Breaches of trustee powers and duties Flashcards
What constitutes a breach of trust by a trustee?
Acting outside their powers or failing to comply with their duties
Fiduciary breaches can occur even while complying with trustee duties.
What is the Trustee Duty?
To comply with terms of trust and exercise functions in accordance with prescribed standards of care and skill
What are Fiduciary Duties of a trustee?
To not create conflict between their personal interests and duties to beneficiaries
What are the two main ways a trustee can breach trust?
- Acting outside their powers
- Failing to act in accordance with their duties
What questions should be asked to establish trustee liability?
- Did the trustee act in accordance with their powers?
- If so, did they comply with their duties?
Who can breach the trust in a joint trusteeship?
More than one trustee can be liable, either for different liability or joint and several liability
Is a trustee liable for breaches that occurred before their appointment?
No, but they should commence proceedings if they discover a breach after appointment
Does a trustee remain liable for breaches after retirement?
Yes, for breaches committed during their time as trustee
Can liability for breach of trust be excluded or limited?
Yes, with exemption clauses other than in fraudulent cases
If liability is not excluded in the trust instrument, how else can it be excluded?
The court has discretion to excuse a trustee if the trustee acted honestly and reasonably
s61 Trustee Act 1925
What is the legal limitation period for breach of trust claims?
Six years from breach as per s21(1)(a) Limitation Act 1980
When does the limitation period start for beneficiaries with future interests?
When their interest vests in possession
Does the limitation period apply to fraudulent breaches?
No, it does not apply to fraudulent breaches or proprietary claims against the trustee
What can be recovered after the limitation period if a trustee who is also a beneficiary receives an unfairly large distribution?
Only the excess can be recovered after the normal six-year period
What is indemnity insurance in the context of trustees?
A type of insurance that can be obtained, usually by professional trustees
Under what circumstances can trustees be excused from liability for breach of trust through the beneficiaries?
If they obtained the fully informed consent of the adult beneficiaries or those beneficiaries acquiesced - can be a partial defence
Acquiescence can be passive - knowing there was a breach and failing to take action
What discretion does the court have under s62 Trustee Act 1925?
To ‘impound’ the beneficiary’s interest to satisfy claims of other beneficiaries if the Trustee has a partial defence through the consent of other beneficiaries
What is a remedy for misapplied trust property?
- Recovering the property itself.
- Compensation if recovery is not possible or there is a loss
What test is applied to determine the loss caused by a trustee?
‘But for’ test.
Can losses be offset against gains?
Generally not, except when they arise from the same transaction or course of dealing.
Bartlett v Barclays Bank Trust Co Limited [1980]
How is loss determined in trust cases?
Based on the investments of a hypothetical prudent trustee.
Is there a remedy if a breach does not result in loss?
No substantive remedy; beneficiaries may seek to remove the trustee.
Is a trustee liable for failed investments?
No, only if they breached their duty
What happens if one trustee is sued for the full amount?
They are likely to seek a contribution from co-trustees.
What does the court have discretion to require in contribution cases?
A just and equitable contribution.
Can the court award a full indemnity to a trustee?
Yes, but this is unlikely as trusteeship is a joint office.
Re Partington (1887)
