Head 18: Breach of Trust.

Question 1

Johnston v Macfarlane 1987 SLT 593

Breach of trust - Breach of Fiduciary duty

Answer 1

That a trustee who conveyed property to himself as a beneficiary, in the absence of a clear provision allowing such a transaction, was auctor in rem suam and accordingly the disposition in favour of the first defender should be reduced.

Another aspect of the auctor in rem suam rule is that trustees are forbidden from receiving remuneration for their services to the trust unless the trust deed specifically authorises this or all the beneficiaries agree.

Question 2

Cherry’s Trs v Patrick 1911 2SLT 313

Breach of trust - Breach of Fiduciary duty

Answer 2

Any profit derived from the trust estate, even inadvertent profit or profit gained from dealings with the trust estate in good faith and at generous commercial rates, must be accounted for and paid back into the trust funds.

 Mr Patrick supplied cherries pub and others with alcohol.
 He was made a trustee of one of the pubs
 He carried on supplying the pub business on the best terms that he could give.
 So the trustees could not have got the articles at a better price.
 Then Mr Patrick and Cherry’s Trs fell out, over allegations of fraud.
 The trustees sued Mr Patrick for the profit he had made.
 The Trs won as he was self-dealing.
 The Trs had not made a loss and were in fact getting product for very cheap BUT nevertheless Mr Patrick was self-dealing
 So they got a successful action for disgorgement of profits.

Question 3

Raes v Meek (1889) 16 R(HL) 31

(Breach of Trust - Careless INTRA vires Acts/Omissions)

(Standard of Care for Trustees)

Answer 3

The standard of care:

• Same degree of diligence that a man of ordinary prudence would exercise in the management of his own affairs.
• It is an objective standard.

Question 4

Clarke v Clarke’s Trs 1925 SC 693

Breach of trust - Immunity clause

Answer 4

 Where trustees left a large sum of money on deposit for 2 years at 2 percent interest.
 Could have got a much better rate by investing it property.
 Held liable for difference as it was gross negligence, was not a mere oversight.

No matter that an immunity clause existed, the gross negligence was not covered by the immunity clause.

(immunity clause only really covers careless carrying out of INTRA-vires acts or omissions.