Trustees' liability

Question 1

What are the principles governing a breach of trust in general?

Answer 1

• no doctrine of mens rea - intention of the trustee not relevant
• can be an act or omission
• depends on whether they have fallen below the statutory standard of care
• actions can be personal or proprietary (tracing)
• a breach does not automatically lead to liability

Question 2

When does a breach lead to liability?

Answer 2

A trustee is only liable if the breach led to a loss to the trust or to an unauthorised gain by the trustee

Question 3

Are trustees liable for their co-trustees?

Answer 3

No, trustees are liable for their own breaches and not vicariously liable for co-trustees. However they may have committed a breach by neglecting their duties even if they have not actively committed a breach

Question 4

Are trustees liable for breaches before they were appointed?

Answer 4

No however on being appointed the trustee has a duty to ensure proper administration of the trust by inspecting trust documents so if a breach is discovered and the trustee fails to take action then they could be liable for a breach by omission

Question 5

Is a trustee liable for breaches after they retire?

Answer 5

No but a trustee cannot retire to escape liability, they remain liable for breaches committed whilst they were in office

Question 6

Is a trustee’s liability joint or several?

Answer 6

Both. Beneficiaries can sue all, some or anyone of those liable. Beneficiaries can choose to sue only one trustee if they have money and the rest do not.

Question 7

When can a trustee claim indemnity from a fellow trustee or beneficiary?

Answer 7

• where that co-trustee was fraudulent
• where the co-trustee was a solicitor-trustee who exercised a controlling influence over the other
• where a beneficiary who is also a trustee has exclusively benefitted from the breach
• where the beneficiary has instigated the breach or consented to it in writing

Question 8

What is the remedy for breach of trust?

Answer 8

Compensation as the beneficiaries must prove that the breach resulted in a loss to the trust fund

Question 9

What is the remedy for breach of fiduciary duty where the trustee has made an unauthorised profit?

Answer 9

Restitution

Question 10

What are the protections/defences available to trustees being sued for breach of trust?

Answer 10

• exemption clauses
• the court may relieve them of liability
• the defence of beneficiary involvement
• limitation period
• doctrine of laches

Question 11

What is an exemption clause?

Answer 11

The trust may contain a clause that exempts or limits the trustee’s liability for the breach of trust - fraud however cannot be excluded even if expressly excluded in the trust

Question 12

When may the court relieve the trustee of liability?

Answer 12

If it appears that the acted with honesty and reasonably and ought fairly to be excused. Both lay and professional trustees can claim this but less likely to be granted for professional

Question 13

What is the defence of beneficiary involvement?

Answer 13

The trustee has a valid defence if they can show that the breach happened due to beneficiary involvement or the beneficiary excused the breach

Question 14

What are the requirements for consent or instigation by a beneficiary?

Answer 14

• the beneficiary must be sui juris
• they need not be aware that the actions amounted to a breach so long as they full understand the actions
• there is no need to show the beneficiary benefitted from the breach
• it is only available for that specific beneficiary not all the beneficiaries

Question 15

When will a beneficiary have acquiesced in the breach?

Answer 15

When they know about the breach but decide to take no action against the trustee. Delay in taking action is evidence of acquiescence. It is determined by the court

Question 16

What is the limitation period for breach of trust?

Answer 16

6 years from the date on which the right to take action accrued. The countdown begins when the beneficiary’s interest comes into possession

Question 17

What are the exceptions to the limitation period?

Answer 17

• there is no limitation period against a trustee who was party to fraud
• no limitation period in actions to recover trust property or its proceeds from a trustee
• the limitation period only starts when a beneficiaries disability has ended so either they turn 18 or die
• in fraud, concealment, or mistake time only starts from when the beneficiary discovers the fraud, concealment or mistake

Question 18

Does the limitation period apply to claims for equitable remedies?

Answer 18

No, the court is not bound by the 6 year period so can refuse to grant the equitable remedy even if brought within the 6 years