Breach of Trusts/Tracing Flashcards
what is a breach of trust?
A breach of trust occurs where a trustee fails to perform any of his duties or improperly exercises any of his powers.
what must the beneficiares do?
The beneficiaries may proceed against a trustee who commits a breach even where the trustee believed what he was doing was in the best interests of the trust: Re Brogden [1888
-if theres a breach of trust theres a breach of trust
what if breach was mere techincal?
unless the breach was a mere technical breach which the court would have in any event sanctioned, Lee v Brown [1798]; Brown v Smith [1878].
what will ct do in regard to technical?
the ct will police trust generally if doubt always ask ct then technically its a none breach
Injunctions- what is injunction for?
if ther eis an anticipated brach of trust so if ben claim obvs prove this, that a cours eof actom the turste wants to udnetake breach of terms of turst or its terms then the ebenfic can go to ct and in ct if equity, this disrec aticle order against trustee to stop him prusing certain coruse of conduct for e.g unauth title of trust assets which would potut rustee in breach of perhaps terms of trust
cases for injunctions?
This remedy is available to prevent anticipated breaches of trust:
Dance v Goldingham [1873] – to restrain an unauthorised sale.
Riggal v Foster [1853] To restrain unnecessary mortgage.
Fox v Fox [1870] – To prevent improper distribution.
what happened in dance v goldingham?
Dance v gold- r..a.wtruste want to enter into mrotgage trnas to brro money secured on trut assets using as security for loan, trustee have abuse lgal poswer over prop. But if ben feel that put truste in b.o.t ocoudl give injuction to retsrin that. Or if trustee eking to distribute trust prop in wy ben gthink in contrary to terfms of trust giving prop or income or money to people whoa re enitled theremay be acause a debate over the construction, terms of trust instr some1 should get this money or not but obvs if ct resolves that q of con, ct can resolve any issues relating ot trust they than may issue injuction to rsstain would be rbeach there.
Personal Remedy against Trustees?
Personal rem obvs if trustee mismanaged rust prop, committed breach with trust, enter into perhaps reckless investments of turst fund whichc auses huge lost of fund, or investing trust assets high risk shares or by their conduct created a loss ot be, ben can sue them perosnallh for breach of trust fo comp. trustee is then personaly loiable
when is trustee personally liable?
Trustee is personally liable to beneficiaries for any benefit which he receives as a result of his office as well as for any loss suffered by the trust.
what did we look at last week in reference to this?
now that we looked at last week- trusteeship is very onerous, very strict. If you make investments that cause loss u can put hand in pocket and pay compo to ben, if u recieev a personal gain as a result of ur fid duty, make unayuth gain e.,g reciev bribes, fhr case..u can hold those on a c.t. weird type an account to beneficaires. So if u enrich urself personally as result of foficers trustee u can be held account for those gaisn to ben. Ur first and fundamental duty of duty to ebneficary- LAST WEEK
when will a trustee not be vic liable?
A trustee will not be vicariously liable for the breaches of co-trustees or the dishonesty or neglect of agents who act for the trust, unless there is default on the trustee’s part: Townley v Sherborne [1634].
Liability of Incoming and Retired Trustees - what is liability here?
Re Strahan [1856]
An incoming trustee is not liable for breaches committed by his predecessors, but if he becomes aware of such a breach after assuming office, he must take immediate steps to remedy it.
what happened in head v gould?
Head v Gould [1895]
A retired trustee will be liable for breaches he committed while in office, but not for breaches committed by other trustees after his departure, unless his retirement was intended to pave the way for the commission of the breach.
what does this illustrate?
Again illustrates – rule to shed start and end date of liabuktiy is whilst u I office, not before and when u ;leave not liable after
Ur time period of ptoenial laib for dec u made whilst u were trustee during lifetime of ur office- THAT THE GENRAL RULE
time period potential for liability
Joint Liability- what about joint liability?
interesting 1
joint liability?
Where two or more trustees are involved in committing a breach their liability is joint and several and the beneficiaries may sue all or any of them.
e.g of this
If 2 trustees e.g ab and b managing million pound trust fund some screw up and fund reduce in valude bad or reckless investment decisions.. Where 2 or more truste involved in commiting breach, gerneal rule is their liability join in several ben may sue all or any 1 of them
So if a and b screw up amnage of turts prop ad cause loss of trust fund ben could sue and ab togev or b or a. if that ahappens person who sued a is personal laible to repair loss of fund, through his mismanagement, person sued can claim contribution
what if one trustee sued?
If one trustee sued, he can claim a contribution from any other trustees under the Civil Liability (Contribution) Act 1978. The court sets the level of each trustee’s liability according to their culpability.
so judge may sue do what?
so judge may say a sued shoudltn by himself a claim contrib form b who trustee office at time and b should pay 50% of this equally his dec. or could say a primarily repsosnible and b ahd much liable role. Judge will set portion of laibiltiy according to blaine, cpulabiltiy of breach
But in theory if 1 is sued any other trustee who trustee who trustee at material time can be a contrib can be claimed from them.
what happens where 2 trustee sued?
Where two trustees sued one may be able to claim an indemnity from the other, especially against a solicitor-trustee by his co-trustee who has placed complete reliance on the solicitor regarding trust affairs: Chillingworth v Chillinghworth [1896]; Re Linsley [1904].
example of this sueing?
Trust adiars, bc of his export knowledge
So if 2 sued a and b , a could say well I want full indemnity from b cos actually b he was solic he made all dec and I want him to pay pout my laibilty cos basically his fault- that’s a common law principle
what is an indemnity?
An indemnity can also be claimed by a trustee against his co-trustee where the co-trustee has acted fraudulently in initiating the breach Re Smith [1896].
so whoever is to blame what?
So whoever most to balme u can pin more liability on them
Measure of Trustee’s Liability?
Once breach of trust established, it is necessary to work out extent of trustee’s liability.
what is the basis of this assessment?
The basis of assessment is to work out the loss occasioned to the trust estate by the breach.
See: Target Holdings v Redferns [1994] HL
Target Holdings Ltd v Redferns [1966] 1 AC 421
A trustee who has acted in breach of trust is only liable to compensate the trust for loss which was CAUSED by the breach. A causal link is required. The case concerned a complex mortgage fraud. Mirage Properties Ltd agreed to sell properties in Birmingham to Crowngate Developments Ltd a company owned by Mr Kohli and Mr Musafir for £775,000.To execute the fraud Kholi and Musafir arranged for the purchase to be made through two intermediary companies they owned (Panther Ltd and Kholi & Co), so that it appeared that the sale to Crowngate was for a consideration of £2 m. Crowngate applied to Target Holdings for a loan of £1.7m and employed Redferns as their solicitors. The loan application was supported by a £2m valuation of the properties
what about this?
I don’t wnt to go into fact of this not gonna examine on it but just mention it, broad rule is a trust used acted in breach of trust only liable r.a.w so is this elemtn fo causation, would loss arisen anyway or has it arise- that what target case estanital about.
example?
made by a firm of estate agents. The loan was paid into Redferns’ client account on 28.6.89 without any express instructions as to the release of the funds. On 29.6.89 £1.25 m was transferred to the account of Panther in Jersey, although at this stage the contract for the purchase of the properties had not yet been entered and it was not until July that the contracts and mortgages in favour of Target were executed. Subsequently the value of the properties dropped sharply and Target sought to recover their loss.
The estate agents were in liquidation. Target therefore sought to recover its loss through summary judgment (allowing for the amount received from the sale of the property) from Redferns. The transfer of funds BEFORE the contracts for sale and the mortgages had been entered into had constituted a breach of trust. Did Redferns have a defence?
at first instance it was held what? $
At first instance it was held Redferns had an arguable defence. CA disagreed which held that once a breach of trust was established the trustee was obliged to make good the deficiency in the trust fund and the rules about remoteness of damage applicable to contract claims had no application. Gibson LJ dissenting took view transaction would have gone ahead anyway and Redferns breach of trust did not cause the loss.
Redferns appealed to HL. HL held Target was not entitled to final judgment. Lord Browne-Wilkinson stated that the underlying principle as ‘there does have to be some causal connection between the breach of trust and the loss to the trust estate for which compensation is recoverable, viz the loss would not have occurred but for the breach’.
his lorship took what view? $
His lordship took the view that the transaction would have gone ahead irrespective of the breach of trust, the breach had not been the cause of the loss suffered.
In short causation must be established, i.e the breach of trust was the cause of the loss.
Other Examples:
Some e.gs on losses tot rust and breaches
knott v cottee case?
Knott v Cottee [1852]
A trustee who makes an unauthorised investment is liable to pay the difference between the cost of the investment and the price at which it is sold.
knott in other words?
Knott v cotee- r.a.w- so fi trustee outside tems inves powers under trust isn’t or permitted by law makes reckless investment which causes a loss, the trustee must make good of tht loss to bene. And pay diff btw costa nd investment and the price which it sold. And obvs if sold for less. Have to put hand in his pocket and compensate for nay shortfall caused to the beneficair. The turst fund,
wright v morgan?
Wright v Morgan [1926]
If all beneficiaries are of full age, they may choose instead to adopt an unauthorised investment.
wright in other words?
Wright v morgan- r.a.w – in which case theyre essentially no loss, simply adopted same investment shoudltn happen, gone ahead, wave right to claim, they adopt inevstm thrn becomes just unauth investment in trust prop but they’ve got a consent
fry v fry?
Fry v Fry [1859]
A trustee who improperly retains an unauthorised investment will be liable to pay the difference between the price at which it is sold (or its value at the judgment date if not sold) and what it would have fetched if it had been sold at the appropriate time.
fry v fry in other words?
Whuchfry v fry- gives rule her e r.a.w – so what tryna do, trustee for buying something and not selling peak market conditions, if investment decision wrongly retained purchase of asset and then markets crashing and not selling it to selvige the loss, again trustee by nto selling in way which best protects ecnomoic value of trust fund can be liable for short fall ,
re bells indenture?
Re Bell’s Indenture [1980]
A trustee who improperly sells an unauthorised investment may either be required to replace it or pay the difference between the price at which it was sold and what it will cost to replace it.
re bells in other words?
Re bells – r.a.w – so the basic rule all these gcases, if there unauth in vestment in some shae or form and u can estba breach, then its any short fall, difference in value which would be basis of compensation for beenficairs hw that diff in value is arrived at for shortfall. Tis a short fall ruke.
shepherd v mouls?
Shepherd v Mouls [1845]
Trustees must invest trust funds without undue delay. Undue delay may render the trustee to pay interest on the uninvested fund.
trustees who manage trust funds what?
Trustees who mamage trust funds- common law duy to invest case re rag not in notes, wragg, trustee of common law duty ot invest if trust fund, cant just put it under matres, gotta invest it show bank crown, get retrun get some int. rptoect value of fund and prfoetc against value of investment
what happened in shephard?
Shephered- sr,,aw – undue delay may render- that compensaito part of won money. So if trustee given 10,000 in bag doesn’t put in bank to creatre return shove undermattres he could be liable int erest loss on period where money dog nothing.a gain shortfall which proper ivestment would go. Moment not too bad cos int low ..
what about 2 cases?
Dimes v scott, wills – 2 cases which give us this absic rule
dimes v scott/wills v gresham?
Dimes v Scott [1828]/Wills v Gresham [1854]
Trustees cannot ordinarily set-off a profit made from one transaction against a loss from another entered into in breach of trust, unless the profit and loss resulted from the same transaction/same policy decision to pursue a particular course of investment (Bartlett v Barclay’s Bank (No 1) [1980].
so what do you need?
so u need that investment nexus to allow for a set off – okay we made bad elgal investment these shares which wont powerd to by. Can only buy uk shares under trust unst. Brought these shares in clumba etc, suffered loss but we bought shares in uk comoany which made huge profit. Are w eliable for the shortfall in unauth investment outside uk Columbia yes we are, can we set the loss offer against gain made on lawful invest. Answer no unless u can show nexus in the investment policy. So genrall cannto set off loss made from legal inves which causes los against profit gained on good invesmtnet. Cos 1 just doing job and another breach turst. So genrall u cant set off unless u can show that necus
what happened in guardian ocean?
Guardian Ocean Cargoes v Banco do Brasil No 3 [1994]
Once extent of trustees liability is determined interest will be charged on sum due from date of the breach, which will follow prevailing commercial rates.
– once you pay interest on compensation not really damges here its compensation breach of trust dmages for breach of contract, why do people claim intersta nyway. Well get interst bc , idea behind itnerets is that it compensates person who suffered loss, put position wouldn’t been in had loss not been occurred with a finaicla award of money is compensaton. Get interst on that bc that compensates for your sort of theoretical loss of use of money. Its not , getting comp, interst on it for loss of use of money, that’s sort of logic behind it
Trustee Defences to a Personal Action
Several defences are available to a trustee who is being sued personally for a breach of trust:-
if trustee is sued for breach of trust what?
If trusree is sued for breach of truste, trustee ca invoke sevral defence to prevent personal liability kicking in.
What defences do trustee have against personal action for comp for breach of trust. Seevral defences consider ‘
what about beneficiary participation in concurrence of breach?
(i) Beneficiary(s) participation or concurrence in breach, where beneficiary acts of own free will and understood trustee’s actions.
benficaires somewhow what?
Beneficarys themselves somehow participated or concurred iun breach bnut the beneficiary act own free will and understood trustees actiosn and went along with it. Knew trustee should by shars in colum and was awar-
what happened in holder v holder? and repaulings?
Holder v Holder [1968]; Re Pauling’s WT [1963] (consenting beneficiary under undue influence/no real participation therefore.)
holder and paulin in other words?
holder and re pauking r.a.w- 1 has to be careful that there is no undue influence o part of ben who perhaps giving concurrent uor consent to behavioruw hich amounts ot breach ot=f trust. Have to be fully aware whats gpoing on and give free and informed cosnetn for that defence to work.
acquiesence or release of ben ?
(ii) Acquiescence or release by Beneficiary
- Acquiesne- r.a.w so basically been saying ima ware breach of trust but not gonan take any action agains tu –kinda like estopeel- ebn simply goeds along with it. Bit like 1st defence. Sort of rpomsie dw not gonna sue u for nay loss
what happened in re garnett ?
Re Garnett [1885]/Re Blanchford [1863]
A trustee will also have a good defence against a beneficiary who learns of a breach after its commission and then releases the trustee from liability or otherwise acquiesces in the breach.
impounding the beneficiary interest?
(iii) Impounding the Beneficiary’s Interest
Rule her where breach commited at instig or consent of ben- so ben given clear consent , court may as discretion may order tha ben interst should be impounded partly hi fault and papl towards repair
where breach committed at the instigation?
Where breach committed at the instigation or with the consent of a beneficiary, the court may order that his interest should be impounded and applied towards the repairing the breach either under its inherent jurisdiction or under S.62 Trustee Act (TA) 1925.
See Fuller v Knight [1843]/Chilingworth v Chambers [1896].
so court saying what?
So ocurt syain partly ben – impound ben interst and use It to restore to compensate loss tot ruts fund genrlly. Remainder ben don’t lose out. Sort of punishment of been wh incurred or encouraged ben to breach trusy which caused a loss
what about s.62 ?
S.62 TA 1925:- S,62- satturoty impounding jurisdiction
allows the benficiarys interest to be impounded what?
Allows the beneficiary’s interest to be impounded in the event of a breach whether he benefited from it or not:
Where the beneficiary instigated the breach; or
Where the beneficiary consented in writing to the commission of the breach.
To trusytee carrying out this breach of turst
(iv) Relief from liability under S.61 TA 1925
Where trustee has committed a breach but in so doing has ‘acted honestly and reasonably such that it would be fair to excuse him from liability’.
s.6 ?
s. 6 – broad discretion here useful to trustee who beig sued for beach of trust. Trutsee may be negilgient, a,mlciou, reckless or made accidental msitsk ehwich caused loss. Trustee can breach trust calculaitn wy car;ess way by acicdnt. BREACH IS ABREACH. But there are various degress of innoncr and nmaliocusness.
s. 61 not offnce but opp relief for turste sue for extent of cupabiltiy
ss. 61 sats where tr r.a.w – cout can mitigate lioabilti liabi entirely- accidntl breach or gonan cut compo by 80%- so all very discretionary
what happened in perrins v bellamy?
Perrins v Bellamy [1899] – where trustees sold leaseholds belonging to the trust on the erroneous advise of their solicitors.
what happned in re de clifford?
Re De Clifford [1900] – where trust money entrusted by trustees to a solicitor in good faith to defray trust expenses was lost on the solicitor’s bankruptcy.
re de clifford in other words?
Re de Clifford – r.a.w sensible cause of ction just unlucky- loss but wasn’t malicious bust these things happen – so liab was removed under s.61
what happened in evan v westcombe?
Evans v Westcombe [1999] – where a personal representative had, on legal advice, taken out an insurance policy in favour of a missing beneficiary who later reappeared and brought a claim for an account and lost interest in respect of his share of the estate.
evans in other words?
Evans v west- r.a.w – ig et tjat often with turst context of wils and things. Might be vlaid trust or may be evidentially and concept certain but the trustees say … can do is work out share aligate shars, tka eout msising ben insurance which basically allows trustee to disrib fund. People missing dea dor nto sure. Thee people then tujrn up few yrs later this perosnt ake out insuance o trustes aren’t hen sued. Not given 12 for bloke couldn’t track. So can get missing ben insurance. So is cliam insurance shar epeosn who mssg o dea – peros rep r.a.w case.- here defence kicke din and liab was mitigated. Said well why didn’t get use wyhy didn’t e=isnurnce pah out but may nto have covere ufll loss.
(v) Exemption Clauses in Trust Instruments?
Provide a good defence and often broadly drafted:
Armitage v Nurse [1998]
‘No trustees shall be liable for any loss or damage which may happen to the trust fund…at ay time or from any cause whatsoever unless such loss shall be caused by his own actual fraud’. Clause valid and could excuse gross negligence but not dishonesty.
what are exemption clauses in other words?
Exemptoon causes – rust very elastic could have bare trust o 75% trust doc – either rocngtetx turst obvs kicked in. extent powers an dutys depends on..
Very flex htings turts basic philio person who sets out trust can do what wants, set out terms an docnd. Now in doing that can u have an exlusion or emption clause/trust ins which sya if anything goes wrong can u exclude liability?
Can u have sucg an exemption clause, but these goes really
If exemption clause is allowed ot be so wide turste cant be personal liable for nayhting hat his dfence, if so broad then get to he point what spojt having trust udnemrin basis of trust. Can u have xmption clauses and how ide can be. Ca and an be wide
armitgae v nurse in other words?
Armitahe v nurse- certain things u cannot exempt or exclude ;laib for. Cos got o very heart of trusteeship and if remove those no point having trust
Lj millet judgemnt – no trustee r..w – this clause was vlaid so shws u can have very broadelcusion clauses. U can even exclude liab for gross neg in mamaging trust fund but cant exclude is fruadlent behaviour. Cos fraud not to gbehave fraud or to act in goo fiaht form bad faith , os the essence of fid duty , which truste owes benfic, so to act in good fauth ijn non fraud maner. This is central to role of trutse and to act and to excuse fraud would be simply going throgu 5 right into central apect of tursteesgu.
so what can u not exclude?
So cnat elcude liabity for conduc thwich amout s ot fraud in this sens.e but clvude by approp clud but if such a clause did exist… can have evry broad exlxcusion causs but sem from armitge u annot ezlcude frau dor conduct amount to fruador dishonesty. But can eslcue carelssnes or negligence.
(vi) Statute-Barred Claims against Trustees
Final aspct is time limit
Sometime slimtiaiton act can give offence
what about s.21 3?
S.21(3) Limitation Act 1980- general rule an action for breach of trust against trustee must be commenced not more than 6 years from the date when cause of action accrued (breach).
s,21 3 in other words?
s.21 3 r.a.w limit act- trustee – personal alciton must be commence r..aw – so for a personal acton agains truste for breach of trust. Seking com equity loss of fun, whether defnce val or not. 6 years to sue trutess personally for any loss caused, fate running form date of vreach. Even if ben didn tknow until 6 yrs breach of turst. So biut like conratc law. Perosnal acito and if issue proceedings outside peiorod ull be time barred. That is defence trustee can run. So its perosnla action. 6 yr limitation period.
so that general rule what?
So that genral rule an action r.a.w
An action started outside this period will be statute barred unless:
