breach of trust

Question 1

what are the 2 different ways that breach of trust can occur?

Answer 1

1. acting outside their powers
2. filing to act in accordance with their duties

Question 2

when establishing a breach of duty what are the 2 questions that need to be asked?

Answer 2

1. Did the trustee(s) act in accordance with their powers?
2. If so, did they comply with their trustee duties?
   (if answer to either is no then there has been a breach and need to ask follow up questions)

Question 3

will a trustee be liable for breach of trust that took place before the trustee was appointed?

Answer 3

no they will not, however, if they discover there was a breach prior to them then they need to commence proceedings against the former trustee.

Question 4

what is the result if a new trustee discovers there was a breach by a former trustee but doesnt commence proceedings against them?

Answer 4

then it is possible that the new trustee is liable for their own breach of trust as they have failed to take action

Question 5

what are the 2 scenarios when a trustee is liable for breaches committed during time as trustee even after they have retired?

Answer 5

1. Where trustee retired to facilitate the breach, or
2. The trustee parts with trust property in retiring without due regard, so loss is suffered when the property is transferred to the new trustees

Question 6

can an exemption clause limit or exclude trustees liability?

Answer 6

yes it can limit or exclude trustees liability

Question 7

if there is no exemption clause, what does s61 allow for?

Answer 7

it gives the court discretion to excuse a trustee in circumstances when trustee ‘acted honestly and reasonably and ought fairly to be excused for the breach’.

it is not used lightly by the courts though

Question 8

what is the limitation period for bringing a claim for breach of trust?

Answer 8

6 years from the breach (only applies applies to claims by beneficiaries with interests vested in possession) for beneficiaries with future interests, limitation period starts to run when their interest vests in possession.

Question 9

when does the limitation period begin for beneficiaries with future interests for them to bring a claim for breach of duty?

Answer 9

limitation period begins when their interest vests in possession

Question 10

when does the limitation period not apply (what type of breaches does it not apply to)?

Answer 10

fraudulent breaches or propertiary claims against trustee (eg, purchasing property is exempt)

Question 11

what are the 2 partial defences that a trustee can use to help with a claim for breach of trust?

Answer 11

consent and acquiescence

Question 12

for an unauthorised investment who do you need the consent of in order to have a partial defence of consent?

Answer 12

. For an unauthorised investment you would require the fully informed consent of all beneficiaries (but remember minors cannot consent)

Question 13

what is the remedy available for misapplying trust property?

Answer 13

beneficiaries can seek to recover the property itself. If cannot recover trust property then beneficiaries will seek compensation

Question 14

what is the remedy available for loss in value of the trust fund?

Answer 14

beneficiaries will seek compensation

Question 15

what is the remedy available for no loss to the trust fund?

Answer 15

there is no substantial remedy available but in serious cases beneficiaries will wish to have trustees removed from office

Question 16

when is the date that the loss to trust fund is assessed?

Answer 16

it is assessed at the date of trial NOT the date of breach

Question 17

can trustees set off losses caused by breach of trust against profits they have made on other transactions or investments?

Answer 17

in general no they cannot. however, can offset losses against profits that arise from same transactions or course of dealing

Question 18

what is the exception when a trustee can set off losses caused by breach of trust against profits?

Answer 18

can offset losses against profits that arise from same transactions or cause of dealing

Question 19

what is the liability of trustees?

Answer 19

they are jointly and severally liable for breaches of trust