Liability On Strangers And The Fidiciary Relationship

Question 1

Constructive Trust

Answer 1

• independent of any express or implied intention of the parties;
• imposed by equity when justice and good conscience require the person in possession to hold it for another;
• exempt from formality requirements of s53(1)(b) LPA 1925
• an equitable remedy to enable the C to obtain restitution
• a constructive trustee has a single duty of transferring the property to entitled beneficiary by means of:
• tracing and recovering property
• enabling a personal action to be brought against the constructive trustee even if they do not have the trust property

Question 2

Recipient Liability

Answer 2

Where a stranger receives trust property knowing it to be in breach of trust. The stranger becomes liable as a constructive trustee. Beneficiary has personal claim and claims of recovery of property and tracing available.

Question 3

Accessory Liability

Answer 3

Stranger dishonestly assisted the trustee in breach of trust. Stranger becomes liable as a constructive trustee and beneficiary has a personal claim against them.

Question 4

Intermeddling

Answer 4

Stranger took on the role of a trustee without authority thereby causing loss to the trust. Stranger becomes liable as a constructive trustee. Beneficiary has personal claim and claims of recovery or tracing.

Question 5

Types of strangers

Answer 5

• Bona fide purchaser for value of the legal estate without notice - cannot be made a constructive trustee
• Innocent volunteer - received trust property without consideration and in good faith. They cannot be made a constructive trustee but may have a tracing claim against them so must return the trust property
• Purchasers and volunteers with notice of the breach of trust - treated as constructive trustees for knowing receipt and beneficiaries have a personal action against them. Tracing is also available against them.

Question 6

Unauthorised Profits

Answer 6

A trustee must not profit from their role as trustee; the trustee holds all unauthorised profits on constructive trust for the beneficiary. The remedy available is called on account of profits. Applies to all fiduciary relationships including personal representatives (executor and administrator).

Question 7

Director’s Fees

Answer 7

A trust holding substantial shareholding in a company may result in the trustee being appointed as director. The trustee must account for any director’s fees they received. A trustee may retain the fees if:

• The directorship predated the trusteeship
• They were appointed as director independently of the votes of the trust; or
• The trust instrument expressly authorised the trustee to retain the fees

Question 8

Remuneration of Trustees

Answer 8

Professional trustees have a right to remuneration. Non professional trustees are still subject to the general nonprofit rule and only allowed to be paid if:

• The trust instrument authorises it;
• The courts authorise it;
• The beneficiaries authorise it.

Trustees are entitled to be reimbursed for their out of pocket expenses.

Question 9

Self-dealing rule

Answer 9

A transaction where a trustee purchases property is voidable by the beneficiary due to conflict. A beneficiary can also approve such transaction. A trustee can evade the rule by retiring before the transaction. The rule does not apply if:

• authorised by the transaction;
• the beneficiaries authorised it;
• the purchase is pursuant to an option or contract prior to the trusteeship.

Question 10

Fair-dealing rule

Answer 10

Where trustee purchases a beneficiary’s beneficial interest, the transaction is only voidable if the trustee acted unfairly. The transaction stands if the trustee can show that:
- They had not taken advantage of their position;
- The trustee made full disclosure to the beneficiary
- The transaction was fair and honest

Question 11

Trustees must not compete with the trust

Answer 11

Trustees must not put themself in a position where their interest and duty conflict

Question 12

Fiduciaries other than Trustees

Answer 12

Solicitors to the trust - same principles apply to them.