12. Remedies Against Trustees: Personal Claims

Question 1

When would a personal claim not be an appropriate remedy for a trustee’s wrongdoing?

Answer 1

1. Trustee is insolvent (because beneficiary will rank as an unsecured creditor)
2. If trustee has used trust money to purchase something which has appreciated in value (proprietary claim more appropriate)
3. Trustee’s wrongdoing happened more than 6 years ago (sometimes)

Question 2

What actions give rise to personal claims?

Answer 2

breaches of trust

Question 3

If a trustee commits a breach of trust, can a personal claim be made against any of the trustees?

Answer 3

No, trustees are not automatically liable for the defaults of co-trustees

Question 4

If more than one trustee has breached trust, who can the personal claim be brought against?

Answer 4

Liability is joint and several, so:
1. all of them
2. individual trustee

(claim for full loss suffered)

Question 5

Causation requirement for personal claims

Answer 5

Beneficiaries must establish ‘but for test’

Question 6

Personal claims against trustees for bad investment decisions: why are these difficult?

Answer 6

Would need to prove that no reasonable trustee would have made these decisions
- if trust is complex, this may be difficult not withstanding the loss suffered

Question 7

The value of a personal claim against a trustee

Answer 7

Compensation equal to the loss to the trust plus interest from the date of the breach

Question 8

Rate of interest used by courts when assessing compensation payable under a personal claim

Answer 8

Discretion of the court: but usually rate allowed on court’s short-term investment account

Question 9

Defences for a trustee facing a personal claim for breach of trust

Answer 9

1. exemption clause in trust deed
2. knowledge and consent of beneficiaries
3. s 61 TA 1925
4. Limitations and Laches

Question 10

When are exemption clauses in trust deeds (for breach of trust) void?

Answer 10

If it tries to exclude liability for fraudulent breaches (innocent or negligent is fine)

Question 11

If one beneficiary consents to a trustee’s breach of trust, can the beneficiaries still bring a personal claim against that trustee?

Answer 11

The beneficiary that consented CANNOT but any other beneficiary can as full consent was not obtained

Question 12

s 61 trustee Act 1925 Defence

Answer 12

The court has a discretion to relieve trustees from liability, wholly or in part, if they acted honestly and reasonably, and ought fairly to be excused

Question 13

Limitation Period for personal claims for breach of trust

Answer 13

1. Generally 6 years
2. If a minor wants to bring the claim, time starts running when they are 18
3. if a remainder beneficiary wants to bring the claim, time starts running when their interest falls into possession
4. NO limitation period for trustees committing fraudulent breaches of trust

Question 14

What is the doctrine of Laches

Answer 14

Applies where there is no statutory limitation period, and dictates courts may prevent someone from asserting a personal claim when

a. claimant knows the facts that gave rise to the breach of trust AND
b. claimant delays in taking action AND
c. this delay is either is deemed to constitute acquiescence in or waiver of the breach by the claimant, or causes detriment or prejudice to the trustee

Question 15

If a trustee is found liable in a personal claim for breach of trust - how can they get money from their fellow trustees to cover this?

Answer 15

1. Equitable indemnity (full amount from co-trustee)
2. Contribution (portion, from co-trustee)

Question 16

When can a trustee sued for breach of trust get a full indemnity from a co-trustee?

Answer 16

The co-trustee:
a. acted fraudulently when the others acted in good faith; or
b. is a solicitor who exercised such a controlling influence that others blindly followed them or
c. personally benefitted from the breach or
d. is also a beneficiary and benefitted from the breach

Question 17

If a trustee wants to seek an indemnity from a beneficiary (who is also a co-trustee) who benefitted form the breach: what is the maximum amount the trustee can claim

Answer 17

The indemnity is limited to the value of their equitable interest, which will be impounded to meet the claim