Breach of trust

Question 1

Rae v Meek

Answer 1

1. The trustees were authorised to make investments by the trust deed: “in the purchase of heritable property, feu-duties or ground-annuals, or Government or bank stocks, or heritable securities, or even upon such personal securities as they may approve of as good and sufficient”
2. The trustees lost a lot of money because they invested in heritable property (which they were allowed to do)
3. They did not get a surveillor to look at the tenement or the land
4. The land and tenement were nowhere near as valuable as what they had paid for
5. This was an intra vires trust
6. If they had checked with a surveillor, and it would still have been a bad investment, the trustees would likely not have been liable as they checked with a professional, thereby discharging their duty of ordinary prudence

Question 2

Henderson v Henderson’s Trs

Answer 2

1. They were empowered to make investments
2. Investments in shares might have been within the trustees’ powers, but the nature of those shares as an investment failed the standard of care test
3. The investments they made were really bad

Question 3

Huntingdon Copper and Sulphur Co v Henderson

Answer 3

1. “The principle is that a person who is charged with the duty of attending to the interest of another shall not bring his own interest into competition with his duty”

Question 4

Elias v Black

Answer 4

1. “But when he comes to make the purchase, having had all these circumstances in his power, whether used or not to the disadvantage of the party is of no consequence, the law looks with jealousy to these things, for it cannot discover whether they have been used prejudicially or not” (per the Lord President (McNeill))

Question 5

Croskery v Gilmour’s Trs

Answer 5

1. “The lending of trust money by trustees to one of their own number is unquestionably an illegal proceeding. It is much more than a mere breach of trust in the ordinary sense, because such a breach of trust covers and includes small acts of negligence which may infer very little blame on the part of those concerned in them. But to lend trust money to one of their own number is an absolutely illegal proceeding…” (per the Lord President (Inglis))

Question 6

Wilson v Wilson’s Trs

Answer 6

1. Trustees cannot lend money to the trust
2. The Lord Ordinary followed English authority on this point, but noted that the point was the same conflict of interest arises due to the dual (potentially conflicting) interest the trustee has as both borrower and lender

Question 7

Magistrates and Town-Council of Aberdeen v The University of Aberdeen

Answer 7

1. The issue was whether the trustees could grant one of the trustees a lease over the trust property
2. The court held that this was a conflict of interest
3. “It is well settled that a person who holds a fiduciary position cannot acquire an interest of any description in the trust-estate until he has entirely denuded himself from the trust, and place himself at arm’s length from those whose interests he once represented” (per Lord Hatherley)

Question 8

Cherry’s Trs v Patrick

Answer 8

1. A trustee cannot sell to the trust
2. Cherry had been in retail business with Patrick before his death
3. Patrick’s business was as a wholesaler of drinks and supplied a shop co-owned by Cherry and Patrick
4. Cherry died creating a testamentary trust, naming Patrick as a trustee
5. Patrick (now a trustee) continued to supply goods to the trust for some time
6. It was held that continuing the supply arrangement, even if thought to be in the best interest of the beneficiaries and the trust, was nevertheless a breach of fiduciary duty

Question 9

Town and County Bank Ltd v Walker

Answer 9

1. “A breach of trust may consist of embezzlement, or it may arise simply from failure to account, or it may consist, as alleged here, of some act or default which amounts only to some irregularity or error of judgment for which, nevertheless, there may be personal liability. But in all such cases the result is simply to create a liability by the trustee to make good to the trust estate the loss which he has caused” (per Lord Kyllachy)

Question 10

Millar’s Trs v Polson

Answer 10

1. “It is, of course, disagreeable to take a co-trustee by the throat, but if a man undertakes to act as trustee he must face the necessity of doing disagreeable things when they become necessary in order to keep the estate intact. A trustee is not entitled to purchase a quiet life at the expense of the estate, or to act as good-natured men sometimes do in their own affairs, in letting things slide and losing money rather than create ill-feeling” (per the Lord President (Robertson))

Question 11

Lutea Trs Ltd v Orbis Trs Guernsey Ltd

Answer 11

1. An exclusion clause purporting to exclude ‘gross negligence’ on the part of a trustee was not allowed

Question 12

Callander v Callander (No 2)

Answer 12

1. “A beneficiary consenting to a breach of trust cannot afterwards challenge it”

Question 13

De Fazio v De Fazio

Answer 13

1. “If all the beneficiaries consent to trust money being loaned to one of the trustees, then they cannot subsequently claim that the trustee has acted in breach of a duty owed to them” (per the Lord Ordinary (Glennie))