Breach of Trust

Question 1

When can beneficiaries bring a personal claim against a Trustee?

Answer 1

When there are losses resulting from T’s breach of trust

Question 2

Who has the burden of proving loss under a personal claim?

Answer 2

Beneficiaries

Question 3

Is a trustee vicariously liable for acts of their co-trustee?

Answer 3

No - only the co-trustee responsible for the breach and loss is liable

Question 4

A trustee may breach the duty of failing to ______ ___ ______ of a trustee in breach

Answer 4

supervise the actions

Question 5

If a B is of full age and mental capacity and _______ to the action giving rise to breach with full _______ of all material _____, they cannot later ___ the trustees for that breach

Answer 5

consent, knowledge, facts, sue

Question 6

What is the general limitation period for bringing an action against trustees?

Answer 6

6 years

Question 7

If more than one T committed a breach, they are _______ and __________ liable

Answer 7

jointly, severally

Question 8

When can a beneficiary make a proprietary claim?

Answer 8

Where trust property/its proceeds can be identified in the hands of a trustee

Question 9

When is a proprietary claim particularly advantageous and why?

Answer 9

When T is insolvent

Bs can claim the property from them ahead of other creditors

Question 10

If the value of trust property/its proceeds has increased, what does a proprietary claim enable the beneficiaries to receive?

Answer 10

They can claim the increase

Question 11

If the original trust property is in the hands of T, what can the Bs do?

Answer 11

Claim it back via a proprietary claim

Question 12

If T has directly substituted the trust property for another asset, what can the Bs do with that asset (2 options)?

Answer 12

1. Claim the asset
2. Claim a charge over the asset

Question 13

If T has combined trust funds with their own to purchase an asset, what can B do (2 options)?

Answer 13

1. Claim a proportionate part of the asset
2. Claim a charge over the asset for the amount of trust funds used

Question 14

If T places trust funds into a bank account with their own money, what can Bs do?

Answer 14

Claim a charge over the account

Question 15

If T had drawn money out of an account with funds of their own and of the Bs, the basic rule is that T is treated as…

Answer 15

withdrawing their own money first

Question 16

Where T mixes trust funds with their own in a bank account and funds are withdrawn from the account, the trustee is treated as spending his own money first.

However, where this happens and the balance of the fund has been dissipated, what 2 options do the Bs have?

Answer 16

1. Claim the asset purchased from the account before the balance was dissipated
2. Claim a charge over the asset

Question 17

If T purchases an assets from the mixed funds of two trusts, what can the Bs of the two trusts do?

Answer 17

Share the asset proportionally

Question 18

What is the first in first out rule?

Answer 18

Where funds from two trusts are mixed in a current account, the first money into the account is the first money out

Question 19

What are the three situations where a court would displace the first in first out rule, meaning the assets would be shared proportionately?

Answer 19

(1) Applying the rule is contrary to the express or implied intention of the claimants
(2) Impractical to apply the rule, or
(3) Applying the rule would cause injustice to at least one of the parties.

Question 20

Name 4 types of people who may be involved in a breach of trust

Answer 20

1. Bona fide purchaser
2. Innocent volunteer
3. Knowing recipient
4. Dishonest accessory

(remember: K.I.D.B)

Question 21

Who is a bona fide purchaser in a breach of trust claim?

Answer 21

Someone who acquires legal title to property for value and without notice of the trust

Question 22

Can beneficiaries recover property from a bona fide purchaser in a breach of trust claim? Why/why not?

Answer 22

No - the purchaser takes the property free of the beneficiaries interests

Question 23

Who is an innocent volunteer in a breach of trust claim?

Answer 23

Someone who came into possession of trust property with no knowledge/suspicion of the breach

Question 24

Can the beneficiaries make a claim in equity against an innocent volunteer in a breach of trust claim?

Answer 24

No

Question 25

Can beneficiaries make a proprietary claim against an innocent volunteer in a breach of trust claim? If so, how?

Answer 25

Yes - via an equitable tracing process

Question 26

Who is a knowing recipient in a breach of trust claim?

Answer 26

Someone who receives trust money with requisite degree of knowledge of breach

Question 27

What must C show to satisfy a third party being a ‘knowing recipient’ in a breach of trust claim?

Answer 27

That the KR had sufficient knowledge as to make it unconscionable for the recipient to retain the property

Question 28

Name one of the 5 categories of a knowing recipient’s knowledge in which “unconscionability” will be found

Answer 28

1) Actual knowledge
2) Wilfully closing one’s eyes to the obvious
3) Wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make
4) Knowledge of circumstances which would indicate the facts to an honest and reasonable person, or
5) “ “ put an honest and reasonable person on inquiry

Question 29

On what bases will a knowing recipient be liable?

Answer 29

KR will be treated as a constructive trustee - personally liable to Bs for the loss, and property can be claimed through tracing

Question 30

Who is a dishonest accessory in a breach of trust claim?

Answer 30

A third party who facilitates a breach of trust and is consequently liable as a trustee if their assistance has dishonest

Question 31

What is the test that must be met for a third party to be held as a dishonest accessory to a breach of trust?

Answer 31

They acted in conscious impropriety or were dishonest – i.e. they did not act as an honest person would in the circumstances

Question 32

Can passive assistance suffice in a dishonest accessory claim?

Answer 32

Yes

Question 33

In what way will a dishonest accessory be liable if they’re found to assist in a breach of trust?

Answer 33

Beneficiaries may sue them personally for the loss

Question 34

Is a proprietary claim likely to be effective against a dishonest accessory? Why/why not?

Answer 34

No - it is unlikely that the accessory received the trust property, they instead facilitated it to be in D’s hands