Breach of Trust Flashcards
What questions do you ask to judge if a trustee is liable for breach of trust?
1) Did trustee act in accordance with their powers?
2) If so - did they comply with their duties?
How is liability spread for multiple trustees?
They will be joint and severally liable
Standard will depend on the professional / lay nature of trustees
Is a trustee liable for breach before their appointment as trustee?
No - but if on their appointment they discover that a breach has occurred, they should commence proceedings to recover from former trustee
When will trustees be liable after retirement?
If the retirement was to facilitate the breach
trustee parts with trust property when retiring without due regard - so loss is suffered when the property is transferred to new trustees
What kinds of claims can beneficiaries make once breach of trust is established?
Proprietary claim - seeking to recover misapplied or misappropriated trust property or its traceable proceeds
Equitable compensation to reflect loss to fund
When is loss assessed when considering breach of trust?
Date of trial, not breach - involves taking an account to determine expected value of trust fund.
What is the traditional approach to loss in a misapplication of trust property?
Court would ‘falsify’ the account - meaning trustees have to return the trust fund to the position it would have been in if misapplication had not occurred.
If not possible - trustees pay compensation or Bs can affirm if a profit made
How does court approach loss if breach does not involve a misapplication of trust funds?
Surcharging - looking to assess expected value of the trust fund if the breach had not occurred
What is the more modern approach to causation?
Traditional approach still applies to traditional trusts - but not to bare commercial trusts that only subsist during the course of an underlying commercial transaction -
Falsification approach is still relevant when assessing
Loss caused by breach of a bare commercial trust will be assessed on a ‘but for’ basis
Can trustees offset losses against gains?
No - not overall
But you can offset losses against profits where they arise from the same transaction / course of dealing
What defences might be available to a breach of trust?
Exemption clauses
Beneficiary instigation / consent / acquiescence
Statutory limitation rules / defence of laches
Statutory relief under 61 TA 1925
What can exemption clauses protect trustees from?
Any kind of breach - other than a fraudulent breach.
Cannot rely if have acted dishonestly
How does the fully informed consent of beneficiaries protect trustees?
Cannot be liable if all - if some, partial defence
Acquiescence can be shown by words or actions
When might a trustee be able to impound a beneficiary’s interest?
if a beneficiary instigates / requests a breach - trustees can use that B’s interest to indemnify trustees against a claim by other Bs
Court also has a discretion to impound an interest - no requirement to show that the instigating B benefitted from the breach
When does the statutory power to impound beneficial interests apply?
B has consented to the breach but only IN WRITING
When does the common law discretion to impound beneficial interests apply?
When B has BENEFITTED from the breach - no need to be in writing
What is the statutory limitation period for bringing a claim against breach and how does it apply?
6 years from the breach - but only applies to claims by beneficiaries with interests vested in possession
Vested in future / contingent - 6 years from when their interest vests in possession
Which breaches does the statutory limitation period NOT apply to?
Fraudulent breaches / proprietary claims
What rules apply if the trustee is also a beneficiary and receives an unfairly large distribution from the trust?
After 6 years - only the excess can be recovered
UNLESS trustee acted dishonestly / unreasonably in making the distribution
What is the equitable defence of the laches?
Defence that B has waited too long to bring a claim
T must show that B knew of a breach but unacceptably delayed their claim
How can section 61 TA 1925 protect trustees?
Court discretion to excuse a trustee in circumstances where they acted honestly and reasonably, and ought fairly to be excused for the breach of trust
When is S61 TA 1925 likely to be applied?
Trustee has inadvertently acted outside their powers
More likely to be successful in cases involving lay trustees
Taking advice makes it more likely to be able to rely on S61
