Trusts Law - FLK 2

Question 1

What are express trusts?

Answer 1

An express trust is created to either benefit individuals or achieve a purpose

Question 2

What are implied trusts?

Answer 2

Implies trusts arise though there has been no express intention to create a trust. They exist as a matter of law.

Question 3

What are the two types of implied trusts?

Answer 3

1. Resulting trusts - implied in situations where it is presumed the settlor intended a trust; and
2. Constructive trusts - imposed where the court feels it would be unconscionable to deny another person an interest in the property.

Question 4

What are the two types of trusts that may take effect?

Answer 4

1. Inter-Vivos trusts - during lifetime
   - Declaration of trust: involve a valid declaration of trust
   - Transfer of title: transfer of title of the property to trustees.

Should any inter-vivos trust fail, the equitable interest will result back to the settlor if they are still alive.

2. Testamentary trusts:
   - Declaration of trust: involve a valid declaration of trust in the will that complies with s.9 of the Wills Act 1837
   - Transfer of title: direction in the will to transfer property to the trustees.

Should a testamentary trust fail, the equitable interest will revert to the residuary beneficiary under the terms of the will.

Question 5

What is a fixed interest trust?

Answer 5

Where the beneficiaries and their shares are fixed by the settlor. The trustee has no discretion as to who gets what.

Question 6

What are discretionary trusts?

Answer 6

The settlor gives the trustee the discretion to select who, from a given class of persons, will receive the trust property in what shares.

No beneficiary under a discretionary trust has any property rights until the trustee exercises his discretion. All the beneficiary has is an expectation.

Question 7

What are the three certainties?

Answer 7

All trusts must satisfy the three certainties:
1. Certainty of intention
2. Certainty of subject matter
3. Certainty of objects

Question 8

What is the certainty of intention?

Answer 8

It must be clear that the person making declaration intended to create a trust. Failing to do so means the recipient of the property will take the property as a gift.

Precatory words: express a hope, wish or moral obligation and usually indicate a gift was intended (and not a trust)

Imperative words: express a command and indicate a trust or power is intended. The words impose a duty on someone to act as a trustee and hold property for someone else.

Question 9

What is the certainty of subject matter?

Answer 9

It must be clear what property is being held on trust and what the individual interest of the beneficiaries are.

Description of property: vague or general descriptions of trust property will render the trusts void

With tangible property, the physical separation of the trust property is required, with intangibles no separation is required.

Beneficiary’s interest: the beneficial interests must be clear, meaning that the beneficiary’s share under the trust must be allocated in some way when the trust is established.

If there is a method of allocation of a beneficiary’s share, and this becomes unworkable, the trust will fail even though the trust property is identifiable. Not that the trust must be over existing property. Future property does not constitute property.

Question 10

What is the certainty of objects?

Answer 10

It must be clear who the beneficiaries of the trust are. The certainty of objects test is different for fixed and discretionary trusts.

Question 11

What is the certainty of objects test for fixed trusts?

Answer 11

The beneficiaries are specified in the trust instrument or it must be possible to draw up a complete list of every beneficiary (the ‘complete list test’)

Question 12

What is the certainty of objects test for discretionary trusts?

Answer 12

The trustee is given the discretion to select who amongst a class of beneficiaries will benefit.

The ‘individual ascertainability test’ applies which states that you need:

1. Conceptual Certainty
   - where the class or beneficiary is not suspectible to legal definition, it fails. (e.g. to my friends)
2. Evidential Certainty
   - where obtaining the evidence or whereabouts of the beneficiaries is impractical
3. Administrative Workability
   - where the definition of beneficiaries is so wide it is administratively unworkable, it fails.

Question 13

What is the beneficiary principle and perpetuities?

Answer 13

To be a valid trust, these further requirements must also be met:

1. Beneficiary principle - a trust must be for the benefit of individuals; and
2. Rule against perpetuities - the beneficial interest under the trust must vest (become unconditional) within 125 years.

Question 14

What is the power of appointment under certainty of objects?

Answer 14

Does not need to be exercise, power may be exercised.

The power of appointment may be given to a trustee or a third party, and it will be attached to a gift or a trust.

Gives someone the power to decide who out of a specified class of beneficiaries will benefit from the gift or trust.

Question 15

What are the consequences of uncertainty?

Answer 15

Inter-vivos trusts:
* No transfer of legal title - no change in beneficial ownership until all three certainties satisfied.
* Legal title transferred - if no certainty of intention, presumption of resulting trust applies. If there is clear intention, automatic resulting trust arises if there is uncertainty to either subject matter or objects.

Testamentary:
* No certainty of intention - gift
* No certainty of subject matter/objects - trust fails and falls into residue.

Question 16

What are the formalities to create a testamentary trust?

Answer 16

All dispositions by will are regulated s.9, Wills Act 1837. Complying with s.9 satisfies the formalities of s,53, Law of Property Act 1925 (LPA).

Question 17

What are the formalities to create express inter-vivos trusts?

Answer 17

Inter vivos trust are governed by s.53, LPA 1925.

1. Property other than land (e.g. shares)
   - other than three certainties, no additonal formalities.
2. Land/Interest in land (e.g. freehold)
   - must comply with s.53(1)(b), LPA 1925 which requires evidence of the trust in writing signed by settlor. Failure to comply makes the trust unenforceable by the beneficiary, but not void.
3. Existing trust interest (e.g. beneficiary transferring interest under a trust)
   - must comply with s.53(1)(c), LPA 1925 which requires disposition itself to be in writing and signed by person disposing of interest, not merely supported by documentary evidence. Applies to all personal property and land. Failure to comply makes the transfer void.

Question 18

What is the constitution of a trust?

Answer 18

Trust must be properly constituted (i.e. the property must vest in the trustee).

Valid constitution requires the trustee have sufficient title to the property in order for the trust to be effective.

If not properly constituted, equity cannot offer assistance since ‘equity will not assist a volunteer’ and ‘equity will not perfect an imperfect gift’

Question 19

What are three ways a property owner can benefit another with their property?

Answer 19

1. an outright gift
2. a transfer of legal title to a third person to hold on trust for the benefit of another
3. declare that the absolute owner now holds the property on trust for another.

Question 20

What are the transfer rules for land?

Answer 20

Deed of conveyance to transfer legal title to land.

For registered land, the transfer only becomes complete on its registration at the Land Registry?

Question 21

What are the transfer rules for shares?

Answer 21

Legal title to shares in a private company is transferred traditionally by executing a share transfer form, handing over the share certificate and registering the new owner in the company’s shareholder register.

Upon registration of the new shareholders the transfer is complete.

Question 22

What are the transfer rules for chattels?

Answer 22

Title to chattels is transferred by either deed of gift or by physical delivery of the item to the recipient couple with the intention to effect a transfer.

Delivery includes parting with control over an articles e.g. a key to a safety deposit box or a car.

Question 23

What are the transfer rules for cheques?

Answer 23

Legal title to a cheque passes on endorsement by the transferor and delivery of the cheque to a third party.

This is not possible if the cheque is crossed ‘account payee only’

Question 24

What are the transfer rules for money?

Answer 24

A valid transfer of money merely requires delivery

Question 25

What are the transfer rules for copyright?

Answer 25

Writing is necessary for the transfer of copyright

Question 26

What are the transfer rules for existing equitable interests?

Answer 26

The assignment must be in writing and signed by the assignor or his agent

Question 27

What are the exceptions to the rule when equity will assist a volunteer?

Answer 27

Equity may regard a transfer as complete even though legal title has not passed in the following circumstances:

1. The every effort rule - if the settlor did everything they could to transfer legal title and the settlor has passed the point of no return or put the property beyond recall. All that remains for the transfer to complete is the actions of a third party.
2. Unconscionability - it would be ‘unconscionable’ for the donor to change his mind
3. Fortuitous vesting - where there has been a failure of the legal requirements of a valid transfer but the transferee is appointed as executor of the transferor’s estate, equity will perfect if there has been a continuous intention to give during the transferor’s lifetime.

Question 28

What is the beneficial entitlement of a vested interest in a trust?

Answer 28

The beneficiary has a present right over the trust property (unconditional) . A vested interest is owned by the beneficiary. If the beneficiary dies, the interest will pass to their estate.

Question 29

What is the beneficial entitlement of a contingent interest in a trust?

Answer 29

It’s conditional. If the beneficiary dies before the condition is met, the interest will revert to the settlor. If the condition is met, the interest vests in the beneficiary (a vested interest).

Question 30

What is the beneficial entitlement of a fixed interest trust?

Answer 30

Beneficiaries interest are fixed by the settlor

Question 31

What is the beneficial entitlement of discretionary trusts?

Answer 31

The settlor has identified a class of people (objects) to benefit but the trusteed decide who will benefit and in what amount.

Prior to distribution by the trustees, no individual member (i.e. object) has a beneficial entitlement.

Following selection by the trustees, the property vests in the beneficiary and they become entitled to the property.

Question 32

What is the rule in Saunders v Vautier?

Answer 32

Beneficiaries can use the rule in Saunders v Vautier to end a trust and take the trust property.

The rule provides that all beneficiaries must:
1. be entitled to the trust property
2. agree to ending the trust; and
3. be adults (over 18 w/ legal capacity for consent)

Question 33

What are the limitations on the rule in Saunders v Vautier?

Answer 33

1. the threat to end the trust cannot be used to force trusteed to invest trust funds in accordance with their instructions.
2. all beneficiaries must give their consent. If they are not adults, do not yet exist, or cannot legally consent, then the rule will not apply.

Question 34

What are purpose trusts?

Answer 34

Non-charitable trusts for carrying out a purpose or to advance a cause

Question 35

What are the exceptions to the rule of a human beneficiary needed for a trust?

Answer 35

1. Monuments - the erection and upkeep of monuments and graves
2. Animals - the upkeep of individual animals e.g. pets
3. Masses - the holding of private masses in church
4. Re Denley Trusts - where a trust identifies the people who will benefit from a particular purpose, the people identifies have standing to enforce the trust.

Question 36

What is the rule for vesting a trust for purpose trusts?

Answer 36

They need to ensure the beneficial interest under the trust must vest (become unconditional) within 21 years or the trustees must be able to spend the trust fund on the specified purpose in one go thereby brining the trust to an end.

Wording such as ‘so long as the trustees can legally do so’ comply with the rule.

Question 37

What are charitable trusts?

Answer 37

Regulated by the Charity Commission. They are exempt from the Beneficiary Principle and the Rule Against Inalienability of Trust Capital.

Question 38

What are the requirements for a charitable trust?

Answer 38

A charitable trust must be:
1. for a recognised charitable purpose
2. for the public benefit
3. for exclusively charitable purposes

Question 39

What are resulting trusts?

Answer 39

Like implied trusts, resulting trusts are not expressly created by the intention of the settlor but the operation of the law.

Resulting trusts and constructive trusts are implied trusts.

Question 40

When do resulting trusts arise?

Answer 40

Courts look at the intention to benefit another person rather than the intention to create a trust.

They arise when:
1. there has been a failure to validly create a trust (such as failed formalities) (automatic resulting trusts); or
2. property is voluntarily transferred to another or purchased in the name of another (presumed resulting trusts)

Question 41

What are automatic resulting trusts?

Answer 41

The trustee will hold the property on trust for the settlor or donor in the following circumstances:
1. uncertainty of objects
2. failure of contingency
3. failure to dispose of the whole beneficial interest
4. surplus of funds after a valid purpose trust has completed its purpose
5. money given for a specific purpose which can no longer be carried out

Question 42

What are presumed resulting trusts?

Answer 42

A presumption that a resulting trust was intended arises in the following circumstances:
1. the voluntary conveyance of a property to another (with no valuable consideration in return)
2. the purchase of property in the name of another (providing money but not identifies as legal owner)

Question 43

Can presumptions be rebutted?

Answer 43

Yes, by evidence of a different intention such as the transfer was mean to be a loan or a gift.

Evidence should be before or at the same time of the transfer.

Question 44

What is the presumption of advancement?

Answer 44

This can reverse the presumption of a resulting trust. In this case, there is no resulting trust and a gift is presumed.

Situations where the presumption applies:
1. husband to wife (but not wife to husband)
2. father to child (all ages, but not mother to child or child to father/mother)
3. person in loco parentis to child
4. fiance to fiancee, provided they marry

Question 45

What is a constructive trust?

Answer 45

Imposed by the court on the legal owner of an asset to prevent the person asserting beneficial ownership of the asset in bad conscience to the prejudice of the true beneficial owner.

Question 46

How is a common intention constructive trust established?

Answer 46

At the time of acquisition of the property the parties have expressed a shared common intention to share the home.

Intention must be:
1. express - must be clear enough to form necessary intention
2. common
3. relate to the acquisition of a share in a beneficial interest in the home

Question 47

What is the legal title in the name of both parties?

Answer 47

Home jointly owned:
- If both partners are registered as co-owners, they hold legal title jointly and equally. Unless otherwise agreed, it is presumed the beneficial interest is also held jointly and equally.

• If one partners claims the shares are unequal, they must prove to the court, that the shares are unequal. The court will take into account financial and non-financial factors.

Question 48

What is the legal title in the name of a sole party?

Answer 48

Home solely owned:
- If one partner is registered as the legal owner, the other partner, to secure a beneficial interest must establish a common intention constructive trust using the two step process.

Question 49

What is the two step process to establish a common intention constructive trust?

Answer 49

Step 1 - It must be shown that:
i. There was a common intention between the parties that both were to have an interest either expressly (i.e. an oral agreement) or inferred (i.e. direct contribution to purchase price)

ii. The claiming partner acted to their detriment in reliance on the express common intention or inferred common intention. If an express intention then financial contributions qualify as detrimental reliance; housekeeping and childcare duties MAY qualify as detrimental reliance. If inferred intention ONLY significant financial contributions to purchase price or mortgage payments qualify as detrimental reliance.

Step 2 - The beneficial interest must be quantified:
i. Unless otherwise agreed between the parties, the court will award what is considers fair having regard to the whole course of dealings between the parties in relation to the property and taking into account financial and non-financial factors.

Question 50

What is proprietary estoppel?

Answer 50

Where a trust cannot be implied, the courts may rely on promissory estoppel to give an interest in the property to stop the legal owner from denying the claimant’s interest.

Question 51

What are the main elements to establishing proprietary estoppel?

Answer 51

1. Assurance - this can be a representation or encouragement, either active or passive, that creates an expectation the party would have an interest in the property
2. Detriment - the party acted to their detriment such as spending money on the property, giving up work, working without or for little pay, or looking after someone who is ill
3. Reliance - reliance of the party on the assurance made.

Question 52

What is the liability of strangers to the trust?

Answer 52

A stranger (third party) is a person who is threatened with personal liability for assistance in breach of trust even though he or she is technically a third party to the trust.

A stranger may become liable on the basis of:
- recipient liability
- accessory liability

Question 53

What is recipient liability?

Answer 53

A stranger may become personally liable on the basis of ‘knowing receipt’ of trust property that has been misapplied or transferred in beach of trust . Dishonesty is not required.

Knowing receipt:
the three components are -
1. Disposal - a disposal of assets in breach of trust or fiduciary duty

2. Receipt - the receipt of assets by the defendant for his own use and benefit which are traceable as representing assets of the claimant
3. Knowledge - knowledge on the part of the defendant that the assets he received are traceable to a breach of trust or fiduciary duty. For the claim to be successful, the recipient state of knowledge must be such as to make it ‘unconscionable’ for him to retain the benefit of the receipt.

Question 54

What is accessory liability?

Answer 54

A stranger may become personally liable for the ‘dishonest assistance’ in breach of a trust even though he has never received trust property.

Dishonest assistance:
the four requirements are -
1. The existence of a trust - a formal trust or fiduciary relationship

2. Breach of trust - a trustee will be liable for a breach whether it is innocent, negligent or dishonest
3. Assistance in the breach of trust - the assistance must be some kind of purposive conduct designed to advance and promote the unlawful object which breach the trust
4. Dishonest - third party liability is founded on the dishonest of the third party (not necessarily the trustee). The test for dishonesty is a ‘Combined Test’ of objective and subjective elements:
   a. Objective element: a defendant will only be held to be dishonest if his actions are seen as dishonest by the standards of an ordinary reasonable person
   b. Subjective element: the defendant realised that, by those standards, he was dishonest.

Question 55

What are the remedies to breach of trust or fiduciary obligation?

Answer 55

Any breach of trust or fiduciary obligation will lead to a remedy. The claimant will have to make the following choice:
1. A personal claim (in personam) - a claim against the trustee or fiduciary personally; it is not based on the recipient having the property in his possession; or

2. A proprietary claim (in rem) - a claim based on the defendant having the property, its proceeds or its replacement in his possession and being required to return it. A constructive trust will be imposed on the property.

Question 56

What is a fiduciary relationship?

Answer 56

Trustees are subject to strict duties that prevent any risk of conflict between their duties and their own personal interests.

Trustees owe a fiduciary duty. This generally means:
- an obligation of loyalty
- acting honestly
- acting in good faith
- not making a profit out of trust
- not to place himself in position of conflict of interest
- not to act in own benefit or benefit of another without consent of principal

Question 57

What are other examples of fiduciary relationships?

Answer 57

Director and company
Agent and principal
Solicitor and client
Relationship between business partners

Question 58

What is the duty not to profit from fiduciary position?

Answer 58

Fiduciaries cannot retain any unauthorised profits generated by their connection to the trust. The duty is applied strictly. It does not matter if there was no bad faith or deliberate wrong doing.

Any profits made by exploiting trust property or the office of trustee (including confidential information) are held by the trustee on constructive trust for the beneficiary of the pre-existing trust.

Question 59

What are the two rules for trustees not the purchase trust property?

Answer 59

Self Dealing Rule:
Where the trustee buys trust property. The purchase of trust property by a trustee is voidable by any beneficiary since it reflects the possibility that the trustee might not give the best price obtainable and gives rise to a conflict between the trustee’s self-interest and his duty to the trust.

Fair Dealing Rule:
Where the trustee buys out the equitable interest of the beneficiary. A trustee’s purchase of a beneficiary’s equitable interest in property will not be voidable if the trustee acts honestly, has not taken advantage of his position, makes full disclosure to the beneficiaries and pays a fair price.

Question 60

What is the rule for the fiduciary not to put himself in a position where his interest and duty conflict?

Answer 60

The core fiduciary duty is one of loyalty to their principal. A trustee must not allow their own self-interest to conflict with the interests of their principal otherwise they will be held to account.

Question 61

What is the rule on paid employment for trustees?

Answer 61

A trustee must not use their position to obtain paid employment. If the directorship is acquired because of their position a trustee, they are accountable for any fees or salary to the trust. However, this is not thee case if they became directors before they became trustees.

Question 62

What is the rule on trustees competing with the trust?

Answer 62

Trustees must not complete with the trust. Trustees must not compete with the trust if it contains a business as part of its assets.

Question 63

How is a trustee appointed?

Answer 63

Trustees are appointed by the settlor or testator in the will or trust document (express power) or by statutory powers

Trustee must be adults of sound mind or corporations

Trusts of personalty can have one trustee

Trusts of land should have a min of two trustees and a max of four, or a trust corporation, to overreach any beneficial interests

Question 64

How is a trustee removed?

Answer 64

Trustees may be removed expressly by power in thee trust document

Trustees can be replaced (death, outside UK for 12 months, retires, refuses to act, incapable of acting)

Court may exercise jurisdiction to remove a trustee for the welfare of the benficiaries

Question 65

How can a trustee retire?

Answer 65

Where the trust document contains an express power for trustees to retire

A trustee can retire without a replacement provided there are still two trustees or a corporation left.

Question 66

What are the trustees’ duties on appointment?

Answer 66

Should review the trust instrument and all related documentation

A person appointed as a trustee should examine all previous trust appointments and retirements to ensure valid appointment

Must acquaint themselves with all the beneficiaries and their entitlements, including the trust assets

The legal title to the trust property must be transferred into the names of the new and continuing trustees.

Question 67

What are the trustees’ duties during the trust’s lifetime?

Answer 67

To run the trust in the same way as an ordinary prudent business person wold run their own affairs

To act fairly between the beneficiaries

Should only act on decisions that have unanimous trustees’ consent

Should take an active role by supervising the actions of co-trustees

Should exercise their powers soundly, rationally and in good faith but they do not need to give reasons for their decisions.

Question 68

What are the trustee’s duty to the invest and their powers in relation to investment?

Answer 68

Must have regard to the ‘standard investment criteria’ when selecting assets for the trust.

Apply the suitability of investments test, consider diversification (i.e. portfolio theory) when choosing investments and obtain proper advice from someone reasonably qualified

Whenever the property is held on trust to benefit both life tenants and remainder-men, trustees have a duty to invest the trust property in order to generate income for the life tenant and preserve the capital for the remainder-men

How to preserve and increase the capital for the remainder-men

Duty to act even-handedly towards different classes of beneficiaries

Can appoint qualified agents to carry out asset management functions.

Question 69

What are a trustees’ statutory powers of maintenance and advancement?

Answer 69

Trustees’ statutory powers of maintenance and advancement allows trustees to assist certain beneficiaries before their entitlement vests.

Question 70

What is maintenance (use of income)?

Answer 70

Trustees may use the income from their interest to provide for the maintenance of a minor beneficiary. Although, they’re not obliged to.

For trusts created after 1 October 2014, trustees may apply part or all of the income for the ‘maintenance, education or benefit’ of a minor beneficiary. (s.31 Trustee act 1925)

For trusts created before 1 October 2012, thee power is to be exercised with what is reasonable in the circumstances.

Payments should be made to the minor’s parent or guardian or benefit provider (school). S. 31 cannot be used if another beneficiary has a prior interest to the income.

If the beneficiary is over 18 years of age, then trustees, are under a duty to pay the trust income to the beneficiary as it arises.

Question 71

What is advancement of capital (trust property)>

Answer 71

Trustees, in their discretion, may advance a beneficiaries’ entitlement to the capital before it vests. This included beneficiaries with a vested interest, contingent interest or remainder interest in trust property. Beneficiaries cannot compel advancement of capital.

Trustees may advance the capital interests for the ‘advancement or benefit’ as ‘any use of money which will improve the situation of the beneficiary’.

For trusts created after 1 October 2014, a beneficiary’s entire interest can be advanced. Trusts before this date, only half of the beneficiary’s share can be advanced.

Any advancements will be deducted from the beneficiary’s final share. An advance is not permitted if there is prior interest on the capital by another beneficiary (unless they consent).

Question 72

What is the general rule for trustees’ liability?

Answer 72

Beneficiaries will have a claim against a trustee for breach of trust.

Liability between trusteed is joint and several for breached they have participated in.

A remedy can be provided for breach of a trust or fiduciary obligation, the remedy can be personal or proprietary.

The remedy can be at common law or equity.

Question 73

What are exampled of breach of trust?

Answer 73

Making or retaining inappropriate investments

Misappropriating funds

Making a payment from the trust fund to the wrong person

Failure to obtain proper advice

Inappropriate delegation

Failure to recover debts

Question 74

What is the liability of a trustee for his own acts?

Answer 74

If a trustee commits a breach of trust, he is liable to the trust for any loss incurred or personal gain.

Question 75

What is the liability for breach of former trustees?

Answer 75

A trustee is not liable for breached of trust committed by his predecessors before his appointments as trustee.

He should sort out any irregularities discovered when taking office, including obtaining any satisfaction from the previous trustee.

Question 76

What is the liability of a trustee on retirement?

Answer 76

Will still remain liable for breaches of trust that occurred during his stewardship.

Will be liable if his retirement occurred so that the breach could be committed or to avoid his becoming involved with it.

Question 77

What is the liability for acts of co-trustees?

Answer 77

A trustee is liable for his own breaches, but is not, as a general rule, liable for the breach of duty committed by a co-trustee

However, liability can arise when the trustee himself is at fault in allowing another trustee to commit a breach.

Question 78

What is joint and several liability?

Answer 78

Where two or more trustees are each liable for a breach of trust, they are jointly and severally liable. Therefore, any one of the trustees may be sued for the full amount.

Question 79

How does the court apportion liability?

Answer 79

Under the Civil (Liability) Contribution Act 1978, trustees can ask the court to apportion liability on the basis of what is just and equitable between the trustees.

Question 80

Who is the burden of proof on?

Answer 80

The claimant must prove that there is a loss which would not have occurred but for the breach of trust.

Therefore, the beneficiaries right is tot restore to the trust fund what ought to be there i.e. restitution.

Question 81

What is the rule for measure of liability?

Answer 81

Not to punish the trustee but to compensate the beneficiaries.

Trustee is liable to make good the loss to the trust estate. If there is no loss, the trustee is accountable for any profit made in breach of trust.

Question 82

What may a trustee be required to do under the measure of liability?

Answer 82

Account for any unlawful profit

Compensate for any loss suffered by the trust

Restore the property due to the trust

Question 83

What is the offset of losses?

Answer 83

Trustees cannot set off profit against loss unless the breaches form part of the same transaction.

Question 84

What is the involvement of a beneficiary in the protection of trustees?

Answer 84

If a beneficiary has instigated, requested, concurred in or consented to a breach of trust, the beneficiary will not generally be allowed to sue and may have to relieve the trustees of liability, partially or wholly.

Question 85

What is the indemnity from a beneficiary in the protection of trustees?

Answer 85

The Court of Chancery has an inherent jurisdiction to order that a trustee or other beneficiaries be indemnified out of the interest of a beneficiary who instigated or requested such a breach or consented to the breach and actually benefitted from it.

Question 86

What does section 62 add to the protection of trustees?

Answer 86

The court can impound the interest of the beneficiary if the beneficiary instigated or requested the breach or consented in writing to the breach but there is no requirement of actual or intended benefit to the beneficiary.

Question 87

What does section 61 add to the protection of trustees?

Answer 87

The courts may relieve a trustee who has acted ‘honestly’ and ‘reasonably’ and ‘ought fairly to be excused’. As long as these three requirements are met the award of relief is in the discretion of the court.

Question 88

What are exoneration clauses in the protection of trustees?

Answer 88

A trust instrument will commonly restrict the liability of a trustee. Such clauses offer protection for the trustee while reducing the protection otherwise afforded to the beneficiary. There can be no exclusion of liability from fraud or intention wrong doing.

Question 89

What is the limitation period for breach of trust claims?

Answer 89

6 years from the date of the breach

For beneficiaries with a postponed interested, the limitation period does not start until his interest falls in to possession.

For minor beneficiaries, it does not start until the beneficiary has attained majority at age 18.

Question 90

What is specific performance?

Answer 90

Where the court compels the defendant to perform his original obligation under the contract.

Obligation must be unique such as a contract to fulfill the sale of a particular parcel of land.

Specific performance would not be awarded where it would require constant court supervision or where it would be a contract for personal services.

Question 91

What are the three types of injunctions?

Answer 91

1. Prohibitive injunctions - to prevent the defendant from doing something and thereby stopping a breach of obligation
2. Mandatory injunctions - to compel the defendant to do something. This injunction requires a full trial to be awarded.
3. Quia Timet injunctions - where the harm alleged has not happened yet but it is feared or threatened.

As this is an interim injunction, without the benefit of a full trial, the following criteria must be met:
– there is a serious questions to be tries
– damages are inadequate
– the balance of convenience requires the grant of an injunction without doing injustice to one side or the other

Question 92

What is the equitable remedy of rescission?

Answer 92

Rescission aims to restore both parties to their original positions, before the wrong doing occurred.

It may be barred where:
- an innocent third party will be adversely affected by the remedy
- there has been a delay
- there has been an affirmation of the contract
- it is impossible to return both parties to their pre contractual positions

Question 93

What is the equitable remedy of rectification?

Answer 93

Rectification allows a legal document that does not reflect the true agreement of the parties to be properly amended.

In order to grant this remedy, the courts need:
- clear evidence of the parties true intention
- the flaw in the document so that it did not reflect the true intention
- specific intention to achieve something different from what had been done
- an issue capable of being contested even though all relevant parties consented to the rectification.

Question 94

What is the equitable remedy of account?

Answer 94

Requires the fiduciary to repay unauthorised profits, bribes, etc. from a breach of confidence.

Question 95

What choices does a claimant have in claiming remedies?

Answer 95

1. A personal claim (in personam) - a claim against the trustee or fiduciary personally; it is not based on the recipient having the property in his possession
2. A equitable proprietary claim (in rem) - a claim based on the defendant having the property, its proceeds or its replacement in his possession and being required to return it.

Question 96

What are the advantages to bringing a proprietary claim?

Answer 96

Provided the property is still in the hand of the trustee, the advantages are:
- if the trustee or recipient has become bankrupt the beneficiary takes priority over the other creditors
- any increase in value of the property taken by the trustee is recoverable
- there are no limits to bring a proprietary claim

Question 97

What is tracing?

Answer 97

1. Tracing where a substitution of asset - if the taken trust money has been used to buy an asset, the asset will belong to the trust
2. Tracing where a mixed asset - if the taken trust money has been used with some of the trustees’ own money to buy an asset, the beneficiaries can either take a proportionate share in the asset or take a lien over the asset.
3. Tracing through a mixed bank account - in this case trust money has been mixed with the trustee’s own fund, and then purchased assets or been generally spent. The beneficiaries can bring a proprietary claim against the assets purchased with the mixed monies but not for the money generally dissipated.