Trusts 8

Question 1

For each of the following third parties, what is a description of them and their liability for breach of trust?* Bona fide purchaser* Innocent volunteer* Knowing recipient* Dishonest accessory

Answer 1

Bona fide purchaser* Description: Person who acquired legal title to trust property for value and without notice of the trust* Liability: NoneInnocent volunteer* Description: Person who came into possession of trust property with no knowledge or suspicion of breach* Liability: No personal liability in equity but beneficiaries may be able to make a proprietary claim using equitable tracing process Knowing recipient* Description: Person who received trust money with requisite degree of knowledge of breach* Liability: Liable, treated as a constructive trusteeDishonest accessory* Description: Person who facilitated breach with ‘dishonest’ assistance* Liability: Liable, treated as a constructive trustee

Question 2

When assessing whether a trustee failed to carry out a duty, what 3 questions should you ask?

Answer 2

Was the act one that the trustee was authorised to perform by the trust instrument or by law? * If not, there is a breach of trust regardless of the good faith, skill, and diligence with which the trustee performed the act?* If the act was proper to perform, did the trustee acted in accordance with the relevant standard of care (investment: such care and skill as reasonable in all the circumstances, taking into account any expertise they have or profess to have/other discretions: prudence of an ordinary person of business)?

Question 3

What are 6 common types of breach of duty by a trustee?

Answer 3

• Failure to invest trust funds* Failure to take advice on investment or to take account of the standard investment criteria* Distributing trust funds to the wrong beneficiary* Failure to keep trust property under the trustees joint control* Failure to act impartially between the beneficiaries. * Theft of trust property

Question 4

What is required for trustees to be personally liable for a breach of trust?

Answer 4

• Beneficiaries may bring a personal claim against the trustees for losses resulting from trustees’ breach of trust, with interest on their liability from the time of breach. * The beneficiaries have the burden of proving loss. If they cannot prove that a loss resulted from the breach, the trustees will escape liability.

Question 5

T and V are trustees of a trust for the benefit of R and L. Their grandfather was the settlor and he placed £100,000 in the fund when he established it 10 years ago. T and V are lay trustees and not skilled in investment decisions. Nevertheless, T and V did not seek investment advice, and now the trust fund is worth £90,000. Can R and L seek any remedies to recover the loss?

Answer 5

R and L bring a claim against T and V for breach of trust. T and V are liable for £10,000 in damages.

Question 6

T and V are trustees of a trust for the benefit of R and L. Their grandfather was the settlor and he placed £100,000 in the fund when he established it 10 years ago. T and V are lay trustees and not skilled in investment decisions. Nevertheless, T and V did not seek investment advice, and now the trust fund is worth £90,000. R and L bring a claim seeking £10,000 in damages. At trial, T and V prove that the economy took a dramatic downturn over the past two years because of a world-wide pandemic and a prudent trustee, having taken the necessary advice, might have chosen the investments they made. Will L and R be granted damages?

Answer 6

No, under these facts, T and V will not be liable for the loss in value.

Question 7

If a trustee makes a gain as a result of a breach of trust that is equal to the value of a loss caused by another breach of trust, can they offset the loss?

Answer 7

• Generally, no. This means that the beneficiaries may keep the gains that resulted from one breach and sue to recover the losses that arose from the other breach. * However, when there is a linked scheme of investment, trustees can offset the losses against the profits which are made from the investments.

Question 8

Trustees devised a scheme of investment with two investment parts, A and B. The linked investment scheme consisted of investing in part A and then, once investment A matured, using those funds to invest in part B. Part A made a significant profit, but part B made significant losses. Can the trustees offset the gains against the losses?

Answer 8

Yes, provided the trustees complied with their investment obligations in relation to the investment decisions, they would be able to argue that the losses in part B should be offset by the profits made in part A.

Question 9

A trustee fails to take investment advice and loses a lot of trust money making bad investments, and then they engage in self dealing by buying some trust property at above market value. Can they offset the gain to the trust against the losses?

Answer 9

No, the trustee can’t offset the loss from the investments with the gain from the purchase of trust property. They are still liable for the loss from the investments made without proper advice.

Question 10

Is a trustee vicariously liable for the acts of their co-trustee?

Answer 10

No* Only the trustee responsible for the breach and loss will be liable. * However, where a breach of trust has been committed by one trustee, it may be that a co-trustee has committed another breach of trust e.g. failing to supervise the actions of the trustee in breach.

Question 11

T and V are trustees. T, having fallen into financial difficulties, has stolen money from the trust bank account to pay off her creditors. As T is now bankrupt, the beneficiaries wish to sue V for the loss. Is V liable for the breach?

Answer 11

Although V is not liable for T’s actions, he has probably committed a breach of trust: he has allowed T access to the bank account which should have been in their joint control (a breach of duty) and has apparently failed to supervise T’s actions. Therefore, he could be held liable for any loss that arose from his failure to supervise.

Question 12

Where multiple trustees are in breach of duty, what type of liability do they have?

Answer 12

Joint and several; i.e. the beneficiaries may sue any of the trustees for the whole loss, leaving the trustee to recoup some of the liability from the other trustee(s) if they can.

Question 13

What 4 defences are available to trustees who are accused of breach of trust?

Answer 13

• Consent of beneficiaries* Limitation period* Exclusion clause* Relief in Court’s discretion

Question 14

What is required for beneficiaries to validly consent to a breach of trust?

Answer 14

Beneficiaries:* must have full age and capacity * must consent to the action that gave rise to the breach * with full knowledge of all material facts at the time of consentingIf one beneficiary gave consent but others did not, the trustees will be liable for losses caused to those beneficiaries who did not consent.

Question 15

What is the general limitation period for bringing an action against trustees, and what 3 exceptions apply?

Answer 15

Six years. Exceptions:* Time does not begin to run against a beneficiary with an interest in remainder until her interest falls into possession* There is no limitation period if the trustee was party to a fraud and * There is no limitation period in an action to recover trust property or its proceeds from the hands of a trustee.

Question 16

Trustees are holding funds on trust for L for life, with remainder to R. L has just died. Ten years ago, the trustees committed a breach of trust by making an unauthorised investment, causing loss to the fund. Can R bring a claim for breach of trust?

Answer 16

Yes. Although the breach took place more than six years ago, R has six years in which to bring his claim because he just came into possession of his interest.

Question 17

Are exclusion clauses permissible in relation to breaches of trust by trustees?

Answer 17

Clauses attempting to relieve a trustee of liability for breach of trust generally are strictly construed but are enforceable where no bad faith, intentional breach, or recklessness is involved. * Courts have upheld exclusion clauses relieving a trustee from liability for conduct up to and including gross negligence. * Clauses purporting to absolve the trustee from liability for fraudulent breaches, however, are void.

Question 18

Can an exclusion clause for fraud be included in a trust instrument?

Answer 18

No, it would be void.

Question 19

When will the courts relieve trustees from liability?

Answer 19

• If they conclude that the trustee has acted honestly and reasonably and ought fairly to be excused. * This relief is rarely awarded, and it will not be applied if a trustee has failed to meet the necessary standard of care.

Question 20

A professional trustee under the terms of a trust sought legal advice as to whether the trust conferred on them the power to sell land which formed part of the trust property. The legal advice was that such power did exist, and the trustee sold the land. Not only did the trust not confer such power, but the sale of the land produced a loss to the trust fund. Are there any defences available to the trustee?

Answer 20

It would be permissible for them to raise the defence that the trustee acted honestly and reasonably (in taking advice on a matter outside their expertise) and that they ought fairly to be excused.

Question 21

If a trustee is found to be liable for a breach of trust, what 2 things might the court require them to do?

Answer 21

For their wrongdoing, trustees in breach are liable to:* account (i.e. pay money into the trust to restore the value of any losses the trust fund suffered due to the trustee’s breach) or * pay equitable compensation (confined to situations in which the beneficiary is compensated directly by a money payment).This can largely be seen as semantic because both reflect losses sustained, but note that only equitable compensation may be recoverable when there is no trust.

Question 22

Where more than one trustee is found to be liable for a breach of trust, what 2 things might the court require them to do?

Answer 22

Contribution* Liability is joint and several but as among the trustees, the court has power to apportion liability as it deems just and equitable in the circumstances (most likely equally).Indemnity * The court has the power to indemnify one trustee at the expense of another where the second:1. alone was guilty of fraud or was the solicitor to the trust and advised the breach or 2. was a professional trustee while the indemnified one is a lay trustee (unless the lay trustee has also caused the breach).

Question 23

T and V are trustees. T, having fallen into financial difficulties, has stolen money from the trust bank account to pay off her creditors. As T is now bankrupt, the beneficiaries sue V for the loss. Although V is not liable for T’s actions, he is likely to be in breach of his own duty to supervise the trust and to keep the trust property under joint control. V will be liable to make good the whole loss to the beneficiaries. Is there any way for V to recover the loss?

Answer 23

Since T alone was guilty of fraud, V has the right to claim an indemnity from her. That is, he has the right to claim back the whole amount of his liability from T. His claim, however, will rank alongside those of T’s other creditors in her bankruptcy.

Question 24

Where a trustee has been granted an indemnity from another, how does their claim rank in relation to other creditors of the trustee giving the indemnity?

Answer 24

Equally

Question 25

What is tracing?

Answer 25

The process of identifying trust property in the hands of the trustee. A proprietary claim can be made where trust property or its proceeds can be identified through tracing. Advantages* Beneficiaries will be able to claim the trust property from an insolvent trustee ahead of other creditors.* If the value of the trust property or its proceeds has increased, the beneficiaries can claim the increase. Tracing applies differently depending on the situation.

Question 26

What are the 5 different types of situations that tracing may apply to?

Answer 26

• Trust property is not mixed with other property* Assets have been purchased from mixed funds* Trust funds are mixed with trustee’s funds in bank account* Assets have been purchased from mixed funds of two trusts* Funds of two trusts have been mixed in a bank account

Question 27

Where trust property is not mixed with other property, how does tracing apply?

Answer 27

• If the original trust property is in the hands of the trustee, the beneficiaries may simply claim it back. * If the trustee has directly substituted the trust property for another asset, the beneficiaries may claim that asset, or may claim a charge over the asset up to the amount of their loss.

Question 28

A trustee has withdrawn £5,000 from the trust bank account and used it to buy a diamond ring. The ring is now worth £6,000. What options are available to the beneficiaries under tracing rules?

Answer 28

The beneficiaries may choose whether to:* claim the ring, including its increase in value, or * claim a charge over the ring for £5,000 to recover the misappropriated funds. Since the ring has increased in value, they will claim the ring as trust property.

Question 29

A trustee has withdrawn £5,000 from the trust bank account and used it to buy a diamond ring. The ring is now worth £4,000. What options are available to the beneficiaries under tracing rules?

Answer 29

The beneficiaries will not claim the ring as trust property, but instead will claim a charge over the ring for £5,000. * They will be able to have the ring sold and claim the proceeds as trust funds, gaining priority over any other creditors the trustee may have. * The beneficiaries will still be able to claim the balance of £1,000 from the trustee personally but will rank alongside other creditors in this claim.

Question 30

If a trustee has combined trust funds with their own to purchase an asset, how does tracing apply?

Answer 30

The beneficiaries may:* claim a proportionate part of that asset, or * claim a charge over the asset for the amount of trust property used.

Question 31

A trustee has withdrawn £10,000 from the trust bank account and used it, together with £10,000 of his own money, to buy a painting. The painting is now worth £24,000. Under tracing rules, what can the beneficiaries do?

Answer 31

Since the painting has increased in value, the beneficiaries will claim a proportionate share (one-half) of the painting, and will recover £12,000.

Question 32

A trustee has withdrawn £10,000 from the trust bank account and used it, together with £10,000 of his own money, to buy a painting. The painting is now worth £18,000. Under tracing rules, what can the beneficiaries do?

Answer 32

The beneficiaries may claim a charge over the painting for their missing £10,000. * They may require the painting to be sold and recover their loss from its proceeds.* If the trustee has other creditors, the beneficiaries will have priority over their claims.

Question 33

If a trustee places trust funds into a bank account with the trustee’s own money, how do tracing rules apply?

Answer 33

• The beneficiaries may claim a charge over the account for the amount of the trust funds in it. If the trustee had drawn money out of the account, the basic rule is that the trustee is treated as withdrawing their own money first.* Exception: If the trustee withdraws money from the account to purchase an asset and then dissipates the balance, the beneficiaries may claim a share of the asset or a charge over it.* If, despite following the rules above, the trust money has been dissipated, subsequent payments of the trustee’s own money into the account are not treated as replacing the trust money. * However, if the trustee shows a clear intention to repay the trust money, then their subsequent payments can be treated as replacing the trust money. * The limit of the beneficiary’s claim is what is known as the “lowest intermediate balance’ - the balance after the last payment out but before the next payment in. If the lowest intermediate balance is zero, then that is the limit of the beneficiary’s claim.

Question 34

T, a trustee, has £5,000 in his bank account. He pays £10,000 of trust money into the account. He withdraws £3,000 from the account and uses it to pay his rent. Has any of the trust money been spent?

Answer 34

No, T is treated as having spent his own money on the rent. The beneficiaries may claim a charge over the balance remaining in the account and recover their £10,000 from it, in priority to any other creditors the trustee may have.

Question 35

T, a trustee, has £5,000 in her bank account. She pays £10,000 of trust money into the account. She then draws out £5,000 from the account to buy shares and spends the rest of the money in the account on her rent and household expenses. The shares are now worth £7,000. What are the beneficiaries entitled to under the tracing rules?

Answer 35

Under the basic rule, the shares would represent the trustee’s own money, and all the trust money would have been dissipated. Under the exception, however, the beneficiaries are entitled to:* claim a charge over the shares for their lost £10,000, so they will receive the full sale proceeds of £7,000.* make a personal claim against the trustee for the remaining £3,000 lost, which will rank equally with the claims of the trustee’s other creditors.

Question 36

T, a trustee, has £5,000 in his bank account. He then pays in £10,000 of trust money. Over the following weeks, he withdraws all of the money in the account and spends it on general living expenses. He then receives his salary of £4,000 and pays it into the account. What are the beneficiaries entitled to under the tracing rules?

Answer 36

The beneficiaries have no proprietary claim over the money in the bank account, as all of the trust money was spent on living expenses. The beneficiaries must rely on their personal claim against the trustee for the lost £10,000.

Question 37

If a trustee purchases an asset from the mixed funds of two trusts, how do the tracing rules apply?

Answer 37

The beneficiaries of the two trusts share the asset proportionally.

Question 38

A trustee takes £2,000 from Trust A and £3,000 from Trust B and uses the money to purchase company shares. What are the beneficiaries of Trust A and Trust B entitled to under tracing rules?

Answer 38

The trusts own the shares in the proportion 2:3. * If the shares have increased in value to £10,000, Trust A will be entitled to £4,000 and Trust B to £6,000. * If the shares have fallen in value to £2,500, Trust A will be entitled to £1,000 and Trust B to £1,500.

Question 39

If a trustee mixes funds from two (or more) trusts in the trustee’s personal bank account, how do the tracing rules apply?

Answer 39

Treatment of the funds depends on the type of bank accountCurrent Account* If the funds are mixed in a current account, the traditional rule is that the first money into the account is the first money out (“first in, first out”). * If (1) applying the first-in, first-out rule is contrary to the express or implied intentions of the claimants, (2) it is impractical to apply the rule, or (3) applying the rule would cause injustice to the parties, courts will displace the rule and divide the money proportionately. Savings Account* Proportional solution is the default rule

Question 40

A trustee pays £5,000 from Trust A into a bank account. The following week the trustee pays in £2,500 from Trust B. The trustee then withdraws £1,500 and spends it on living expenses. How do the tracing rules apply?

Answer 40

• The “first in, first out” rule means that the trustee is presumed to have spent £1,500 of Trust A’s money. The balance in the account belongs £3,500 to Trust A and £2,500 to Trust B. * If the proportionate solution is applied, the payment of £1,500 would be treated in proportion to the money paid into the account from the two trusts, or 2:1. This would mean that the payment consisted of £1,000 from Trust A and £500 from Trust B, leaving the £6,000 remaining in the account to be shared £4,000 to Trust A and £2,000 to Trust B.

Question 41

Can beneficiaries bring claims for breach of trust against third parties?

Answer 41

The beneficiaries may be able to bring a personal or proprietary action against the third party (except a bona fide purchaser), based on either:* the fact that the third party has received property belonging to the trust or * their dishonest involvement in the breach. The claim against a ‘stranger to a trust’ is particularly important if the trustee has insufficient funds to satisfy a personal claim against them, or if the trust property or its product has increased in value in the hands of a third party.

Question 42

Can beneficiaries bring claims for breach of trust against a bona fide purchaser?

Answer 42

No. A third party who acquires the legal title to trust property for value and without notice of the trust takes the property free of the equitable interests of the beneficiaries.

Question 43

If trust property has come into the possession of a third party who did not pay value for the property, but who nevertheless had no knowledge or suspicion that a breach of trust has occurred, can the beneficiaries bring a claim?

Answer 43

• The beneficiaries cannot bring a personal claim in equity against the ‘innocent volunteer’ recipient as the recipient’s conscience is not affected (note Re Diplock exception). * The beneficiaries may be able to make a proprietary claim to recover the property or its product using the equitable tracing process.

Question 44

What are the 3 requirements for a beneficiary to establish a right to trace property in the hands of an innocent volunteer?

Answer 44

The claimant must show that: * The property was the subject of a fiduciary relationship * The property or its product is identifiable using equitable tracing rules and * The property is not in the hands of a bona fide purchaser for value without notice.

Question 45

How do tracing rules apply where the property is in its original form in the hands of an innocent volunteer or has been directly substituted for another asset?

Answer 45

The beneficiaries may claim the asset.

Question 46

A trustee misinterprets the terms of the trust and hands the fund over to the wrong person. The recipient, unaware of the breach, uses the money to buy shares, which have increased in value. How do tracing rules apply?

Answer 46

The true beneficiary has a proprietary claim against the recipient and may adopt the shares as trust property, taking the benefit of the increase in value.

Question 47

If an innocent recipient uses trust funds along with funds of their own to purchase an asset, how do tracing rules apply?

Answer 47

The beneficaries may claim a proportionate share of the asset. As the recipient is an innocent volunteer, there is no option to claim a charge over the property, so any loss in value is shared proportionately between the trust beneficiaries and the innocent volunteer recipient.

Question 48

A trustee pays £5,000 to an innocent volunteer recipient in breach of trust. The recipient uses the money, together with £10,000 of their own, to buy a car. The value of the car is now £12,000. How do tracing rules apply?

Answer 48

In a proprietary claim, the trust beneficiary may claim a proportionate share of the car and will receive £4,000 from the sale proceeds.

Question 49

If an innocent volunteer has placed trust funds in a bank account containing funds of their own, how do tracing rules apply?

Answer 49

It may be necessary to apply tracing rules to determine the order in which funds are paid out of the account. * As the conscience of the recipient is not affected, the equities between the recipient and the claimant are said to be equal. The traditional approach is to apply the “first in, first out” banking rule to identify which money has been paid out of the account. * However, recent cases apply the proportionate solution where possible, on the basis that a more equitable result is achieved.

Question 50

A trustee hands £20,000 to an innocent volunteer recipient in breach of trust. The recipient places the money in their bank account, which already contains a balance of £5,000. The recipient uses £3,000 from the account to buy shares, then spends a further £6,000 on rent and general living expenses. The shares are now worth £5,000. The balance of £16,000 is still in the recipient’s bank account. What are the beneficiaries of the trust entitled to under tracing rules if the court uses the traditional approach?

Answer 50

Applying the “first in, first out” rules:* The shares were bought wholly with the recipient’s own money, and she may retain them. * The £6,000 spent on rent and living expenses consisted of the remaining £2,000 of the recipient’s own money plus £4,000 of the trust money. This £4,000 of trust money has been dissipated and is not traceable. * The balance of £16,000 remaining in the account can be claimed by the trust. * The effect is that the trust beneficiaries can claim back only £16,000, while the recipient keeps the whole gain on the shares.

Question 51

A trustee hands £20,000 to an innocent volunteer recipient in breach of trust. The recipient places the money in their bank account, which already contains a balance of £5,000. The recipient uses £3,000 from the account to buy shares, then spends a further £6,000 on rent and general living expenses. The shares are now worth £5,000. The balance of £16,000 is still in the recipient’s bank account. What are the beneficiaries of the trust entitled to under tracing rules if the court decides to use the non-traditional approach?

Answer 51

The trust can claim £16,800: * The mixed fund represented money belonging to the trust and recipient in the ratio 4:1, so each payment, as well as the remaining balance, is treated in the same proportions. * The trust could claim 4/5 of the value of the shares (£4,000), and 4/5 of the £16,000 balance in the bank account (£12,800).

Question 52

If an innocent volunteer uses the beneficiary’s funds to discharge a secured debt e.g. a mortgage, how do tracing rules apply?

Answer 52

The beneficiary may be able to trace their money into the repayment and resurrect it by subrogation.”Reviving” subrogation allows the beneficiary to bring the debt back to life and become a mortgagee, as long as the revived mortgage is on the same terms as the original mortgage which was discharged

Question 53

What is the exception to the rule that trust beneficiaries cannot bring a personal claim in equity against an innocent volunteer recipient of trust property?

Answer 53

A personal claim has been recognised when the claim is against a wrongful recipient of a deceased person’s estate, but only to the extent that all other remedies have been exhausted. (See Ministry of Health v Simpson ([1951] AC 251)

Question 54

Personal representatives of a decedent’s estate paid £4,000 to a charity constructing a new hospital. After the money was spent, the gift was found invalid under the decedent’s will. Was the money recoverable from the charity?

Answer 54

Yes. The court allowed the decedent’s next-of- kin to recover the money from the charity to the extent they were unable to receive from the estate’s executors and PRs.

Question 55

If a third party received money or property traceable to a breach of trust with knowledge of the breach, can the beneficiaries bring a claim against them?

Answer 55

Yes, they will be treated as if they were a trustee i.e. they will be a constructive trustee. * The claimant must show that the recipient had sufficient knowledge as to make it ‘unconscionable’ for the recipient to retain the property. * As a constructive trustee, the recipient will be personally liable to the beneficiaries to make good the loss to the trust fund* Trustee tracing rules will apply to identify trust property or its product in their hands

Question 56

What are the 5 categories of knowledge required for unconscionability to be found?

Answer 56

• Actual knowledge* Wilfully closing one’s eyes to the obvious* Wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make* Knowledge of circumstances which would indicate the facts to an honest and reasonable person* Knowledge of circumstances which would put an honest and reasonable person on inquiry.

Question 57

A trustee hands £10,000 from the trust funds to his friend J. J knows that the trustee is not personally wealthy and is surprised to receive so large a gift, but she decides not to ask where the money has come from. Is J liable to the beneficiaries of the trust?

Answer 57

The court is likely to find that the circumstances were such as to make it unconscionable for J to treat the money as her own, and she will be liable as a ‘knowing’ recipient.

Question 58

A trustee hands £10,000 from the trust funds to his friend J. J knows that the trustee is not personally wealthy and is surprised to receive so large a gift, but she decides not to ask where the money has come from. J uses the £10,000 of trust funds along with £2,000 of her own money to buy a car. The car is now worth £11,000. How do the tracing rules apply?

Answer 58

The beneficiaries may choose either to claim a proportionate share of the car or take a charge over the car for £10,000. They will choose the charge so that the car will be sold and the trust will receive £10,000 from the proceeds.

Question 59

A trustee hands £10,000 from the trust funds to his friend J. J knows that the trustee is not personally wealthy and is surprised to receive so large a gift, but she decides not to ask where the money has come from. J pays the £10,000 in trust funds into her bank account, which has a balance of £1,000. She adds a further £2,000 of her own money. J spends £3,000 on general living expenses. How do the tracing rules apply?

Answer 59

Under the trustee tracing rules, Jane is treated as spending her own money first, so the beneficiaries will be able to claim the entire £10,000 remaining in her account.

Question 60

If a third party has facilitated a breach of trust, in what circumstances will the third party be held to be liable as if they were a trustee?

Answer 60

If their assistance was “dishonest”. * Generally the courts require a positive act of assistance by the third party. * However, it is conceivable that passive assistance would suffice.Once it is shown that the person who facilitated the breach of trust was acting dishonestly, they become a constructive trustee. * The beneficiaries may sue them personally * The basis of the claim against a dishonest accessory is that the accessory facilitated the breach of trust i.e. they didn’t receive the property so a proprietary claim is irrelevant

Question 61

The trustee of a trust asks his friend, a solicitor, to facilitate the transfer of funds from the trust to an offshore bank account belonging to the trustee. This is a breach of trust. The solicitor duly obliges and facilitates the transfer on behalf of the trustee. The solicitor is one of two partners in a small firm. The other solicitor finds evidence of the transaction before it is completed but does nothing and keeps quiet. Both the trustee and the solicitor who helped with the transaction are now bankrupt. Is the second solicitor liable for the loss to the trust?

Answer 61

Yes, in such circumstances, it would be possible for the beneficiary to sue the second solictor, the one who kept quiet (passive assistance), as a third party who assisted in a breach of trust.

Question 62

What is the definition of ‘dishonesty’ in the context of dishonest accessories to a breach of trust?

Answer 62

‘Conscious impropriety’ or ‘not acting as an honest person would in the circumstances’. * Note, the dishonest accessory need not have known that they were participating in a breach of trust, merely that the scheme they were facilitating was in some way illegal.

Question 63

Does a dishonest accessory to a breach of trust need to know they were participating in a breach of trust?

Answer 63

No, just that the scheme they were facilitating was in some way illegal.

Question 64

Can a dishonest accessory to a breach of trust be subject to a proprietary claim?

Answer 64

The basis of the claim against a dishonest accessory is that the accessory facilitated the breach of trust. This is unlikely to have involved the accessory’s receiving trust property for their own benefit, so a proprietary claim is not relevant to such cases.

Question 65

A trustee plans to transfer a large sum from the trust bank account. The trustee persuades an accountant to set up a company to receive the money and to open a bank account in the name of the company. The accountant believes that the plan is part of an illegal tax evasion scheme. The trustee has disappeared with the money. Is the accountant liable to the beneficiaries of the trust?

Answer 65

The beneficiaries can show that the accountant acted with conscious impropriety, even though the accountant did not know a breach of trust was involved. The beneficiaries can bring a personal action against the accountant to make good the loss to the trust funds.