Trustees: Liability

Question 1

When can trustees breach the trust?

Answer 1

Acting outside their powers (e.g. by distributing trust property to someone other than a beneficiary or making an unauthorised investment).

Failing to act in accordance with their duties (e.g. by falling below the standard of care expected of them when making an authorised investment or failing to properly monitor investments of the trust fund)

Question 2

What Qs should be asked when assessing breach of trust?

Answer 2

Did the trustee(s) act in accordance with their powers?
If so, did they comply with their trustee duties?
If the answer to either of the above questions is ‘no’ there has been a breach of trust and it is necessary to go on and consider the following issues:

Question 3

Can a trustee be liable for a breach that occurred before they were appointed?

Answer 3

A trustee will not be liable for a breach of trust which took place before the trustee was appointed (see Re Strahan (1856) 8 De GM & G 291).

On appointment, if a trustee discovers that a breach of trust occurred, they should commence proceedings in order to recover from the former trustee.
Failure to take such action may result in the new trustee becoming liable for their own breach of trust.

Question 4

Can trustees be liable for breaches that occur after they retire?

Answer 4

A trustee will continue to be liable for any breaches committed during the time that they acted as a trustee, even after they have retired.
A trustee will only be liable for breaches of trust that occur after they retire in two cases:
Where the trustee retired to facilitate the breach; or
The trustee parts with trust property in retiring without due regard, so loss is suffered when the property is transferred to the new trustees (see Head v Gould [1989] 2 Ch 250, 272).

Question 5

Are trustees personally liable for their breaches?

Answer 5

Trustees are personally liable for their own breaches but it will be rare for some trustees to be liable while others are not. Where multiple trustees are found to have breached the trust, they will be jointly and severally liable.

Question 6

How can trustees limit liability?

Answer 6

· Trustee liability may be excluded by an exemption clause in the trust instrument. Alternatively, trustees may wish to obtain indemnity insurance. Trustees may also be fully or partly absolved of liability if there has been beneficiary consent or acquiescence.

If there is no exemption clause, trustees may seek to rely on s 61 Trustee Act 1925 (TA 1925). This gives the court discretion to excuse a trustee in circumstances where the trustee ‘acted honestly and reasonably, and ought fairly to be excused for the breach of trust’.

Question 7

What is Acquiescence ?

Answer 7

Acquiescence involves the beneficiary being passive (knowing that there has been a breach but failing to take action against the trustee) while consent requires a positive act of authorisation.

Question 8

What happens if the beneficiary may have encouraged the breach?

Answer 8

In cases involving the written consent or instigation of the beneficiary, it can also affect the interest of that beneficiary. Under s 62 Trustee Act 1925 (TA 1925) the court has the discretion to ‘impound’ the beneficiary’s interest under the trust in order to satisfy the claims of the other beneficiaries, meaning compensation will be paid out of their share of the fund. The court will only do this where it is considered ‘just’ to do so, which will usually be in cases where the beneficiary has actively encouraged the breach.

Question 9

What remedies can beneficiaries get for breach of trust?

Answer 9

• If the trustee has misapplied trust property, the beneficiaries may seek to recover the property itself (or its traceable proceeds). This element does not focus on proprietary claims but, broadly, a beneficiary may decide to make such a claim where the trustee is insolvent and/or where the substitute property has increased in value.
• If it is not possible or desirable to recover the trust property, the beneficiaries will instead seek compensation to reflect the loss of the asset.
• Similarly, if a breach of trust has resulted in a loss in the value of the trust fund, the beneficiaries may seek compensation.
• If a breach does not result in a loss, there may be no substantive remedy although it is possible, in serious cases, that the beneficiaries will wish to have the trustee removed from office.

Question 10

when is the loss to the trust assessed?

Answer 10

This loss is assessed at the date of the trial, rather than the date of breach.

Question 11

Can trustees offset the losses caused by breach of trust?

Answer 11

In general, trustees are not permitted to set off the losses caused by a breach of trust against profits they have made on other investments or transactions.

However, it is possible to offset losses against profits where they arise from the same transaction or course of dealing.
This is well illustrated by Bartlett v Barclays Bank Trust Co Limited [1980] Ch 515 which we considered earlier. In Bartlett, the trustees had a majority shareholding in a company but failed to properly supervise it. The company made two investments in property, one of which was profitable but the other made a large loss. The trustees could offset the profit against the loss as they arose from the same breach (i.e. the failure to monitor the company’s speculative investments).

Question 12

What should happen once liability is established?

Answer 12

· Once liability is established, it is necessary to assess the loss to the trust fund. If trust property has been misapplied, trustees must restore it. If a breach has resulted in a loss in value, trustees are personally liable to compensate the trust fund for this loss.

Question 13

Ten years ago, a trustee used money from a trust fund to purchase a house for themselves. The beneficiary has only just discovered the breach.

True or false: The beneficiary cannot recover the trust property because the limitation period has expired

Answer 13

False

This would be a proprietary claim (for the trust property itself), rather than a personal one and therefore would not be subject to the limitation rules. This may also be considered a fraudulent act.

Question 14

A trust has three trustees. One of the trustees is a solicitor, another a doctor and the third is an accountant.

The solicitor is a director of the company in which the trust has a significant shareholding. The solicitor has not attended board meetings for some time and, as a result, was unaware of a number of poor business decisions which were made by the board. The value of the company shares has decreased significantly as a result of these decisions.

The company accounts have been circulated to the three trustees on an annual basis. It has been very clear from the accounts that the company has been in financial difficulties for several years and that the share value has been decreasing year on year. The trustees have not taken any action to try and improve the position of the company or sell the shares.

Which of the trustees is likely to be found liable for breach of trust?

None of the trustees

Only the solicitor and accountant

Only the solicitor

Only the accountant

All three trustees

Answer 14

All three trustees

This is the most likely outcome. All the trustees have failed to properly monitor the investment in the company shares. Although the solicitor may appear more culpable than the others (and the accountant could be expected to have a better understanding of the accounts) none of them has exercised the requisite standard of care and skill in respect of this investment. All had access to the accounts and should have reviewed them.

Question 15

A trustee holds a fund on trust for A for life, remainder to B (18) and C(12). A wants the trustee to purchase land in Spain for A to live in. The trust instrument does not give the trustee the power to acquire land overseas.

Which of the following represents the best advice to the trustee?

The trustee can purchase the land in Spain as long as they obtain proper advice and are confident it is a suitable acquisition which is in the interests of all the beneficiaries. Although purchasing the land is unauthorised, the trustee should not worry about this as they will only be liable to compensate the trust fund if the breach causes a loss.

The trustee can purchase the land in Spain as long as they obtain the fully informed consent of A and B. C’s consent is not needed because they are a minor.

The trustee should not purchase the land in Spain. It is not permitted by the terms of the trust and obtaining A’s consent is insufficient to prevent the trustee being liable for breach of trust.

The trustee can purchase the land in Spain as they have A’s consent. B and C’s consent are not needed because their interests have not yet vested in possession.

The trustee can purchase the land in Spain as long as they obtain the fully informed consent of all three beneficiaries.

Answer 15

The trustee should not purchase the land in Spain. It is not permitted by the terms of the trust and obtaining A’s consent is insufficient to prevent the trustee being liable for breach of trust.

This is an unauthorised investment and would require the fully informed consent of all beneficiaries. C cannot consent.

Question 16

How may a trustee avoid liability?

Answer 16

Trustees may avoid or mitigate liability for breach of trust in the following ways:
· Ensuring the trust instrument contains an ouster of exemption clause.
· Taking out insurance.
· Seeking court directions before taking action that might result in liability.
· Making a s 48 AJA 1985 application to rely on legal advice.
· Surrendering their discretion to the court (in exceptional cases).
· Relying on the fully informed consent of beneficiaries.
· Establishing a defence of beneficiary instigation or acquiescence.
· Relying on the equitable defence of laches
· Seeking equitable relief under s61 TA 1925.
· Making a claim against a third party adviser.
· Making a claim for a contribution from a co-trustee or third party.
· Taking specific protective action in respect of missing or unidentified beneficiaries (covered in a separate element).

Question 17

ouster clause?

Answer 17

removes a trustee duty altogether

Question 18

exemption clause?

Answer 18

removes trustee liability for breach of duty

Question 19

In which of the following circumstances might it be appropriate for trustees to surrender their discretion to the court?

When the trustees cannot obtain beneficiary consent to a proposed course of action because some or all of the beneficiaries are under 18.

When the trustees are deadlocked over the exercise of a duty.

When the trustees are unsure of how to interpret a trust term.

Answer 19

When the trustees are deadlocked over the exercise of a duty.

Surrender of discretion is an exceptional course of action and can only be sought in relation to a specific problem which requires addressing, such as where the trustees have an obligation to exercise a discretion but do not agree as to how to exercise it.

Question 20

Seeking court directions?

Answer 20

If the trustees are unsure of their obligations or wish to ensure that their plans for distributing the trust property will not expose them to a claim for breach of trust, the safest thing to do is seek directions from the court.

Question 21

Section 48 AJA 1985 application?

Answer 21

section 48 Administration of Justice Act 1985 (‘AJA 1985’) allows the trustees to take the following actions:
Step 1: Seek a written legal opinion from a person satisfying s71 Courts and Legal Services Act 1990 (usually a barrister or solicitor with 10 years of experience); and
Step 2: Apply for High Court authorisation to rely on that legal opinion.

Question 22

Surrendering discretion to the court?

Answer 22

In cases where the trustees are deadlocked, or where they are precluded from acting due to a conflict of interest, they may surrender their discretion to the court. Unlike simply seeking directions from the court (which provide guidance as to a lawful course of action) this course of action involves the court making the decision for them.
This is an exceptional course of action and can only be sought in relation to a specific problem which requires addressing. The trustees cannot simply give up all their powers and obligations and leave the court to administer the trust on an ongoing basis.

Question 23

Seeking consent from beneficiaries?

Answer 23

The trustees will only obtain full protection if they obtain fully informed consent from all the beneficiaries:
· It is essential that the beneficiaries are given full information to enable them to provide consent. If the trustees withhold important information about their intended actions, they will not be able to rely on the consent obtained.
· If consent is only obtained from some beneficiaries, the trustees will have a partial defence to breach of trust against claims by those beneficiaries but not against the other beneficiaries.

Question 24

What actions are available to trustees after they have breached the trust?

Answer 24

· Beneficiary instigation / consent / acquiescence.
· Statutory limitation rules / defence of laches.
· Statutory relief under 61 TA 1925.
· Civil Liability Contribution Act 1978.

Question 25

Instigation, consent and acquiescence?

Answer 25

Trustees will also have a defence against beneficiaries who instigate or request the breach. Again, this will only provide a partial defence if there are other beneficiaries who did not.
Finally, even if the beneficiaries did not consent to the breach before it was carried out, they may subsequently affirm the action of the trustees. A trustee who has committed a breach may therefore have a defence of acquiescence against beneficiaries who have indicated (by their words or actions) after a breach that they consent to the action taken.

Question 26

Impounding a beneficiary’s interest?

Answer 26

Where a beneficiary instigates or requests a breach, the trustees will only have a defence against that particular beneficiary but they may also be able to impound the beneficiary’s interest. This means using some or all of the instigating beneficiary’s share of the trust fund to indemnify the trustees against a claim by the other beneficiaries.
The court has discretion to impound a beneficiary’s interest in such circumstances under s 62 TA 1925.

The statutory power to impound beneficial interests also applies to cases where the beneficiary has consented to the breach but only where the consent was provided in writing.

The courts also have a common law discretion to impound a beneficial interest in cases of consent. The common law discretion does not require the consent to be in writing but does require the beneficiary to have benefitted from the breach.

Question 27

Statutory limitation?

Answer 27

Under s21(1)(a) Limitation Act 1980 the limitation period for bringing a claim for breach of trust is six years from the breach. However, this only applies to claims by beneficiaries with interests vested in possession. For beneficiaries with future interests, the limitation period only starts to run when their interest vests in possession.
The limitation period does not apply to fraudulent breaches or proprietary claims against the trustee (i.e. claims to recover trust property or its traceable proceeds from trustee).
If a trustee is also a beneficiary, and receives an unfairly large distribution from the trust, only the excess can be recovered after the normal six year period (unless the trustee acted dishonestly or unreasonably in making the distribution, in which case it may be possible to make a claim for the full amount of the payment).

Question 28

Equitable defence of laches?

Answer 28

In cases where the statutory limitation period has not yet expired, trustees may still be able to rely on an equitable doctrine known as ‘laches’ to argue that a beneficiary has waited too long to bring a claim.
Whether a defence of laches will be successful is highly fact-specific. It requires the trustees to demonstrate that the beneficiary knew of a breach but has delayed their claim unacceptably, making it unconscionable for the beneficiary to assert their beneficial interest.

Question 29

Section 61 TA 1925?

Answer 29

This gives the court discretion to excuse a trustee in circumstances where the trustee ‘acted honestly and reasonably, and ought fairly to be excused for the breach of trust’.
The trustees bear the burden of establishing the three requirements ie:
· Honesty.
· Reasonableness.
· They ought ‘fairly’ to be excused.
The court then has a wide discretion to consider all the circumstances of the case. The court will not use s 61 lightly, as it may deny the beneficiaries a remedy

Question 30

Claims against third parties for trustee liability?

Answer 30

rustees who find themselves potentially liable for breach of trust might also consider the possibility of taking action against third parties. In particular, we have already considered the situation in which the trustees have acted in reliance upon advice from a professional such as a lawyer or a financial adviser. If that advice was negligent, the trustees should consider making a claim against the adviser in their capacity as trustee.

Question 31

Full indemnity?

Answer 31

In very rare cases, the court may even award a contribution amounting to a full indemnity (s2(2)). This is likely only in cases where:
· A particular trustee is morally culpable for the breach, such as cases where the trustee has misappropriated trust property for their own benefit.
· A trustee is also a beneficiary.
· A trustee acts as solicitor to the trust and the breach is committed in reliance on their advice.
The court will not necessarily grant an indemnity in such circumstances, as demonstrated by comparing the following cases involving solicitor trustees.

Question 32

Practical steps after breach has occurred?

Answer 32

· Check the trust instrument for an exemption clause.
· Consider whether any of the following may provide a full or partial defence:
· Reliance on court directions.
· Instigation / consent / acquiescence.
· Statutory limitation rules / laches.
· Statutory relief under 61 TA 1925.
· If there is likely to be a successful claim, check for relevant insurance (and inform the insurer of the claim) or an indemnity from other beneficiaries.
· Identify whether there are any potential claims against third parties (such as financial or legal advisers to the trustees who may have given negligent advice).
· If a trustee is required to pay equitable compensation, consider Civil Liability Contribution Act 1978 claims against co-trustees or third parties.

Question 33

What options are available for trustees in instances where there are missing or unknown beneficiaries?

Answer 33

· Benjamin Orders
· Section 27 Trustee Act 1925 (‘TA 1925’) notice
· Retaining a fund
· Payment into court
· Missing beneficiary insurance
· Obtaining an indemnity from beneficiaries

Question 34

Benjamin Order?

Answer 34

This is a court order permitting the trustees to distribute on the basis of a particular assumption, which will depend on the circumstances of the particular case.
This is useful in the situation where the trustees know of the existence of a beneficiary but are unable to locate them. A Benjamin Order can be granted allowing the trustees to distribute the trust fund on the basis that the missing beneficiary is presumed dead.
Before an order is awarded the trustees must make full enquiries to attempt to establish the true position and demonstrate there is no reasonable prospect of knowing the true position without disproportionate expense.
The order relieves the trustees from personal liability if they distribute the trust property but the assumption turns out to be incorrect.
However, a disappointed beneficiary or creditor can make a claim against other beneficiaries to whom the property had been distributed.

Question 35

s 27 TA1925 notice?

Answer 35

To prevent liability to unidentified beneficiaries, the trustees may publish a notice of their intention to distribute to known beneficiaries two months after the advertisement. This puts unknown beneficiaries on notice that they must identify themselves to the trustees. After the two month notice period, the trustees may distribute to known beneficiaries and will have no personal liability to the unknown beneficiaries.
The notice must be placed in (i) the London Gazette, (ii) a newspaper circulating in the area in which any land held on trust is situated, and (iii) any other newspaper which is appropriate (for example, if the deceased owned a business the relevant trade paper may be an appropriate place to advertise).

Question 36

Retained funds?

Answer 36

for the trustees to retain a fund setting aside trust assets in order to be able to discharge liabilities if missing beneficiaries come forward after distribution.
This is useful in cases where the trustees are able to identify all beneficiaries but cannot locate all of them.

Retaining a fund is also an option in cases where the trustees remain unsure as to whether they have identified all potential beneficiaries. They may choose to distribute to the known beneficiaries but hold some money back in case other beneficiaries come forward in future

Question 37

Payment into court: s 63 TA 1925?

Answer 37

n circumstances where trustees can establish genuine doubt as to the location of beneficiaries is to distribute to those beneficiaries they can find and pay the remaining funds into court: s 63 TA 1925.

This gives the court legal control over the funds and effectively allows the trustees to retire. This is likely to be a more attractive option to the trustees than retaining a fund, because it means that they do not have open-ended administrative duties in respect of the trust fund.
However, from the court’s perspective this course of action is a last resort which should only be taken if all realistic options for tracing the beneficiaries have failed. It is not an easy route for trustees to free themselves from their obligations.

Question 38

Missing beneficiary insurance?

Answer 38

Possible in the case of unknown and missing beneficiaries. Doesn’t protect against claim but trustee should be able to recover f

Question 39

Indemnity from beneficiaries?

Answer 39

Possible in the case of unknown and missing beneficiaries. Doesn’t protect against claim for breach of trust but trustee can try to recover from indemnifying beneficiary.

Question 40

True or false: Missing beneficiary insurance prevents beneficiaries from making a claim against the trustees.

Answer 40

False

Insurance does not prevent personal liability for breach of trust but should enable the trustees to recover from the insurer.

Question 41

Limitation period for personal claims against trustees?

Answer 41

A personal claim for breach of trust is subject to a six- year limitation period; s 21 of the
Limitation Act 1980. This period usually starts to run from the date of breach. However, as
against a minor, time only starts to run when they reach the age of 18 years; and as against
remainder beneficiaries, time only starts to run when their interest falls into possession

The six- year period does not run against trustees who have committed a fraudulent breach
of trust.

Question 42

Equitable indemnity?

Answer 42

A trustee who is sued for breach of trust can recover a full indemnity from a co- trustee who:
(a) acted fraudulently when the others acted in good faith; or
(b) is a solicitor who exercised such a controlling influence that the other trustees blindly
followed the solicitor’s advice; or
(c) has benefited personally from the breach; or
(d) is also a beneficiary and benefited from the breach (in which case, the indemnity is
limited to the value of their equitable interest, which will be impounded to meet the
claim).

Question 43

Contribution?

Answer 43

Pursuant to s 1 of the Civil Liability (Contribution) Act 1978, the court can also order a co-
trustee to make a contribution that is just and equitable having regard to the extent of that
co- trustee’s responsibility for the loss. That contribution can be anything up to 100% of the
compensation ordered. In deciding how to exercise its discretion, the court will primarily
reflect on the blameworthiness of the co- trustees.

Question 44

Question 1
A solicitor and a man are trustees of a trust fund worth £2.5 million. Two years ago, the
solicitor proposed that the trust invest all its funds in the shares of a retail, high- street
company. The man, who is a retired independent financial adviser, agreed. The trustees
were so confident that the investment was a good one that they never reviewed the
profitability of the company during the subsequent two years, notwithstanding numerous
reports that suggested the company was losing out to online trade. The shares are now
worthless. The beneficiaries have written to each trustee separately to advise that they
intend to bring a claim to secure compensation.
Which of the following best describes who might be liable under any future claim
brought by the beneficiaries?
A The beneficiaries can only bring a claim against the solicitor because she was the
person who suggested the investments.
B The beneficiaries can only bring a claim against the retired financial adviser given that
the subject- matter of the claim is a breach of investment duties.
C The beneficiaries must bring a claim against both trustees and can secure 50% of the
loss from each trustee.
D The beneficiaries can bring a claim against the retired financial adviser for the full loss,
but he will be entitled to an equitable indemnity against the solicitor.
E The beneficiaries can bring a claim against the retired financial adviser for the full loss,
but he may be entitled to a contribution from the solicitor.

Answer 44

Option E is correct. Both the retired financial adviser and the solicitor may be in breach of
trust by failing to comply with those duties pertaining to investments set out in the TA 2000.
Both trustees appear to have failed to consider the standard investment criteria (especially
the need for diversification) before deciding to invest £2.5 million in a single company, and
have failed to review that investment from time- to- time (see Chapter 10). As both trustees
have breached trust, their liability for any losses caused is joint and several, enabling the
beneficiaries to bring a claim against either or both trustees for the full loss.
If the beneficiaries bring a claim against only the retired financial adviser, he may be
able to secure a just and equitable contribution from the solicitor under the Civil Liability
(Contribution) Act 1978, the court having regard to the extent of the solicitor’s responsibility
for the loss.
Options A and B are wrong. As both trustees have breached trust, their liability is joint
and several. The beneficiaries are not forced to bring their claim against only one of the
trustees.
Option C is wrong. As both trustees have breached trust, their liability is joint and several.
The beneficiaries can bring their claim against any one of the trustees for the full loss
sustained.
Option D is wrong. It is very unlikely that the retired financial adviser will be able to secure
an equitable indemnity from (ie pass on 100% of the loss to) the solicitor. The facts do
not suggest that the solicitor exercised such an influence that the retired financial adviser
blindly followed her investment proposals.

Question 45

Question 2
A husband and wife are trustees of a trust fund created in 2018 for their nephew and niece
should they reach the age of 25 years. The nephew is aged 23 years and the niece is
aged 20 years. The trust fund is valued at £800,000. Six months ago, the husband and wife
separated. The husband told the wife that whatever decisions she took in running the trust
would be ‘OK with me’.
The nephew has recently asked the trustees to advance him the sum of £500,000 to help
start a business. The wife agreed and she arranged for the sum to be transferred to the
nephew.
The niece is unhappy about this and has advised that she intends to bring a claim.
Which of the following best describes against whom the niece can bring a claim?
A The niece can bring a claim against the husband; he has no defence; he may be
entitled to a contribution from the wife.
B The niece can bring a claim against the husband; he has no defence; he may be
entitled to an equitable indemnity from the wife.
C The niece can bring a claim against the husband; however, he will be able to
successfully persuade the court that it should excuse him from liability.
D The niece can only bring a claim against the wife, as only the wife has breached trust.
E The niece cannot bring any claim, as there has been no breach of trust.

Answer 45

Option A is correct. Both the husband and the wife may be in breach of trust. The wife has
advanced more capital than the nephew is entitled to (his entitlement is limited to the value
of his presumptive share, being £400,000 in this case – see Chapter 8). The husband has
remained passive in that breach and has failed to watch over the wife’s running of the trust
(see Chapter 9). As both trustees are in breach of trust, they are both potentially liable to a
claim on a joint and several basis. The niece can bring a claim against the husband.
If the beneficiaries bring a claim against the husband, he may be able secure a just and
equitable contribution from the wife under the Civil Liability (Contribution) Act 1978, the
court having regard to the extent of the wife’s responsibility for the loss.
Option B is wrong. The facts do not suggest that the husband will be able to secure an
equitable indemnity against the wife.
Option C is likely to be wrong. The courts might excuse a trustee from liability under s 61
of the TA 1925 if that trustee has acted honestly and reasonably and ought fairly to be
excused. As a matter of public policy, the courts are reluctant to excuse passive trustees
from the consequences of their inactivity. The husband therefore is unlikely to secure the
benefit of this defence.
Option D is wrong. The husband’s passivity in the running of a trust is a breach of trust. He
is therefore jointly and severally liable for the loss that the niece has suffered.
Option E is wrong. The £500,000 advancement to the nephew is a breach of trust because
the trustees have advanced more than they should have under s 32 of the TA 1925.

Question 46

Question 3
Ten years ago, a banker and an accountant were appointed as trustees of a trust fund
for a teacher for life, remainder to the teacher’s son. The teacher died last year, leaving
everything she owned to her daughter. The accountant has recently been made personally
bankrupt.
Upon their appointment, the trustees appointed a financial adviser in writing to invest the
trust fund, having interviewed a number of potential candidates. The adviser made a series
of investments and has subsequently met with the trustees at least once every six months to
explain that in his view there was no need to change those investments.
The son recently requested a list of the trust’s investments and has complained to the
trustees that the trust fund has not been properly invested.
Which of the following best describes why a personal claim brought by the son against
the accountant would fail?
A The accountant is bankrupt.
B Any breach of trust occurred while the mother was alive, such that her daughter is the
only person entitled to bring a claim.
C The court will excuse the accountant from any liability.
D The claim is now time- barred.
E The accountant has not breached trust.

Answer 46

Answer
Option E is correct. Trustees are not vicariously liable for the investment choices made by an
agent (see Chapter 10). Trustees are only liable if they have breached a personal duty when
delegating such decisions (eg by failing to properly select or appoint an investment agent or
by failing to review their performance). The banker and accountant do not appear to be in
breach of such duties, and therefore no claim can be brought against the accountant.
Option A is wrong. If the son were able to bring a claim, the fact that the accountant is
bankrupt has no bearing on the merits of that claim (although the son would need permission
from the court to start proceedings). However, the fact that the accountant is bankrupt
should make the son think again before bringing any claim. The son will, at best, be an
unsecured creditor in the accountant’s bankruptcy and therefore is unlikely to get much (if any)
compensation even if the claim were to be successful.
Option B is wrong. Had the accountant done something wrong in appointing the financial
adviser that caused a loss to the trust, the person who could bring proceedings would be
the son (as a beneficiary under the trust) and not the daughter (who has no interest under
the trust).
Option C is wrong. As the accountant has done nothing wrong, there is no liability to excuse
him from.
Option D is wrong. The son’s ability to bring a claim in these circumstances would not be time-
barred because the six- year limitation period for bringing a claim for breach of trust would not
start to run against him until his interests came into possession, which only happened last year
when the teacher (the life tenant) died.

Question 47

A woman died leaving an estate comprising two bank accounts and a freehold property. Her will divided the residue of her estate equally between her son and her daughter.

Five years ago the woman and her son (who was then 22) had a serious argument and her son left the family home. None of the family has seen him since. The personal representatives (PRs) have questioned other relatives and friends to attempt to ascertain the son’s whereabouts but with no success.

Three months ago the PRs placed advertisements complying with s.27 of the Trustee Act 1925 in the London Gazette and in a local newspaper. The PRs have had no responses to these notices from either the woman’s son or anyone claiming to be a creditor of the estate. They propose to distribute the entire residue to the woman’s daughter and pay only the creditors they currently know about.

Which of the following statements best describes the PRs’ protection from claims by creditors and beneficiaries as a result of the enquiries made and s.27 of the Trustee Act 1925 notices placed?

A. The PRs will be protected from claims by new creditors and unknown beneficiaries but not from a claim by the son.

B. The PRs will be protected from claims by new creditors but not from unknown beneficiaries or the son.

C. The PRs will be protected from claims by new creditors, unknown beneficiaries and the son.

D. The PRs will not be protected from claims by new creditors but will be protected from claims by unknown beneficiaries and the son.

E. The PRs will not be protected from claims by new creditors or unknown beneficiaries but will be protected from a claim by the son.

Answer 47

A - The PRs will be protected from claims by new creditors and unknown beneficiaries but not from a claim by the son.