Trusts Flashcards
When does a resulting trust arise
(1) An interest under an express trust fails
(2) An express trust fails to exhaust the beneficial interest
(3) A person makes a voluntary transfer or purchase in the name of another
=> beneficial interest reverts to the settlor or the settlor’s estate
When does a constructive trust arise
Equitable remedy imposed by a court to prevent an unjust enrichment of one person at the expense of another as the result of wrongful conduct (eg fraud, undue influence, breach of fid duty eg when a 3rd party receives trust property with knowledge of a trust)
Express trusts requirements
3 certainties
Trust can be fixed (ie trustees have no discretion as to how (who or how much) the property is to be allocated among the inds) or discretionary (ie trustee under a duty to select Bs from a call and decide how much they are to receive)
Certainty of intention
Must be imperative, no precatory words (ie not a mere hope/wish/suggestion)
Must intend trust to take effect immediately
Void for uncertainty of intention => passes as outright gift to person who would’ve been the trustee
Certainty of subject matter
Must identify the trust property clearly (objectively)
Need not separate intangible items if indistinguishable (eg identical shares)
Certain if the settlor gives a workable formula for calculating the amount ie a mechanism to deal with uncertainty (again - objective)
Void => property reverts to settlor
Certainty of objects
Ie those who will/may benefit must be certain
Fixed trust => complete list test
- Ie valid if possible to draw up a comprehensive list of each and every beneficiary otherwise trust fails
- Description of beneficiaries requires conceptual (words need a precise, objective meaning) and evidential (must identify each and every member of the class) certainty
Discretionary trust => give postulant test
- Not necessary for whole class to be ascertainable as long as description of class is clear enough to enable court to decide whether Ts have acted within their powers in paying funds to a particular individual
- need conceptual certainty but not evidential
BUT trust can still fail due to administrative unworkability (ie objects too wide/large to form a class) or capriciousness (ie irrationality)
Objects uncertain => resulting trust in favour of the settlor or the settlor’s successors is presumed
Beneficiary principle
Trust cannot exist without ascertainable human Bs (unless honorary trust or charitable trusts - enforceable y AG)
Who can be a trustee
Anyone who has capacity to acquire and hold property for their own benefit
Ie can be private ind, trust corp but NOT a minor
Number of trustees required
No min or max number of Ts required
Trust of land => max 4 (and usually min 2)
What happens if trustee dies, refuses to accept app, or resigns?
Trust will not fail
Court appoint successor T unless it is clear that settlor intended trust to continue only so long as a particular T served
BUT absence of a T at the creation of a trust may cause an attempted inter vivos trust to fail for lack of delivery
Testamentary trust will not fail for lack of a T
Rules against perpetuity
Prevent a settlor from creating interests under a trust which take effect long into the future
Against remoteness of vesting - ie Property must vest within 125 years (is otherwise void)
Against inalienability
- Applies to trusts for non-charitable purposes (ie honory trusts)
- Trust period limited to 21 years or for rest of a living person’s life + 21 years
- Void from the outset if the trust capital is not freely alienable within the relevant perpetuity period
- Eg phrases such as ‘as long as the law allows’ upheld (assumed to be 21 yrs)
Creation of inter vivos trusts (declaration)
aka tell the trustee to hold the property on trust (ie declaration of trust)/declare self as trustee
If self must demonstrate by words or conduct that they intend to be legally bound
Over personalty => no formalities
Over land => evidenced in signed writing
Creation of inter vivos trusts (trust constituted/vested in Ts)
Settlor trustee => constitution is automatic (so no need to look at formalities for transfer)
Settlor not trustee => must transfer the property (ie legal title in the property) to the trustees (all) (so look at formalities below)
Formalities:
Land => deed which is sent to HMLR
Shares => Complete Stock Transfer Form and send with share certificate to donee (Donee then sends to the company in order to be registered)
Chattels => passed by physical delivery of the asset to the transferee, or by a deed
Legal title to a bank account passed by providing a signed, written notice of the transfer to the bank
Formalities to create an inter vivos trust fail/not followed
=> will fail (equity will not assist a vounteer)
BUT special rules apply/help?
- every effort test
- donatio mortis causa
- Fortuitous vesting (rule in Strong v Bird)
- proprietary estoppel (/unconscionability)
Every effort test
if the donor has done all legally required of him to transfer the property and effectively relinquished control (ie going past the point of no return)
=> trust is enforceable
(usually where deed/transfer has been executed and passed to donnee, but donnee has failed to register)
Donatio mortis causa (gift by reason of death)
May be enforced if:
- Donor delivers the property to a donee while in contemplation of imminent or impending death
- Requires objective belief that death is imminent
- With the intention that the property be given to the donnee if the donor dies and be returned if the donor survives (ie is conditional on death); and
- Donor dies
Delivery must be effected (whether actual or constructive, eg a car by delivery of the keys to it)
Fortuitous vesting (rule in Strong v Bird)
Trust enforced if:
- Property vests in recipient as PR/executor on donor’s death
- Intention to create immediate gift (or trust) of specific property (Not conditional on an event in the future)
- Gift fails due to lack of formalities
- Intention unchanged up until death (BUT if in the meantime the donor deals with the property in some way that suggests it is still owner by the donor the rule will not apply)
Proprietary estoppel
Enforced if:
- Donor executes transfer document
- Donor has told donee of gift
- Donee has acted in reliance of gift (to their detriment – proprietary estoppel is an exception to the rule that equity will not assist a volunteer)
- Unconscionable to recall the gift
Formalities of a testamentary trust
Wills Act – in writing; signed by testator in joint presence of two witnesses who sign
All terms must be incl (though may be later edited by a codicil, provided that it is also witnessed and signed as above)
3Cs, B principle and rules against perpetuities satisfied
Will acts as declaration and constitution (so no requirement for transfer as property wil be vested in the Ts by the testator’s PRs after death)
Secret v half secret trusts
Fully secret => looks like an outright gift to a nominated person (in reality the T)
- B must prove terms of trust by clear and convincing evidence
- enforceable even if communication describing the trust was not made until after the will was executed
- BUT fails if legatee (ie proposed T) expressly refuses or did not know until after settlor’s death
Half secret => mentions that trust exists but keep identity of B secret
- B can enforce provided their identity was communicated ot the T AT THE TIME OF OR BEFORE making the will and language of will is consistent with that communication
- Fail => resulting trust for estate
Types of trust interest
In possession (can enjoy immediately- often life interest) vs in remainder (interest is ‘postponed’ as have to wait until another beneficiary’s right to enjoyment expires)
Vested (no conditions attached) vs Contingent (dependent on future event or beneficiary not yet in existence)
Absolute (receive capital) vs Limited (receive income only)
Rule in Saunders v Vautier
Bs can end trust if:
- 18+ and of sound mind
- All agree
- Are all in existence and ascertained, and together are absolutely entitled
Can apply to FTs or DTs
- FT => must be no diminution in the value of B’s interests
- Dt => difficult to engage in rule if large group, but possible if small
What are resulting trusts
= implied by law based on presumed by unexpressed intention of the settlor
=> trustees will hold the property on RT for the settlor/their estate
Arise where:
(1) Trusts arising following a voluntary transfer or purchase in the name of another; or
(2) Trusts arising on failure to exhaust the B interest under an express trust
When does a presumption of a RT arise in purchase money cases
Presumption of RT from Y to X mathematically equivalent to percentage of the contribution price if:
(1) X transfers purchase money to seller; and
(2) Property is put in Y’s name; and
(3) Payment is made at the time of the acquisition of the property (ie contribution to INITIAL purchase price => payment of mortgage instalments and other outgoings after the date of the purchase will not give rise to a RT)
Burden on party claiming to be B of a RT to prove by clear and convincing evidence that they supplied the consideration
When does a presumption of a RT arise in voluntary transfer of property cases
ie there is a presumption of a resulting trust from Y to X if:
(1) X transfers property to Y;
(2) No consideration is supplied; and
(3) There is no evidence of X’s intention
Applies only in the absence of evidence of X’s intentions
Presumption of advancement (ie gift)
Applies where person making voluntary transfer/providing purchase money is regarded as being under an obligation to provide for the other party
Presumption of advancement instead of a RT if:
- X is Y’s husband or fiancé
- X is Y’s father
- X is in loco parentis of Y ie taken on father’s responsibility to provide financially for the child during their infancy
Limitation - No authority to apply reverse (eg mother to child), but loco parentis been applied mother to child when mother had sole responsibility for child as a single parent
Rebutting presumptions of advancement/RT
Must prove intention of transfer
Presumption of advancement is easily rebutted (Esp when child is over 18 and financially independent)
Evidence admissible to rebut presumptions =
- Surrounding circumstances at the time of the transfer
- Acts or declarations made by ind before or at time pf the purchase or transfer
Trusts of the family home
Depends on whether (1) legal ownership is in one or both names, and (2) whether there has been any express declarations of trust
Trusts of the family home where legal ownership in both names - express decelaration of trust
=> legal title held as joint tenants => parties will have equal shares if the property is sold
TiC in equity – declaration of trust conclusive in the absence of fraud or mistake (even if financial contributions not equal)
JT in equity – B interest held in equal undivided shared and will be distributed equally on sale of their property
Trusts of the family home where legal ownership in both names - no express declaration of trust
Usual presumption = equity follows the law (unless parties prove common intention that B interests should be held differently)
Proving common intention => look at entire course of conduct between the parties
Inlc things like: Advice and discussions at the time of the purchase, Contributions to mortgage payments, whether children living at property etc
ie key = shared intentions about the ownership of the property
If nothing agreed, court will determine a fair share with regards to the whole course of dealings – mortgage contributions, council tax, utilities, repairs insurance, outgoings
Trusts of the family home where legal ownership in only one name - express declaration of trust
Need to be evidenced by signed writing (+ an be made at time of conveyance or later date)
Declaration of truts usually conclusive
BUT can be avoided when party able to demonstrate:
(1) fraud/mistake or undue influence
(2) proprietary estoppel, ie (gives rise to equity):
- assurance that C will have some interest in the property (can be by conduct)
- C relied on the rep or assurance
- In reliance on this assurance, C acted to their detriment (causal element required)
Trusts of the family home where legal ownership in only one name - no express declaration of trust
Common intention consructive trust may arise
Courts impose a CT where:
(1) Parties had a common intention (express or inferred) that C should have an interest in the property; and
(2) C acted to her detriment in reliance on that common intention
Express common intention
- Actual communication between the parties at the time of the purchase or (exceptionally) at a later date
- Excuse given by legal owner at time of purchase as to why C should not have legal title = express common intention
- Discussions must concern proprietary interests => talking about living arrangements or occupation will be insufficient
Inferred common intention
- Where it would be unconscionable for the legal owner to assert their beneficial interest in the property
- Poss from: Direct contributions to purchase price, Mortgage payments, Payment of household expenses, Substantial renovations to the property by one party
Quantifying the share - looks to parties intentions
Charitable trusts (general)
B principle, certainty of objects, inalienability rule do not apply
Remoteness of vesting rule – initial gift to charity must vest within the perpetuity period, but gift from one charity to another can take effect at any distance in time
Cy-pres doctrine (charitable trusts)
Ie if impossible to give settlor’s intention effect, allows a court to redirect the trust to a purpose ‘as near as poss’ to the charitable purpose
Time gift fails important:
- Initial failure of gift => general charitable intention required by settlor
- Subsequent failure of gift => no need to show general charitable intention
Indications of general charitable intention:
- Other gifts to charity (looks at will as a whole)
- Gift to specific name charity => general charitable intention more difficult
- Detailed plans for establishment of charitable trust but insufficient funds => less likely
- General charitable intention not required where money has been collected or raised and the donors are not known, even in cases of initial failure
Formation of a valid charitable trust
Must:
(1) Have a charitable purpose (ie fall within s3(1) CA 2011)
- NOT polictical purposes
(2) Have a sufficient public benefit (ie identifiable benefit to the public or a section of the public)
- must not be restriced to those that have a personal nexus
- BUT incidentally benefits some private inds => does not prevent trust from being charitable
(3) Must be exclusivley charitable (unless merely incidental, or charitable part of trust can be severed where Ts are to divide gifts between some charitable and non charitable purposes)
Non-charitable purpose trust
Generally must satisfy BP => trust for an abstract purpose which is not charitable will fail UNLESS:
- Denley trusts
- Trusts for maintenance ot particular animals
- Trusts for the saying of private masses
- Trusts for the erection and maintenance of monumetns and graves
Denley trust (=> underlying human Bs)
- ie succeed if ascertainable inds have a direct or indirect benefit – sufficiently tangible
- Have power to enforce trust by injunction if trustees are in breach
Honory trusts
- valid but unenforceable (as no human Bs to enforce) - But if T fails to do so => RT will be imposed for the settlor or settlor’s estate
- May not continue beyond perpetuity period (ie 21 years) (so will fail unless specific provisions made limiting it in duration)
Retirement of trustees
T can retire without replacement if:
- There are at least two trustees remaining (or a trust corporation)
- He declares his discharge by deed
- The other trustees consent by deed
Else may procure appt of a new T in their place on the basis that they ‘desire to be discharged’ (ie above)
Removal of trustees
- By Bs
- In respect of replacement of Ts
- By Court (eg for sig breach of trust)
Initial appointment of trustees
Usually appointed in trust instrument
If not, court can appoint under inherent jurisdiction or statute
T must have notice of the trust and expressly/impliedly accept the office of T
Not obliged to accept trust, but cannot accept in part
Subsequent appointment of trustees
Settlor retains no power to appoint new Ts unless express provision in the trust instrument
=> statutory rules on appt/retirement/removal of Ts apply
Power to appoint additional trustees
Unless trust corp, person may be designated in trust instrument as having power to appoint additional Ts (otherwise existing Ts have this power)
BUT power cannot be used to increase no of Ts to more than 4 (even if not a trust of land)
Can increase numbers if a T is being replaced (still max 4 if land)
Replacement of trustees
Appointed to replace a T who:
- Dies
- Refuses to act
- Remains outside UK for a continuous period exceeding 12 months
- Is unfit to act (eg bankrupt)
- Is incapable of acting (eg mental incapacity)
- Desires to be discharges
Who may appoint:
- Person named in trust instrument; or if none
- Surviving or continuing Ts; or if none
- PRs of last surviving T; or if none
- The court
Appointers not obliged to replace all outgoing Ts, but may do so
Appointment must be in writing but does not need ot be by deed (though commonly used)
Retiring T should be a party to an appointment, but a T removed against their will is not a necessary party
Power of Bs in appointing Ts
No general power to control Ts unless a breach of trust has been committed
BUT have power to select Ts where:
- No person nominated in trust instrument to appoint new Ts
- Bs under the trust are of full age and capacity, and taken together are absolutely entitled
- Bs act unanimously
Satisfied => Bs may by written instruction, order one or more of the existing Ts to retire and order existing Ts to appoint a new T or Ts of the B’s choice
Power of the court in appointing Ts
Express power to make an order appointing new Ts either in substitution for or in addition to existing Ts
Whenever expedient to do so, and it is found inexpedient, difficult, or impracticable to do so without the assistance of the court
Fiduciary duties of Ts - not to profit from trusteeship
Any profit => equity imposes constructive trust
Fiduciary duties of Ts - not to profit from trusteeship (directors fees)
Obtains remunerative employment by viertue of trusteeship => holds renumeration on CT for the trust Bs
BUT if T would have been appointed to position even without voting rights attached to the company shares, rule does not apply
Fiduciary duties of Ts - not to profit from trusteeship (use of information and opps)
Fiduciary is accountable if makes a profit out of info/opps which come to him in his fiduciary position (ie where obtained info directly through fiduciary position)
Even where no obvious conflict of interest => strict liability
Fiduciary duties of Ts - not to profit from trusteeship (remuneration)
Trustees cannot demand payment for their services (though may recover out of pocket expenses)
Unless authorised by:
- Charging clause in the trust instrument (usually only professional trustee at their normal rate);
- Bs consent (if of full age and capacity)
- Court order (ie When T is exceptionally onerous or when T has performed exceptional services)
- Trust corp may charge reasonable renumeration (even if sole T)
- Professional trustee charges (Trustee Act 2000)
ie professional trustee (other than trust corp) may charge reasonable numeration for their services, provided that:
(1) They are not sole trustee
(2) Co-trustees give their written consent; and
(3) No express provision in the trust instrument relating to the Ts charges
Fiduciary duties of Ts - duty not to purchase trust property
Ie self-dealing rule
Strict liability so fairness/context is irrelevant (even if T pays full value or purchase is made in open market)
Automatically voidable
Court may permit in exceptional circs
BUT Ts may purchase B interest
- Ie fair dealing rule
- But voidable if T cannot show that T paid a fair price, made full disclosure of all material facts, and in no way abused their position
Duties of Ts (general)
Must enquire as to trust property, take control of it, and ensure its preservation - Incl seeing that legal title is vested in all trustees and that all trust property is properly segregated form the Ts personal assets
Duty to act jointly
- Each T must remain active in running the T, and Ts must act unanimously in the exercise of their discretions
- May act by majority decision if clause in trust instrument
Duty to observe terms of the trust (ie in trust instrument)
Duty to take possession of trust property
Duty to keep accounts and disclose information (+ must produce them to Bs when required)
Duty to act impartially
Duty of confidentiality
Duty to invest (see separate)
Duty not to purchase trust properyt (see separate)
Duty not to profit from trusteeship (see separate)
Duty of care of Ts
Standard can be modified in the trust instrument
Statutory duty of care (Trustee Act 2000)
- ie such care and skill as reasonable in the circumstances, taking into account any special knowledge or experience he holds himself as having
- Professional trustees => held to higher standard
General standard of care
- Statutory doesn’t apply => traditional test remains
- Ie act with the ‘prudence of an ordinary man of business’ acting in relation to their own affairs
- Applies when T exercising their statutory powers of maintenance and advancement
Ts duty to act personally
Ie have no general power to delegate their functions
Exceptions:
(1) Administrative functions
- Trustees can delegate most administrative functions to agents (s11) but cannot delegate:
a) ‘dispositive’ powers or discretions which involve the distribution of trust capital/income amongst beneficiaries
b) Power to appoint new trustees
- Must exercise due care in selecting and supervising the agents (in done in accordance with stat duty of care => Ts not liable for acts/omissions of the agents)
(2) Investment decisions
- Provided certain decisions are met (as below)
(3) Power of attorney if he wishes to delegate all his functions
- To endure fixed term not exceeding 12 months
- Trust remains liable for acts and omissions of attorney as if they had acted personally
Ts duty to invest - general
Trustees must nesure that:
- Investments they select are authorised either by statute or trust instrument
- They take into account the relevant criteria in selecting investments
- They take any necessary advice in making investments; and
- They keep their investments under appropriate review
Duty to invest is subject to statutory standard of care
T complies with the above => not liable to Bs for losses
Ts duty to invest - authorised investments
Trustees can make any investment that they could make if they were absolutely entitled => broad discretion
= general power of investment
Could be something expected to produce income and/or capital growth
Trustees can purchase land IN THE UK as an investment (or otherwise eg occupation by B)
In line with the trust instrument (eg re ethical restrictions)
Ts duty to invest - standard investment criteria
T must consider:
(1) Suitability to the trust of the type of investment proposed and the particular investment under consideration
(2) The need for diversification of investments so far as appropriate to the partic circumstances of the trust
Ts duty to invest - advice
Must obtain and consider ‘proper advice’
- Must obtain advice from a person whom they reasonably believe is qualified to give such advice (by reason of their experience in financial matters)
- Not obliged to follow the advice they receive but must give that advice proper consideration
- Adviser does not need to be professional but merely a person experienced in those matters
- Advice not needed where the trustee can reasonably conclude that advice is unnecessary (ie when trustee themself is self-sufficiently qualified)
Ts duty to invest - delegation
Choice of investments can be delegated to investment manager
Detailed provisions requiring the preparation of a written policy statement for the asset manager to follow which must incl full details of the trust and trust objectives
Policy statement must be incorporated into the contract between the Ts and asset manager
Powers of maintenance and advancement - general
Performance is at the discretion of trustees ie they can’t be forced to exercise their power -merely have a duty to consider whether or not to exercise them
Can be altered by the trust doc by settlor
Dispositive powers => can’t be delegated
Trustees’ powers are subject to common law standard of care ie must act as an ordinary prudent man of business in the conduct of his own affairs would do in that situation
Power of maintenance - where B is under 18
s31 TA (to Bs with interest in income) - Applies only if there are no prior life interests – eg B is the life tenant (so B has an interest in income)
B is under 18 =>
- the trustee can pay whole/part of trust income (whatever is reasonable) to his parents or towards B’s maintenance, education or benefit
- Duty to accumulate excess income
Power of maintenance - after 18th bday
=> B may demand that trustees pay all trust income as of right
Vested interest (income only ie life interest) => entitled to claim the income arising after their 18th bday and also any income accumulated during their minority
Vested interest (income and capital) => trust ends on 18th bday and Ts must transfer all trust property incl accumulated income to B
Contingent interest in capital:
- ie contingent on reaching age greater than 18 => B is entitled to claim all income arising after their 18th bday
- Any remaining income accumulated during B’s minority will accrue to capital
Power of maintenance - if trust created before October 2014
Ts power is to pay or apply only such an amount of income as is reasonable in all the circs
Limit was removed for trusts created after this date
Trust in will => takes effect on date of death
Power of advancement
s32 TA - (ie Bs that have an interest in capital)
= any use of money which will improve B’s material situation
Trustees have the power to advance at their absolute discretion, provided that:
- Amount must not exceed entitlement
- Is brought in account as part of such a share upon becoming absolutely entitled for any advancements (ie factored in)
- Does not prejudice Bs with prior interest (unless of full age and give consent in writing) eg life tenants
No restriction on Bs age
-BUT B under 18 cannot give valid receipt, so any advance must either be applied directly to the purpose or paid to B’s parent or guardian for a specified purpose
Power of advancement - trusts created pre Oct 2014
=> amount of advance limited to ½ entitlement
Control of Ts by Bs
(1) Bs can compel trustees to carry out duties
- If necessary by application to the court
(2) No right to compel exercise of discretion
- Can compel to consider whether to exercise a power, but not to exercise the power itself (unless can show exercised irrationally or capriciously)
- Ts not obliged to give reasons for way in which they exercised their power (UNLESS legitimate expectation => entitled to be warned if agreement changes)
(3) Right to inspect trust documents
- Subject to confidentiality (eg if contain details of Ts discussion in relation to the exercise of their discretion)
- Although, even if confidential, court has power to order them to be disclosed
(4) If Bs absolutely entitled (+ of full age and capacity) =>
- May, by agreement, require the current trustees to retire and appoint new trustees of Bs choice; and
- May, by agreement, bring the trust to an end and require the Ts to transfer the trust funds to them in the shares they agree
Breach of trust
Ask whether:
(1) Was the act one the T was authorised to perform by trust instrument or law (no => breach even if good faith); then
(2) Did the T act in accordance with the relevant standard of care?
- Investment = such care as is reasonable in all the circs, taking into account any experience/expertise
- Exercise of other discretions = act with prudence of an ordinary person of business
Liability of Ts for loss
B may bring personal claim against T for loss, with interest on their liability form the time of breach
Bs have burden of proving loss
Breaches caused both loss and profit? => loss cannot be offset
- General rule = Bs may keep the profit, and sue for the loss
- Exception = if the loss and profit arise from the same breach, court will allow the profit (from investments) to offset the loss
Ts in breach liable to account or pay equitable compensation
- EC = confined to situations in which B is compensated directly by a money payment, on EC may be recoverable where there is no trust
Can Ts sue other Ts (incl contribution/indemnity)
Starting point: there is no vicarious liability between trustees; they can only be sued if they have breached their own duties
- BUT may be related breaches (eg failing to supervise actions of T in breach)
More than one in breach => joint and several liability applies ie you may sue any/all of the trustees for all/any amount of money
- no defences available => can consider whether a contribution or indemnity is available
(1) Contribution => Court may order such contribution as is just and equitable vis-a-vis each T’s responsibility for the loss
(2) Indemnity (equitable remedy)
- In theory, a trustee is entitled to 100% indemnity from co-trustees also in breach
- Ie one T will be protected from liability generated by the other
- Can be sought from co-T:
a) Who alone was guilty of fraud or who was the sol to the trust and advised the breach; OR
b) Who is a professional T while the other is a lay T (unless the lay T also caused the breach)
Defences available to Ts for breach of trust
(1) Trustee has the knowledge and consent of the Bs
- Only work if Bs are all sui juris, and have given consent with full knowledge of relevant facts
- One B gives consent and others don’t => T liable for losses caused to Bs who did not consent
(2) Limitation period
- 6 years from the date on which the cause of action accrued
- BUT:
a) Time does not begin to run against a B with an interest in remainder until her interest falls into possession; and
b) Limitation does not apply if: a proprietary claim/action to recover trust property; or a fraudulent trustee
(3) Express exclusion clause in the trust document (eg will)
- May relieve trustees of liability for negligent or innocent breaches, but will be void if the breach is fraudulent
NOTE: relief awarded at court’s discretion
- Power where T has acted honestly and reasonably and ought fairly to be excused
- Relief is rarely awarded and will not be applied if a T has failed to meet the necessary standard of care
Breach by Ts - tracing (general)
Right to sue T for breach = personal claim (ie T personally liable to make good the loss to the trust) BUT can also make proprietary claim where trust property/its proceeds can be identified in the hands of T
Advantageous where:
- T is bankrupt - proprietary claim will give C priority over T’s creditors
- Value of property/its proceeds increased
=> need to ‘trace’ to identify property
Dissipated => no proprietary claim possible
Trustee holds original trust property => claim back
Others more complicated - see separate
Breach by Ts - tracing (clean substitution)
Trustee has made a straight exchange of trust property for an asset = clean substitution
=> B can:
(1) Claim ownership of new asset
(2) Claim a charge over the asset up to the amount of the loss
- Proprietary right (like mortgage) => can insist item is sold and recover their money from the proceeds
Breach by Ts - tracing (mixed asset purchase)
Trustee has purchased an asset using partly own money, partly money drawn wrongfully from trust = mixed asset purchase (whole of mixed fund spent on one asset)
B may either:
(1) Claim proportionate share of asset
(2) Claim a charge over the asset for the amount of trust property used
Breach by Ts - tracing (mixed bank account with T)
Trustee has mixed trust funds with own money and spent only part of this total fund on something = mixed bank account
Must determine whether it was the trustee’s own money or the trust money that was spent
General rule that everything is presumed against the wrongdoing trustee
Nothing withdrawn => Bs can claim charge over the account for the amount of trust funds in it
T withdrawn money =>
- T deemed to have spent own money first (first in first out)
- BUT asset purchased and then fund dissipated => Bs may claim a share of the asset or charge over it
Subsequent receipts of T’s own money =>
- Where the trustee has dissipated trust money, then paid in own money, Bs cannot claim this (‘lowest intermediate balance’ - ie company cannot claim anything beyond the lowest amount to which the account sank)
- UNLESS T shows clear intention to repay the trust money, then subsequent payments can be treated as replacing trust money
Breach by Ts - tracing (mixed purchase with another B)
T mixes 2 trust funds together (ie where there are two innocent parties)
Bs of two trusts share the asset proportionally
Breach by Ts - tracing (mixed bank account with T and another B)
Depends on type of account
Current account => FIFO unless:
- FIFO rule is contrary to the express or implied intentions of Cs;
- It is impractical to apply the rule
- Applying the rule would cause injustice to the parties
=> courts will displace the rule and divide the money proportionately
Savings account
- Proportionate solution (not FIFO) is default
Liabilty of 3rd parties (general)
May be able to bring claim against 3rd party if their have received trust property or were dishonestly involved in the breach
Imp where T is bankrupt or property has increased in value in hands on 3rd party
Depends on type of stranger:
- bona fide purchaser
- innocent volunteer
- Knowing recipient
- Dishonest accessory
Liabilty of 3rd parties - bona fide purchaser
Ie of the legal interest for value without notice of the trust
=> take free from B’s equitable interests
=> no proprietary claim can be brought
Liabilty of 3rd parties - innocent volunteer
ie No knowledge or notice of the breach of trust but provided no consideration
Proprietary claim can be brought (but not personal claim)
Bs must show that:
- Property was subject of a fiduciary rel
- Property or its product is identifiable using equitable tracing rules
- Property is not in the hands of a bona fide purchase for value without notice
=> can trace trust property
Liabilty of 3rd parties - innocent volunteer (tracing rules)
(1) Property not mixed (in original form or direct substitution)
=> Bs can claim asset
(2) Assets purchased from mixed funds
=> Bs may claim a proportionate share of the asset
- No option to claim charge over property (so any loss in value in shared proportionately between trust Bs and the innocent volunteer recipient)
(3) Trust funds mixed with volunteer’s funds in bank account
=> FIFO
- Poss apply proportionate solution where possible, on basis that a more equitable result is achieved
(4) Subrogation
- Ie volunteer uses to discharge a secured debt
- B may be able to trace money into the repayment and resurrect it by subrogation
- Allows B to bring debt back to life and become a mortgagee (as long as revived mortgage is on the same terms as the original mortgage which was discharged)
Liabilty of 3rd parties - knowing recipient
Ie with knowledge of the breach
C must show recipient had sufficient info for it to be ‘unconscionable’ for them to retain the property
Found if:
- Actual knowledge
- Wilful closing eyes to obvious
- Wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make
- Knowledge of circs which would indicate facts to an honest and reasonable person
- Knowledge of circs which would put an honest and reasonable person on inquiry
Personal claim possible (as treated in equity as if they were a constructive T)
Proprietary claim - tracing rules same as a T (above)
Liabilty of 3rd parties - dishonest accessory
Facilitated breach => liable as if they were a trustee if assistance was ‘dishonest’
Generally positive act of assistance required (but passive may suffice)
Dishonesty = ’conscious impropriety’ or ‘not acting as an honest person would in the circs’
- Need not know they were participating in a breach, just that the scheme they were facilitating was in some was illegal
Personal claim possible as treated as if constructive T
Proprietary claim - not relevant as unlikely to have actually received trust property
Equitable remedies
= discretionary supplement to common law
Court will follow the following principles when deciding whether to award:
(1) C must have legal or equitable right
(2) No adequate remedy at common law (Eg damages inadequate as subject matter is unique)
(3) Enforcement must be feasible
- Equity will not act where it does not have the power or means to carry out its orders ot where it would be difficult to supervise performance
- Eg if land at issue is in foreign jurisdiction
(4) Hardship between C and D balanced
(5) Defences – inequitable conduct
- Ie C must not be guilty of any inequitable conduct in relation to case (‘come to equity with clean hands’)
- And C must not have been guilty of any unreasonable delay in bringing their claim (laches)
