Remedies against trustees: personal claims

Question 1

Personal claims

Answer 1

If a trustee’s wrongdoing causes the trust to suffer a loss, the beneficiaries can seek compensation for the trust. This claim is against the trustee personally. The trustee will be required to satisfy the claim from their own property or funds.
BUT, a personal claim may not be appropriate or advantageous in the following circumstances:
a) if the trustee is insolvent;
b)the trustee may have used trust property to buy themselves something that the beneficiary consider attractive. For instance, the trustee may have stolen 100 000 from the trust fund and used this money to purchase shares that have since doubled in value. In this case, the beneficiary should assert a proprietary claim to recover the shares.
c) personal claims are statute-barred six years after the date of breach.

Question 2

Defences

Answer 2

a) an exemption clause in the trust deed;
b) knowledge and consent of the beneficiaries;
c) s61 of TA 1925; or
d) limitation and laches.

EXEMPTION CLAUSES can releive trustees from liability for negligent or innocent breaches, but is void insofar as it tries to exclude liability from fraudulent breaches.

KNOWLEDGE AND CONSENT OF THE BENEFICIARIES, who cannot subsequently bring a claim against the trustees.

SECTION 61 OF THE TA 1925, ie the court has a discretion to releive trustees from liability if they acted honestly and reasonably, and ought fairly to be excluded.

LIMITATION AND LACHES
A personal claim for breach of trust is subject to a six-year limitation period.

The court might still have regard to the equitable doctrine of laches. Laches will prevent a claimant from assertning a personal claim where:
a) the claimant knows tha facts that give rise to the breach of trust;
b) the claimant delays in taking action; and
c) this delay detriment or prejudice to the trustee

Question 3

Indemnity and contribution

Answer 3

a) the defending trustee may be able to claim the full amount of compensation from a co-trustee under an equitable indemnity; or
b) the defending trustee may be able to claim a contribution towards the compensation from a co-trustee.

EQUITABLE INDEMNITY from a co-trustee who:
a) acted fraudulently when the others acted in good faith; or
b) is. aprofessional who exercised such a controlling influence that the other trustee blindly followed the professional’s advice; or
c) has benefited personally from the breach; or
d) is also a beneficiary and benefited from the breach (the limit of the value of their equitable interest).

CONTRIBUTION
The court can order a co-trustee to make a contribution that is just and equitable