Equitable remedies against trustees

Question 1

Personal claim

Answer 1

• Where the defendant does not hold any trust property nor its replacement
• Where the trust property misappropriated by the trustee has gone down in value

Question 2

Proprietary remedy

Answer 2

• Where the defendant trustee is bankrupt
• Where the property representing the missing trust fund has increased in value
• Where the breach took place some time ago

Question 3

Personal claim - Criteria

Answer 3

1) The trustee has breached one of his duties
2) That breach has caused a loss to the trust

Question 4

Personal claim - What constitutes causing a loss?

Answer 4

There is a loss if the defendant trustees have made less profit for the trust than would have been made by a reasonable trustee performing all their duties.

Question 5

Personal claim - Remedy

Answer 5

The court will order the trustee to restore the trust fund to the value that it would have had but for the breach

Question 6

Personal claim - Breach of duty to be active in the affairs of the trust

Answer 6

• Trustees are liable if they leave trust property in the hands of their co-trustee
• Trustees are liable if they leave the affairs of the trust in the hands of a co-trustee without enquiry
• Trustees are under a duty to watch over and if necessary to correct the conduct of their co-trustees
• Trustees are liable if they are aware that a co-trustee is committing a breach of trust but do nothing to stop it happening

Question 7

Personal claim - Extent of trustee’s liability

Answer 7

If two defendants are both guilty of a breach of trust they are jointly and severally liable.

Question 8

Personal claim - Defences - S. 61

Answer 8

The court can relieve trustees of liability if they acted honestly and reasonably.

Question 9

Personal claim - Defences - Exclusion clause

Answer 9

Can relieve trustees from liability for negligent or innocent breaches but is void insofar as it tries to exclude liability for fraudulent breaches

Question 10

Personal claim - Defences - Express exclusion clauses

Answer 10

Can relieve professional trustees

Question 11

Personal claim - Defences - Consent of beneficiaries and limitation defences

Answer 11

If the claimant is an adult and gave their consent freely with full knowledge of the relevant facts then they cannot sue the trustees.

Question 12

Personal claim - Time limits

Answer 12

Actions in respect of any breach of trust cannot be brought after the expiration of 6 years from the date on which the cause of action accrued. However if they are a remainderwoman or man then time does not start to run until their interest fell into possession

Question 13

Proprietary claims - Can we bring one?

Answer 13

A proprietary claim is only possible if the beneficiaries have an equitable interest in the property or unauthorised profit. A proprietary claim is possible only if the trustee still holds the trust property or replacement property.

Question 14

Proprietary claims - Common law tracing - When to use

Answer 14

Common law tracing cannot identify the claimant’s property once it had been mixed with other property

Question 15

Proprietary claims - Equitable tracing - When to use

Answer 15

Can identify the claimant’s property in a mixed fund

Question 16

Proprietary claims - Follow the asset

Answer 16

Use where the trustee still holds the original trust property

Question 17

Proprietary claims - Clean substitution

Answer 17

Trustee still holds original trust property. The trustee may have simply exchanged the trust property for another asset in a clean substitution. The claimant may either take the property which has been acquired with the trust property or take a charge over the acquired property for the amount belonging to the trust – equitable lien.

Question 18

Proprietary claims - Mixed asset

Answer 18

Where a trustee buys an asset using partly his own money and partly funds wrongly drawn from the trust. Basic rule = Claim a proportionate share of the asset (corresponding to the proportion the misapplied trust fund bore to the purchase price of the asset or enforce a lien (or charge) upon the asset to secure his personal claim against the trustee for the misapplied money. Where the mixed asset has increased in value it is more advantageous for the beneficiary to claim a proportionate share of the asset so that the trust will obtain a share of the profit.

Question 19

Proprietary claims - Mixed bank account: allocation withdrawals

Answer 19

When a trustee mixes trust money with his own personal funds in a bank account and makes withdrawals you have to allocate the withdrawals either to the trustee’s personal funds or the trust fund in order to decide who owns what. Basic rule - trustee is deemed to spend his own money first.

Question 20

Proprietary claims - Mixed funds - withdrawal and increased value

Answer 20

Beneficiary can assert a charge over the mixed fund and any withdrawals made from that fund. The beneficiary can generally choose to trace their interests into those withdrawals or funds that provide best value. They are entitled to claim a proportionate share of an increase in value.

Question 21

Proprietary claims - Mixing of two trust funds

Answer 21

Where a trustee mixes money from Trust Fund A and Trust Fund B the beneficiaries of both trusts will bring claims against the mixed fund. The tracing rules for this situation should not favour the beneficiaries of one trust over the beneficiaries of the other. The beneficiaries of each trust share ownership of the shares pari passu ie. In the same proportions as they contributed to the purchase. Deemed that trustee is deemed to spend their own money first and then The rule is that the first money to be paid in is also the first to be paid out – First in, First out.

Question 22

First charge

Answer 22

Beneficiaries have a first charge on the mixed fund or any property purchases from that fund up to the value of the trust monies stolen

Question 23

Personal claim - time limit

Answer 23

6 year limitation period which runs from the date of the breach. Unless it is a fraudulent breach and then there is no time limit

Question 24

What is a lien?

Answer 24

Charge. Can only get back as much as was taken from you.

Question 25

Proportionate share

Answer 25

To be used if it has increased in price.

Question 26

What if money is put into the account after they used all of the trust money?

Answer 26

They cannot do a proprietary claim.