Responsibility of Trustee

The plaintiff made a claim against BAPRO Mandatos y Negocios S.A. (“BAPRO” or the “Trustee”) demanding compensation for damages. To such effect, the plaintiff invoked his character as a beneficiary of an agricultural trust for which BAPRO acted as trustee. The purpose of said trust was to carry out a “sowing pool”, which consisted in a risk investment primarily for planting in third-party fields, plus production and marketing of agricultural products, according to the terms and conditions detailed in the business plan, the execution of which was carried out by a professional administrator and regulated by an operator. The savers or trustors invested in the trust.

In the case in question, the plaintiff, according to his own account, made an investment in the trust, which he had been informed was highly profitable. Similarly, and according to the terms of the offer, the Trustee would ensure the “correct application of the funds raised”. Based on the facts presented, it appears that the 2010-2011 planting season produced a positive return for the plaintiff. Conversely, the following seasons, the 2011-2012 and 2012-2013 seasons, resulted in a loss of investment of 19.55% and 59.44%, respectively. In such regard, the plaintiff argued that of the remaining balance of the last planting season, more than half corresponded to accounts receivable from a corporation hired by the operator which, at the time, was undergoing bankruptcy proceedings, and the remainder was fiscal balances. As a result, only a minimal executable portion was in favor of the trust. The plaintiff alleged to have obtained knowledge that the operator collected a considerable sum from insurance contracted to alleviate bad weather risks and that said sum was never admitted to the trust, and nevertheless, according to the plaintiff’s judgment, the Trustee had done nothing about it.

In light of this, the plaintiff requested the early redemption of his stake in the trust, which was denied by the Trustee on the grounds that the request had been made outside of the timeframe established for such in the trust agreement. The rejection of this early redemption request was later dismissed by the Court as the early redemption right had to be exercised before the set date to enable reinvestment of the funds in the subsequent planting season. However, in this case there was no possibility of planting in the year 2013 as no funds were available.

The plaintiff argued that the Trustee had not complied with its obligations since there was a loss in the last planting season (2011-2012), the Trustee should have taken measures to avoid the reoccurrence of such situation as would be repeated in the 2012-2013 season. According to the Plaintiff’s statements, which were later confirmed by the Court’s decision, the Trustee did not act diligently and did not check up on the operator, which acted imprudently and fraudulently.

The Trustee based its defense on several arguments, and these are the two main ones: The first upheld that the obligations of the Trustee are obligations of means, not ends. The second sustained that the operator’s irregularities and deviations did not constitute risks that the Trustee could have prevented, nor could have avoided a priori. Consequently, the Trustee claimed to lack responsibility for the technical, managerial, operative, and commercial actions of the business, attributing such functions to the operator.

Trust agreements, in general, limit discretion and therefore the responsibilities of trustees establishing that trustee obligations are the means, not the ends, and circumscribing the actions that the trustee can do on its own, without express instruction.

Even when fiduciary and administrative or operational functions are clearly differentiated in trust documents, this judicial decision should be taken into account for the future.

Specifically, the Court establishes that the trustee, as well as the operator, should be aware of the rules, customs, practices, and methods of the type of business that they endeavor to become part of or control, otherwise such will be lacking. According to this approach, the Trustee should have familiarized himself with the rules, customs, practices and methods of a “sowing pool”. According to the Court, reliance was given to BAPRO, as trustee, and that it should have had knowledge regarding the agricultural business so as to check up on it, at least, with foresight and diligence.

Likewise, the Court warns us that the obligations of the Trustee are not always of means only. As such, it provides that in the trustee business, there are instrumental and ancillary obligations that are clearly the results. Among them, the Court mentions the obligation of carrying out technical risks analyses, of accountability, of preparing inventory, of purchasing insurance, of collecting receivables, etc. In its decision, the Court analyzes each one of the obligations under the trust agreement and others that arise from the trustee obligations of understanding and controlling the target business of the trust. We can quote the example mentioned by the Court regarding the Trustee’s obligation to call an assembly of the beneficiaries to establish procedures to follow after losing 59.44% in the 2012-2013 planting season. The Court concluded that this result’s obligation was not met by the Trustee.

Nevertheless, the Court has not ceased to mention the existence of obligations of means and has given examples of them when mentioning that such are related to the administration of goods, appropriate investment and the attainment of the highest performance possible. Without any doubt, these are obligations of means in so far as the Trustee could not secure a certain level of performance.

In light of the above, the Court confirmed the sentence appealed in regards to establishing the responsibility of the Trustee and its obligation to pay compensatory damages.