Proprietary claims against Trustees Flashcards
When is a proprietary claim appropriate?
Where a trustee utilises trust property to buy other property. E.g. they stole £50,000 from the trust and bought a car, the beneficiary may bring a claim to assert ownership over the car.
What are the limitations of a proprietary claim?
- If the property purchased is worth significantly less than the initial trust property;
- If the property purchased has been dispersed and the trustee is financially impecunious
- ‘Laches’, if there is undue delay in bringing a claim it cannot be brought
What is the claim if the trustee still holds trust property?
The beneficiary can directly assert a proprietary claim over that property.
What is the claim if the trustee holds substitute property?
If there is a clean swap between the original trust property and the new asset, the new asset is deemed to belong to the trust.
The beneficiary can either sue for the trust property or sue the trustee for the compensation (if the property has reduced in value).
What is the claim if the trustee has (directly) purchased an asset using trustee and trust funds?
The beneficiary can:
(i) claim a proportionate interest in the mixed asset, or;
(ii) sue the trustee for compensation (equitable lien) over the asset for the amount the trust lost (better if the asset isn’t worth much)
What is the position where a trustee makes multiple withdrawals from a bank account with their money and trust money?
As no direct link can be established between the trust money and property, tracing rules are utilised to provide the best outcome.
What is the tracing rule in Re Hallett?
The trustee is determined to spend their own money first. Only used if it provides the best scenario for the trustee.
What is the tracing rule in Re Oatway?
The beneficiary has a first charge on the mixed fund (total in the trustee account) or any purchase made from that fund.
Beneficiaries can choose which property they prefer.
What is the biggest limitation of the tracing rules?
If a trustee dissipates all the trust money and then the trustee’s account is replenished, the beneficiaries have no claim to the money added to the account.
What are the tracing rules when multiple trusts have had their money used?
Clayton’s Case: First money paid in is the first money paid out, rarely used;
Barlow v Vaughan: All beneficiaries take a rateable share of what is left in the account and/or property, rateable based on how much of their money was used for it
What is the situation where multiple trusts and the trustee’s money have been mixed?
First: Apply Re Hallett and Oatway to dissipate as much of the trustee’s money as possible;
Second: Apply Clayton and Barlow to provide an equitable rateable share in the remaining assets.
