Liability Flashcards
A breach of trust is ultra vires if:
A breach of trust is ultra vires if the act of the trustees is outwith their authority as determined by the trust deed, any statutory provisions, or any other rule of law.
Are Trustees liable for breach of trust
Trustees who commit an ultra vires breach incur almost strict liability for any loss thereby suffered by the beneficiaries. Where, for example, trustees have made a payment to a non-beneficiary, it does not matter that the trustees honestly and reasonably believed that that person was a person entitled to the payment under the trust deed. Likewise, trustees may not escape liability for making an unauthorised investment because they reasonably and in good faith believed the investment was authorised and in the best interests of the trust. Ritchie v Ritchie’s Trs (1888) 15 R 1086
Beveridge’s Trs v Beveridge 1908 SC 791
where the trustees invested trust funds in local authority stock where it was outwith their powers to do so, they were personally liable to replace the purchase price of the stock in the trust estate.
Grant v Baillie (1869) 8 M 77
The trustees will also have to credit the trust funds with the income that the assets would have generated if the mis-disposition had not taken place. On the other hand, if an ultra vires investment shows a profit the trustees must account to the beneficiaries for the profit by adding it to the capital of the trust estate.
Currie and Ors (Lamb’s Trs) (1901) 9 SLT 170. See also Laird v Laird (1858) 20 D 972; Sao Paulo Alpargatas SA v Standard Chartered Bank, Ltd 1985 SLT 433 and Southern Cross Commodities Property, Ltd v Martin 1991 SLT 83.
The trustees are entitled to deduct their expenses in acquiring and realising the investment so that the trust estate is credited only with the net profit.
Hobday v Kirkpatrick’s Trs 1985 SLT 197.
The beneficiaries have the option of adopting the ultra vires investment. Where the ultra vires breach consists of the transfer of trust property to a person who was not a beneficiary, the true beneficiaries may be able to recover the property, or if the property cannot be recovered, require the trustees to restore its value to the trust estate…..
Hood v Macdonald’s Tr 1949 SC 24; Ross v Davy 1996 SCLR 369.
or claim damages (see narrative from preceding card as this follows on)
Somerfield’s Trs v Wemess (1854) 17 D 151; McKenzie’s Ex v Thomson’s Trs 1965 SLT 410.
Trustees must account to the beneficiaries for the administration of the trust.2
Action for count , reckoning and payment is taken by?
A beneficiary is entitled to obtain an account of the intromissions of the trustee in an action for count, reckoning and payment.
Liability to pay the correct beneficiaries
The duty of trustees to pay the correct beneficiaries is high.
Lamond’s Trustees v Croom
“I consider it to be a settled principle of our law that trustees, in distributing the trust-estate, are bound to pay it away to the party in right to receive it, and are liable to that party if they pay it away to any other.,,,,The payment may be to the wrong beneficiary, or may be to the beneficiary and not to the creditors, or it may be, as here, to the secondary creditors and not the primary. In all such cases it is the rule of law that the wrong paying trustee is responsible.”
What should a trustee do before paying out?
trustees should insist that the beneficiaries establish their lawful title and if any doubt lingers they may apply to the court for directions.The application is made to the Inner House by petition – Court of Session Act 1988, s 6(vi); RCS 63.4-6.
Mackenzie Stuart, Trusts, 226.
Scottish courts have exonerated trustees from liability for acting on a mistaken interpretation of the trust deed where they were following legal advice.
Mackenzie Stuart, Trusts, 226.
trustees will not be liable if they are unable to pay beneficiaries because the trust estate has diminished due to factors outwith their control, such as theft or embezzlement by a properly appointed agent.
