Breach

Question 1

A RETIREMENT

1. There is no automatic right to retire.
2. There may be an express power to retire contained in the trust instrument.
3. Under the Trustee Act 1925 S.39. - conditions

Answer 1

3. Under the Trustee Act 1925 S.39.
   a) After discharge either: (i) two trustees or a trust corporation; or (ii) (after 31 December 1996) two persons, that is, one trustee and a trust corporation must remain; and

b) the remaining trustees must agree; and
c) consent must be obtained from anyone who has power to appoint new trustees under the trust instrument; and
d) the retirement must be by deed; and
e) the retirement must be total, not partial on

Question 2

4. Under T.L.A.T.A. 1996 S.19 which applies to all types of trust, not only to trusts of land.
5. Court Order:

Answer 2

a) All the beneficiaries must be of full age and capacity and absolutely entitled to the trust property; and
b) there is no person nominated for the purpose of appointing new trustees by the trust instrument; an
c) for express trusts, the provisions must not be excluded by the trust instrument or (for trusts created before 1 January 1997) they are not excluded by a deed executed by the settlor or surviving settlors. Such a deed is irrevocable.

a) Under S.41 Trustee Act 1925; or
b) under the Inherent Jurisdiction of the Court of Chancery.
If necessary the administration of the trust can be taken over by the court.

Question 3

B REMOVAL

5 points

Answer 3

1. Express power in the trust instrument (rare).
2. Trustee Act 1925 S.36 (1) - see above.
3. Under S.41 T.A. 1925 when a new trustee is appointed.
4. Inherent jurisdiction of the court.
5. S.19 T.L.A.T.A. direction to retire is in effect removal.

Question 4

NOW DOWN TO THE ESSENTIALS!
C BREACH OF TRUST

1. Has there been a breach of trust?

Answer 4

Armitage v Nurse C.A. [1998]

“ A breach of trust may be deliberate or inadvertent; it may consist of an actual misappropriation of the trust property or merely of an investment or other dealing which is outside the trustees’ powers

Question 5

Trustee’s duties

Breach of trust: examples

Answer 5

The duties a trustee has include:
• To invest the fund;
• To recover debts;
• To distribute the trust property in accordance with the terms of the trust;
• To protect the trust assets.

examples of breach of trust include:
• Making payments to the wrong people;
• Making or retaining inappropriate investments;
• Misappropriating funds;
• Failing to recover debts;
• Inappropriate delegation;
• Failure to obtain proper advice

Question 6

2. Is the trustee responsible for the breach?

Bahin v Hughes [1886].

Head v Gould [1898]

Answer 6

doing nothing neglects his duty more than the acting trustee.”

The fact that one of the trustees is a solicitor does not automatically reduce the obligations or liability of his co-trustees, unless that solicitor is regarded as controlling his co-trustees

Kekewich J Held. that a solicitor-trustee will not automatically be regarded as having a controlling influence over his unqualified co-trustee(s). See more below on this case.

Question 7

Re Partington (1887)

Answer 7

Trustee solicitor had controling inlfuence over co truste e - thhe testators wife and cuased her to make bad investment for which he later had to indemnify her.

if beneficiary involved in breach of trust may not be able to sue and may have to indemnnify trustees in exceptional circumstances.

Different rules where beneficiaryy is also a trustee.

Trustee may seek indemnity ffrom beneficiaries who breach.

Question 8

Re Strahan (1856)

Answer 8

rustee is not liable for breaches of trust which were committed before he took up his appointment as trustee. In addition, when he does take up his appointment, he may assume that there have not been any breaches in the past unless he either knows that a breach has been committed or else there are circumstances which ought to make him suspicious. However, given the following
duties, a new trustee may become liable for his own failures following appointment.

A new trustee should:
• Familiarise himself with the terms of the trust;
• Ascertain how the fund is invested;
• Investigate suspicious circumstances; and
• Take steps to have any breaches remedied and any loss recovered.

Failure to take these steps could lead to liability.

Question 9

Head v Gould [1898] Kekewich

Answer 9

Beneficiaries kept pressuring trustees for cash until it was gone.

• The original trustees had a duty to protect the assets of the trust;
• It had to be proved that the retiring trustees had contemplated the actual
breach which later occurred;
• It must be shown that they knew that the breach was likely to occur;
• In this case they were not liable;
• In particular the appointment of a new solicitor trustee had reassured the.
retiring trustees that the fund would be protected.

Retiring to facilitate a breach does not exclude liability.

Question 10

3. Has the breach caused the loss to the trust?

Target Holdings v Redferns [1996]

Answer 10

Decision: Court of Appeal
The moment the solicitors committed the breach they became liable to compensate the beneficiaries, regardless of causation.

Decision: House of Lords
There must be a causal link between the breach and the resulting loss, so that the solicitors were not liable. The cause of the loss was the shortfall in the value of the property.

Question 11

4. What is the measure of liability? (This is a very difficult area as losses difficult to quantify.)

Answer 11

Damages to compensate beneficiaries.

• An account for an unlawful profit;
• Compensation for the loss suffered by the trust;
♣ Specific restitution of property

particular beneficiaries will have suffered different losses, for example income losses or capital losses.

Question 12

Nestle v National Westminster Bank plc

Remedies for breach

Answer 12

Set Off

Generally cant set off for more than one breach - one making a loss and another makking a profit athough you may if if the breaches form art of the same transaction. Case established can set off.

Question 13

Bartlett v Barclays Bank Trust Co Ltd (No 2) [1980]

Answer 13

investment in the two property ventures was a single investment policy, so a set-off was permitted. This reduced the losses for which the trustees were held responsible.

Question 14

5. Can the trustees claim relief from liability?

after 1978, Civil Liability (Contribution) Act 1978

Answer 14

Liability: Joint and Several

Generally liabiility is eqaul but if necessary beneficiaries will sue one trustee and lleave them to recover from the rest.

Breaches after 1978 and where trustees were appointed after 1978, Civil Liability (Contribution) Act 1978 applies. The Act becomes particularly relevant if, for example, the beneficiaries decide to take legal proceedings against just one of a number of trustees, perhaps on the basis that only one trustee has any money.

Question 15

S6(1) of the Act

(Charter plc and another v City Index Ltd [2008])I

Answer 15

onfirms that a person is liable to contribute whether his liability is based in ‘tort, breach of contract, breach of trust or otherwise’

Retiring trustee may also seek an indemnity from his co-trustees and/or the beneficiaries but this will only protect him if they are all of full age and legal capacity.

Question 16

WHERE A BENEFICIARY IS INVOLVE

Re Somerset [1894]

Answer 16

If it can be proved that a beneficiary has instigated, requested or concurred in (or consented to) a breach, then that beneficiary will not generally be allowed to sue later and may also have to relieve the trustees of liability, partially or wholly

Decision: Court of Appeal.The fact that a beneficiary suggests a course of action to the trustees will not, on its own, amount to instigating a breach. Generally, beneficiaries are entitled to assume that the trustees will act within their powers.

Court must be satisfied that beneficiary had undderstanding of what was proposed before it will impount the beneficial interest. Beneficiary could be estoppped from sing if commit breach, nust they must know its a breach.

Question 17

Under the inherent jurisdiction the court can, if it thinks fit impound the interest of the beneficiary to mitigate the liability of the trustees if the beneficiary instigated or requested the breach with the intention of obtaining a personal benefit or consented to the breach and actually benefited from it.

Answer 17

Under s.62 Trustee Act 1925 the court can impound if the beneficiary instigated or requested the breach or consented in writing to the breach,
However under s.62 no requirement of actual or intended benefit to the beneficiary.

Question 18

INDEMNITY FROM A CO-TRUSTEE

Answer 18

Where a trustee is fraudulent;

A solicitor–trustee but see Re Partington above);

Question 19

Chillingworth v Chambers [1896]

Answer 19

trustee who has participated in a breach of trust cannot take any share in the trust estate until he has made good his liability as a trustee, so he will have to indemnify his co-trustees to the extent of his beneficial interest but any losses beyond the value of the interest will be shared equally

( unless of course the beneficiary trustee is also a controlling solicitor-trustee or is fraudulent).

Question 20

STATUTORY RELIEF FOR TRUSTEES MAY BE GRANTED BY THE COURT

Answer 20

Trustee Act 1925 section 61-

rovides that if a trustee appears to be personally liable for any breach of trust then the court can, if it sees fit, retrospectively relieve him, wholly or partly, from that liability. The court must be satisfied that the trustee has acted honestly and reasonably and ought fairly to be excused. + Good Faith and reasonablly.

Question 21

What is honest?

Re Second East Dulwich Building Society-(1899 79

Answer 21

e taking of appropriate advice have not been complied with.

pproach followed by judges in the exercise of their discretion under s.61 demonstrates that they are much less likely to grant relief to professional trustees

Question 22

What is reasonable?

Speight v Gaunt (1883)

Re Whiteley (1887)

Answer 22

peight v Gaunt has to be considered in the light of the Trustee Act 2000. The statutory duty arising under s.1 and Sch. 1 will amend or replace the common law duty where the duty under that Act applies.

What is fair?

This takes account of the position of both trustees and beneficiaries.

Question 23

EXPRESS PROVISIONS IN THE TRUST INSTRUMENT

Armitage v Nurse [1998]

Answer 23

argued that clause 15 could not take effect so as to negate the effect of these obligations.

Decision: Court of Appeal
The clause must be construed as exempting the trustees from any liability for breaches of trust which were committed wilfully or recklessly provided that the trustees were acting honestly.

Question 24

6. Is the claim made within the relevant limitation period?

The Limitation Act 1980 s21(3)

Answer 24

Basically 6 years from the date of the breach.

S.28 extends the period in relation to minor beneficiaries or other persons under disabilities.

S.21 extends the period in cases involving fraud or where the trustee retains trust property.

Note that certain breaches, for example in relation to investments, are rolling breaches renewed every day until the breach ceases, for example when the offending investment is sold.

However, an income beneficiary will still be limited to a claim for the income for 6 years only, even if the breach continues.

Thus income and capital beneficiaries have separate and different rights.

This may be particularly relevant where one or only some of the beneficiaries have lost their right to sue for example by delay or consent.