Liability of trustees (rev notes) Flashcards
2 types of compensation claims ag trustees (HMM)
- substitutive performance claims = money as a substitute for T’s performance of duty to preserve trust property
- Reparation claims = money to make good loss caused by the trust fund by T’s breaches
What B can do where T in breach of trust (slide from A lecture) (3)
1) Require T to provide an account of what was done with the trust assets
2) Adjust the account to reflect what ought to have been done with the trust assets:
- Falsify = delete unauthorised items
- Adopt: accept unauthorised items, if they wish
- Surcharge: add items that ought to be there
3) Require T personally to pay for any shortfall
Substitutive performance - basic rules (1): duty to account
T owes “a duty to preserve the assets of the trust except in so far as the terms of the trust permit the trustee to do otherwise” (AIB)
=> must be able to account for trust property at all time (either by showing he still owns it or did smth authorised w/ it = discharged his duty to preserve it)
Substitutive performance - basic rules (2): if T can’t get the property back (3)
must offer money substitute for performance = mk value of the misapplied property (plus interest) – at time of misapplication or judgement ? – HMM seem to suggest whichever is highest
=> aim = put B in the position had there been no breach (Target, upheld in AIB)
=> the court “looks not so much at the loss suffered as to what is required to restore the trust fund” (New Cap Reinsurance Corp Ltd v. General Cologne Re Australian Ltd)
Substitutive performance - basic rules (3) : show T’s actions have caused a loss?
No need to [find authority]
/!\ if unauthorised disposal has lead to an increase in value of the trust property (eg shares in type of comp forbidden by settlement bcs too risky but has turned out great), B can always elect to adopt it
Substitutive performance - basic rules (4): foreseeability and remoteness
T not lb for depreciation in value of property if would have happened anyway
=> Mummery LJ in Swindle v Harrison :
- “Foreseeability and remoteness of damage are, in general, irrelevant to restitutionary remedies for breach of trust or breach of fiduciary duty.”
- “The liability is to make good the loss suffered by the beneficiary of the duty.”
- “It is, however, necessary to address the issue of causation” => “still necessary for [B] to show that the loss suffered has been caused by the relevant breach of fiduciary duty”
Subtitutive performance - dissaplication of basic rules (1) where ?
HMM: rules disapplied where :
* trust has been exhausted and fund has become absolutely vested in possession
* money has been paid out of a bare trust arising as an incident of a wider commercial transaction
= Target v Redferns and AIB v Mark Redler
Subtitutive performance - dissaplication of basic rules (2) - Target v Redferns
Situation :
- C agreed to lend money to a borrower (Bo) to purchase property, repayment secured by charge on property
- Money placed w/ D = solicitor : held on (bare) trust for payment to Bo’s order, once charge was executed and docs of title delivered
- D paid money before charge was executed (although charge was executed and documents delivered later = D had ‘put things right’)
- Bo defaulted, transpired that property had been fraudulently overvalued so C left out of pocket
=> CA :
- D’s releasing the money before getting the charge = breach of trust
- “immediate loss” placed T under “immediate duty to restore the moneys to the trust fund”
- D lb for full amount, although C required to allow them not to pay amount they recovered by selling the property (to avoid double recovery)
=> HL :
- agreed that D in breach of trust,
- disagreed that clock should be stopped at date of breach – relevant date = date of judgement
- D lb only for loss which C could show would not have occurred but for the breach (early payment of money)
= departure from normal trust principles, which Lord BW recognised – bcs those would have led to result Lord BW wished to avoid = D being lb for loss caused by fraudulent overvaluation, which he had nothing to do with
Subtitutive performance - dissaplication of basic rules (3) - AIB group plc v Mark Redler
Situation : same as in Target, except D did not put things right after the breach
=> C sought to distinguish Target :
- on the ground that D had not ‘cured’ the breach,
- or alternatively bcs here the transaction in respect of which lender advanced its money was never completed
=> HL rejected those ag and followed Target
=> Lord Toulson placing particular importance on fact that it was a short trust pt of wider commercial transaction
=> HMM say it’s ‘hard to make out the scope of this idea’ / figure out where Target-AIB rule applies or not
Subtitutive performance - dissaplication of basic rules (4) - Main v Giambrone
Situation :
- Scheme to build apt in Italy, sold ‘off plan’ to purchasers in the UK & Ireland
- Ps paid deposits to solicitors (D), who held on trust – had authority to release only if got guarantee from a certain kind of bank
- Ds got guarantee from less secure bank but released anyway
- most apt never builts, buyers rescinded purchase contracts and sought to recover deposits, but couldn’t sued D solicitors
- D ag that following AIB, lb only if failure to comply w/ trust term (wrong guarantee) had caused loss, and (ag that ?) on the facts they would’ve lost no matter the guarantee
=> CA rejected the ag : case not within the scope of AIB & Target rules, bcs Ds were performing a ≠ task here, no “duty to take active steps”
(???) = Confusing acc to HMM – courts display little enthusiasm to follow Target & AIB
Reparation claims - /!\ incomplete - (3)
= claims that T should make good loss caused by their breaches of duty
=> need to show causation = Swindle v Harrison
=> C to be put in situation he would be had there been no breach = Swindle v Harrison, also Lord Toulson in AIB
Trustee defences - 3 types
- exclusion clauses
- consent
- excuse
Trustee defences - exclusion clauses (1)
Armitage v Nurse = T can exclude lb for negligence but not fraud / willful dishonesty
=> Barnsley v Noble: to rely on willful dishonesty exception, C must show “a knowing and deliberate breach of a relevant equitable duty or reckless indifference to whether what was done was in breach of duty”
Trustee defences - exclusion clauses (2)
B can still sue T for breach even if B consented to the transaction which was a breach of trust (???)
= Re Pauling’s ST
=> “ the court has to consider all the circumstances in which the concurrence of the cestui que trust was given with a view to seeing whether it is fair and equitable that, having given his concurrence, he should afterwards turn round and sue the trustees” (Lord Wilberforce)
Trustee defences - excuse
= Trustee Act 1925 s61 : gives the court power to ‘excuse’ T’s breach (wholly or partially) if T “has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the court in the matter in which he committed such breach”
