Duty of compliance Flashcards
Duty of compliance
Trustee cannot exercise powers in a manner inconsistent with trust terms i.e. constraints on trustees’ exercise of powers, disabling them from carrying out unauthorised transactions
Usual remedy
Substitutive performance claims (personal liability), where the unauthorised transactions would be rendered ineffective to discharge trustee from continuing duty to keep trust in authorised form
Nature of duty of compliance
NOT a fiduciary duty in the traditional sense, inappropriate to label as such (C Mitchell)
Beneficiaries can obtain injunctions to stop unauthorised transactions
Fox v Fox
Buttle v Saunders
How to ascertain compliance
Accounting – identifying any deficits in trust funds, issuing of judgment for balance to be found due
Not a remedy or indication of wrongdoing, but the enforcement of trustee’s obligation
Process of accounting
If loss: disallow and disclaim any interest
If profit: can elect not to ask for disbursement, treat as acquired with trust property (adopt)
If property was not for the benefit of the trust –> surcharge the account as if trustee had performed duty and obtained property for good of the trust, which the trustee would be ordered to make good
Course of actions
Administration suit: Full judicial execution, court assumes responsibility for trust’s performance
Application for order: partial judicial execution, court issues order for account to be presented for judicial scrutiny
Types of court orders
Account in common form (identifying original trust property, disbursements for costs and expenses, distributions, remainder etc)
- No wrongdoing implied
- used to claim for specific or substitutive performance
Account on the basis of ‘wilful default’ (based on misconduct)
Account of profits (specific gains from administering trust)
Claim: substitutive performance claim
If loss:
a) falsification to delete unauthorised transaction, produce the trust property or pay money substitute
b) surcharge the amount lost as if trustees did receive that money, then have to pay equivalent to balance the accounts
If profits:
a) surcharge the amount gained by the trustees
Definition of substitutive performance claim
Claim for specific performance of primary contractual obligation, rather than claim for damages
No need to plead breach of trust
Amount payable
For money: misapplied trust income or misapplied capital sum
For property: market value at date of misapplication or date of judgment, whicever is higher + any income generated between the dates
How to judge if payments are justified, should be allowed to stand
Generally disallows unauthorised disbursements
Usual exceptions: when beneficiaries ADOPT
a) increase in value
b) Trustee wrongfully sold trust property whose current market value is lower than value of sales proceeds and interest
Judge can relieve trustee from performance of duty where equitable
Re Dawson (Aus)
Disapplication of basic approach
a) trust exhausted and become absolutely vested in possession
b) money paid out of a bare trust arising incidentally from a wider commercial transaction
Cases for disapplication of basic approach
Target Holdings: liability for difference between purchase money and amount realised by sale of the property only if it can be shown that the claimant would not have sustained this loss if solicitors had not paid out money
Critique of Target Holdings
Lord Millett extrajudicially: distinction between traditional (single absolutely entitled beneficiary) and bare trusts (commercial)
Unsatisfactory that
a) substitutive performance claims are not based on losses flowing from breach
b) events after the breach become relevant
Application of the Target rule
Youyang Pte ltd v Minter Ellison Morris Fletcher (Aus)
distinguished from Target and ordered the trustee to pay entire loss
AIB confirms Target
Lord Toulson affirmed distinction between traditional and commercial trust
Penner: scope of application ambiguous
Davies: remedy for breach is about loss, and therefore entails common law principles (fault)
Main v Giambrone (distinguished from Target, professional obligation was only to safeguard the trust fund until condition was met, no positive role in satisfying that condition)
Tiverios and McKay - AIB wrongly decided
Davies - causal requirements approrpiate due to need to hold trustees to high standard
Defence
S.61 of Trustee Act 1925: power to relieve trustees from personal liability
- act honestly and reasonably
- ought fairly to be excused
Application of defence
Breach of trust in management of trust property, payments to wrong person
Question of fairness diff from honesty and reasonableness
Burden of proof on trustee
Appellate courts usually reluctant to interfere with lower court’s exercise of discretion
Exception for interference: error of law
If defendants’ negligence has increased risk of loss caused by fraud perpetuated by third party, should not be excused on the basis that the fraud would have occurred (Santander UK Plc v RA Legal Solicitors, Dreamvar v Mishcon de Raya)
