6.5: Liability of trustees Flashcards
When is an exemption clause valid as defence for a trustee who breaches their fiduciary duty?
The exemption clause will apply if the trustee has performed their duties honestly, in good faith, and for the benefit of the beneficiaries. If they have breached their fiduciary duty, ie by making personal profits, thus would be a breach of fiduciary duty and the exemption clause would not apply.
What does dissipation mean in terms of trusts
When trust funds have been spent on consumables or unsecured debts and they cannot be traced - creates an issue for beneficiaries wishing to trace the funds
What constitutes a breach of trust by a trustee?
A trustee breaches trust if they fail to follow the trust instrument or law, misuse their powers, or act improperly.
Examples include:
Paying trust money to the wrong person
Profiting from their position
Investing in unauthorized assets
What remedies are available to beneficiaries for breach of trust?
Recover identifiable trust property (unless held by a bona fide purchaser).
Claim damages if the trust property cannot be recovered - personal claim / remedy
What is the measure of a trustee’s liability for breach of trust?
Trustees must compensate the trust for any loss caused and restore it to the position it would have been in without the breach. Profits gained from the breach must also be surrendered.
When are trustees jointly and severally liable?
When multiple trustees commit a breach of trust, they share liability for any loss caused to the trust fund.
What are the main defences available to trustees against breach of trust claims?
- Exemption clause in the trust deed (if acting honestly and in good faith > will not be valid if they didn’t).
- Limitation period (usually 6 years, unless fraud or misappropriation occurred).
- Laches (delay) if the beneficiary’s claim is unreasonably delayed.
- Beneficiary consent, provided it was informed, freely given, and from a competent beneficiary.
- Statutory relief under Trustee Act 1925, if the trustee acted honestly and reasonably to do their best
Under what circumstances does the Trustee Act 1925 provide relief to trustees?
Section 61: The court may relieve trustees of liability if they acted honestly, reasonably, and it is fair to excuse them.
Section 62: If a beneficiary requested a breach of trust, the trustee may be indemnified using the beneficiary’s trust interest.
What is tracing in equity?
Tracing is the process of identifying trust property as it moves through different hands to recover it or its substitute.
What are the main equitable proprietary remedies?
Equitable ownership – full or partial ownership of traced property. They can then force the sale.
Equitable charge or lien – a claim over the asset to recover trust funds.
Subrogation – assuming the rights of a creditor repaid using trust funds.
What are the prerequisites for a proprietary claim?
There is a fiduciary relationship between the beneficiaries and the trustees and the beneficiaries have a proprietary interest.
How are a trustees assets determined when there has been a breach of trust?
The trustee’s liability for breach of trust is personal. This means that the trustee is liable to the full extent of their estate; liability attaches to them. As the property has been sold the trustee should account for this personally.
As a trustee, being outside of the UK for more than 12 months is a
breach of a trust
A defence of permission/consent of the beneficiary for the trustee to act in a certain way
beneficiary involvement
What is the limitation period for a breach of trustees duties
6 years
