investment portfolios and take steps to divest any holdings in Russian assets….While Australian superannuation funds only have a small exposure to Russian investments in the context of the $3.5 trillion superannuation system, it is important that Australia sends a clear and unequivocal signal that we condemn in the strongest possible terms Russia’s unprovoked and unjustified attack on Ukraine,’ the ministers said in a joint statement.

But what if doing that is bad financially – and not in the interests of the beneficiaries of the trusts?  Well, the trustees must decline to act as requested by the government.  That is obvious.  To do so would put them in breach of trust – and liable to be sued for it. 

Then the relevant enforcement agency, the Australian Prudential Regulation Authority, announced that it would not take any action against funds that divest their Russian assets provided they had ‘considered such divestments in accordance with their duties.’

This is, at its lowest, very unfortunate.  ‘We will look the other way if you resolve your conflict of interest by doing what we ask – provided that you at least acknowledge that you thought about it first.’

It was not open to the government to say that if you do what we ask, there will be no breach of trust.  They, through their ‘enforcement’, merely say we will not go after you this time.

If the trustee got sued for breach of trust, it could not plead this signal as a defence.  Indeed, if it did so, it might simply see the trustee adding the agency as a defendant – on the ground that the agency put the trustee up to it – a kind of aiding and abetting, or knowing assistance.  If you want a case, try Barnes v Addy.

This is another case of government and its agents not just flirting with but walking all over the law.

Super funds – Russian investments – government directives – breach of trust – knowing assistance by government agency in breach of trust.