Breach of Trust and Personal Liability Flashcards
Steps to establish liability
- Does D owe an equitable duty to C?
- Has D breached their duty?
- Has the breach infringed C’s rights?
- Are there any defences?
- What remedies are available?
Personal remedy
A monetary remedy amounting to the value of the claim, e.g. reconstitution of the trust fund, reparation of the trust fund
Proprietary remedy
Seeking to gain a security interest in the defendant’s property or recover property from the defendant
Target Holdings v Redferns 1996 on primary duties
The primary duty of the trustee is to administer the trust in accordance with the terms of the trust instrument and the statutory/common law principles that we have already discuss
Primary duty
Duty to comply with the principles/obligations of trusteeship and fiduciary relationships
Secondary duty
Arises from the breach of the primary duty and relates to the duty to compensate for the loss suffered
Tito v Wadell (No 2) 1977 on breach of trust
Breach of trust occurs where there is a violation of any duty which the trustee owes as trustee to the beneficiaries
Fiduciary duties (Bristol v Mothew) (5)
- Act in good faith
- Act honestly
- Not make an unauthorised profit
- No conflict of interest
- Not act in his/her own interest
Non-fiduciary trustee powers and duties (9)
- Maintain fair balance between beneficiaries
- Delegation (Part IV TA 2000)
- Exercise duty of care (s1 TA 2000)
- Safeguard trust assets
- Keep accounts
- Maintenance (s31 TA 1925)
- Advancement (s31 TA 1925)
- Distribution
- Appointment
What did Millett LJ say in Bristol v Mothew about the nature of the breach?
Breach of fiduciary obligation, therefore, connotes disloyalty or infidelity
What did Browne-Wilkinson LJ say in Westdeutsche about the nature of the breach?
Since equitable jurisdiction to enforce trusts depends upon the conscience of the holder of the legal interest, he cannot be a trustee of the property if and so long as he is ignorant of the facts alleged to affect his conscience
Self-dealing rule
Conflicts the rule against conflict of interest
If a trustee purchases trust property from himself, any beneficiary may have the sale set aside ex debito justitiae, however fair the transaction (Tito v Wadell)
What does the rule against self-dealing entail? (3)
- Trustee cannot sell property to themselves
- Trustee cannot sell their own property to the trust
- If the trustee breaches the rule, the transaction is voidable
Exceptions to the self-dealing rule (4)
- Where the trust instrument expressly excludes self-dealing rule
- The Limitation Act 1980 will apply
- Ex p James 1803 - where the court or the principal has provided their full consent for the trustee/fiduciary
- Holder v Holder 1968 - here executor announced that he’s not executor anymore and bid on the property, although not legal everyone knew about this
Fair-dealing rule
If a trustee purchases his beneficiary’s beneficial interest, the beneficiary may have the sale set aside unless the trustee can establish the propriety of the transaction, showing that he had taken no advantage of his position and that the beneficiary was fully informed and received full value (Tito v Wadell)
The rule against unauthorised profits
It is an inflexible rule of the Court of Equity that a person in a fiduciary position is not, unless otherwise explicitly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and duty conflict (Bray v Ford)
Keech v Standford 1726
F: A trustee held a lease for an infant, infant couldn’t renew so he tried to renew it
I: Was he entitled to do it?
H: No, because the rule against unauthorised profits inflexible and strict - “where a trustee takes advantage of an opportunity which is really owned by the beneficiary, he holds the consequent proceeds for the beneficiary”
Regal Hastings v Gulliver 1942
The rule against unauthorised profits arises “from the mere fact of a profit having, in the stated circumstances, been made”
Bhullar v Bhullar 2003
Directors must avoid conflict of interest especially in relation to corporate opportunities
Boardman v Phipps 1966
F: A solicitor helped a trust make a profit, not only for himself, but also the trust
I: Was he entitled to do it?
H: Majority 3-2 no, Keech applied, solicitor had made an unauthorised profit which was held on CT for the trust and even his personal profits were also on CT
What are the consequences of a breach of non-fiduciary obligations?
The trustee will be liable for a breach of trust where they have acted beyond the scope of their powers and where they have failed to execute their powers properly, even where they believed they were acting in the best interests of the trust
Armitabe v Nurse 1998
Liability would attach only where the trustee acted fraudulently
S61 TA 1925
Power to relieve a trustee from personal liability by the court
Statutory framework for limitation period
Limitation Act 1980 s21 - limitation periods
Laches - Limitation Act 1980 s36(2)
