Liabilities of trustees Flashcards
When does a trustee breach their duties?
a) Acting outside their powers
b) Fail to comply with any applicable duties.
c) Breach of the no-conflict or no-profit rule.
How can trustees act outside their powers?
Things like…
- Making an unauthorised investment.
- Wrongful distribution.
- Misappropriation of trust property. (This would also be a
breach of fiduciary duty.)
How can trustees fail to comply with any applicable duties?
sometimes will involve a straightforward failure to carry out a positive duty such as not distributing trust property, or…
- Failure to take into account the standard investment criteria or properly
consider advice when exercising investment powers. - Failure to comply with the duty of care when exercising investment powers.
- Failure to properly monitor investments.
Is it important to know who has breached the trust?
As trusteeship is a joint office it will often be the case that more than one trustee will be liable, although they may be liable for breaches in different ways.
(i.e others failing to monitor the actions of their co-trustees)
PS! A trustee will remain liable for any breaches even AFTER they retired when…
* retirement caused the breach
* loss is suffered when they retired
How is the loss suffered assessed?
Loss is assessed at the date of the trial, rather than the date of breach, and involves ‘taking an account’ to determine the expected value of the trust fund.
If the actual value of the trust fund is lower than the expected value, the trustees will be personally liable to compensate the trust fund for the difference
What are the consequences of loss due to misapplication?
FALSIFICATION:
This requires the trustees to return the trust fund to the position it would have been in if the misapplication had not occurred.
If it is not possible to restore the same type of property, the trustees will need to pay
equitable compensation in lieu.
If the misapplication has resulted in a profit to the trust fund the beneficiaries can instead elect to affirm the transaction.
What are the consequences of other breaches?
SURCHARGING:
The court will be looking to assess the expected value of the trust fund if the breach had not occurred.
The trustees will be required to pay equitable compensation for loss of which the breach can be shown to be a ‘but for’ cause (usually used for bare trusts).
aka ‘reparation’ claim.
What are the defences available to mitigate or exclude the trustee’s liability?
- Exemption clauses
- Beneficiary instigation / consent / acquiescence.
- Statutory limitation rules / defence of laches.
- Statutory relief under 61 TA 1925.
Trustee defences: What is the exemption clause defence?
Trust instruments will often contain exemption clauses that have the effect of limiting or
excluding trustee liability for particular sorts of breach.
PS! CANNOT rely on it if they have acted dishonestly.
Trustee defences: What is an instigation, consent and acquiescence defence?
a) Trustees will not be liable for a if they received the fully informed consent of all the beneficiaries or a partial defence against those beneficiaries.
b) They will also have a defence against beneficiaries who instigate or request the
breach.
c) A trustee may have a defence of acquiescence against beneficiaries who have
indicated (by their words or actions) after a breach that they consent to the action taken.
What is the impounding of a beneficiary’s interest?
Where a beneficiary instigates or requests a breach, the trustee can use some or all of the instigating beneficiary’s share of the trust fund to indemnify the trustees against a claim by the other beneficiaries.
through..
- court discretion; no evidence needed
- statutory power; only when consent to the breach was given in writing.
- common law discretion; only show that the beneficiary benefited form the breach.
What are the time limits for bringing a claim of breach of trust?
Beneficiaries with vested interests in possession:
- 6 YEARS.
Beneficiaries with future interests:
- Limitation period starts to run when their interest vests in posession.
Trustee defences: what is the equitable defence of laches defence?
In cases where the statutory limitation period has not yet expired, trustees may still be able to rely on an equitable doctrine known as ‘laches’ to argue that a beneficiary has waited too long to bring a claim.
This defence requires the trustees to demonstrate that the beneficiary knew of a breach but has delayed their claim unacceptably, making it unconscionable for the beneficiary to assert their beneficial interest.
Trustee defences: what is the Section 61 TA 1925 defence?
If none of the other protections apply, this gives the court discretion to excuse a trustee in
circumstances where they
‘acted honestly and reasonably, and ought fairly to be excused for the breach of trust’.
The trustee bears the BURDEN to prove:
1. They ought ‘fairly’ to be excused.
2. Reasonableness.
3. Honesty.
What is the apportionment of liability?
Civil Liability Contribution Act 1978
A claim can be made under s 1(1) where two or more parties are liable for the same damage. The court has a discretion to require one party to make a ‘just and equitable’ contribution to another (s2 (1)).
