Trusts: Liability

Question 1

What is the liability of trustees for losses resulting from breach of trust? Who has the burden of proof?

Answer 1

• Beneficiaries may bring a personal claim against trustees for losses resulting from trustees breach of trust with interest running from time of breach

Burdon of proof is on the beneficiaries

Question 1

Can losses resulting from breach of trust be offset by gains?

Answer 1

Cannot offset loss from one breach from gain of another breach .

Beneficiaries are entitled to keep gain and sue for loss.

Question 2

Are trustees liable for breach of another trustee?

Answer 2

• A trustee is not vicariously liable for acts of their co-trustees
• Only trustee responcible for loss will be liable

However innocent trustee may be liable for another breach such as failing to supervise actions of guilty trustee.

Question 3

Is a trustee liable for breaches before their appointment?

Answer 3

• A trustee will not be liable for a breach of trust which occurs before trustee was appointed (Re Strahan)
• If on appointment trustee discovers breach of trust occurred, they should commence proceedings in order to recover from former trustee
• Failure to take such action may result in new trustee becoming liable

Question 4

Is a trustee liable for breaches after retirment?

Answer 4

Trustee will continue to be liable for any breaches committed during time they acted as trustee when

Will be liable for breaches that happened after retirement
- Where the trustee retired to facilitate the breach, or
- The trustee parts with trust property in retiring without due regard, so loss is suffered when the property is transferred to new trustee

Question 5

what is the liability of trustees where more than one is in breach?

Answer 5

• If more than one trustee is in breach their liablity is joint and several
• Beneficiaries may sue any of the trustees for whole loss leaving them to recoup some of the liability from the other trustees

Question 6

Can trustee liability be excluded in trust instrument?

Answer 6

• Liability of trustees can be excluded or limited by clause in the trust instrument
• Expect where the breach was fraudulent

Question 7

Can court grant relief to trustees for a breach?

Answer 7

• Court has discretion to excuse a trustee in circumstances where the trustee acted honestly and reasonably, and ought fairly to be excused for the breach of trust
• Court will not use this lightly as it may deny the beneficiary a remedy

Question 8

What is the limitation period for bringing a claim for breach of trust?

Answer 8

Limitation period for bringing a claim for breach of trust is
- Beneficiaries with interests vested in possession is six years from the breach
- Beneficiaries with future interests is six years from when their interest vests in possession

Exception
- Does not apply to fraudulent breaches
- Doe not apply to proprietary claims against trustees (i.e. claims to recover trust property or its tracible proceeds)

Question 9

Can trustees rely on consent of beneficiaries for relief from liability for breach?

Answer 9

• Trustees not liable if they can show they obtained the fully informed consent of beneficiaries or that beneficiaries acquiesced
• If a beneficiary is unable to give consent (minor ect.) then trustee is unable to rely on this
• Can act as partial defence against individual beneficiaries, even if other beneficiaries still have a valid claim

Question 10

How can trustees recover losses for breach from other guilty trustees?

Answer 10

Contribution Order
- Where multiple trustees are liable for the same damage
- Court has discretion to require one party to make a just and equitable contribution to another
- Does not need to be split evenly

Indemnity Order
- Court may even award a full indemnity recognising some trustees as more culpable
- Likely only where one trustee has benefitted from breach
- Or where trustee is found solely responsible
- Where trustees have disparity in knowledge (esp. if one is solicitor)

Question 11

When can beneficiaries make a proprietary claim?

Answer 11

Where trust property can be traced into the hands of a trustee or 3rd party that is not good faith purchaser for value

Question 12

What claims can beneficiaries make for asset purchased with unmixed funds?

Answer 12

• Where an asset is purchased exclusively with trust money (or its traceable proceed) the beneficiary can choose between
  o Asserting beneficial ownership of the asset itself

o Making a personal claim against the trustee for breach of trust and enforcing an equitable lien on the asset (beneficiary becomes a secured creditor)

Question 13

What claims can beneficiaries make assets bought with a wrongful mixture?

Answer 13

Where asset is purchased with misapplied trust money and trustees money the beneficiary can choose to:
- Claim a propositional share of the asset (cherry pick best one)
- enforce lien upon asset to secure personal claim against trustee for amount misapplied

Question 14

What claims can beneficiaries make for wrongful mixture in a bank account

Answer 14

• Where a trustee makes withdrawals from a wrongful mixture, some of which are dissipated, the beneficiary can treat the disceptation as the trustee’s money and attribute the identifiable funds to the trust
• Can take charge over bank account for amount of trust funds in it

Question 15

What claims can beneficiaries make for assets from an innocent mixture?

Answer 15

• can only claim proportionate share of asset (together with other innocent parties)

Question 16

What claims can beneficiaries make for innocent mixture in bank account?

Answer 16

Depends if current account or savings account.

Current account
- first in first out
- unless this is contrary to parties intentions, impracticable or unfair then divided proportionately

Savings Account
- Divided proportionately

Question 17

What claims can beneficiaries make when misapplied funds are used to improve trustees property?

Answer 17

Beneficiaries are entitled to either:
- An equitable lien on the asset to secure repayment of the trust money used to maintain or improve it
- A proportioned share of the asset if it increases in value by reason of the maintenance or improvement

Question 18

What claims can beneficiaries make when misapplied trust property is dissipated by payment of a secured debt?

Answer 18

The beneficiaries can be ‘subrogated’ to the rights of the creditor

Question 19

What claim can a beneficiary bring against a bona fide purchaser for value?

Answer 19

• 3rd party acquires for value and without notice of the trust
• Cuts off beneficiaries right to bring personal or proprietary action against that 3rd party

Question 20

What claim can a beneficiary bring against a innocent volunteer recipient?

Answer 20

• Did not pay value but had no knowledge or suspicion that breach of trust occurred
• Beneficiaries cannot bring personal claim
• Can bring proprietary claim (following tracing rules)

Question 21

What proprietary claim can a beneficiary bring against a innocent volunteer recipient where assets are purchased from mixed funds?

Answer 21

• Beneficiaries can claim proportionate share of assets
• NO charge over asset so losses are shared proportionately

Question 22

When might a personal action against innocent volunteer recipient be appropriate?

Answer 22

• Claims against the wrongful recipient of deceased persons estate
• But only as last resort where other remedies have been exhausted

Question 23

What level of knowledge must someone have to be a knowing recipient in a breach of trust case?

Answer 23

Claimant must show that recipient has:
- Actual knowledge;
- Wilfully closed their eyes to the obvious;
- Wilfully and recklessly failed to make such enquiries as an honest and reasonable person would make;
- Knowledge of circumstances which would indicate the facts to an honest and reasonable person; or
- Knowledge of circumstances which would put an honest and reasonable person on inquiry.

Question 24

What claims can be brought against a knowing recipient?

Answer 24

Treated as if trustee
- So will be personally liable to beneficiary to make good the loss to trust fund
- Trustee tracing rules apply

Question 25

What is required for someone to be a dishonest accessory to a breach of trust?

Answer 25

Assistance
- generally requires positive assistance (passive assistance can also meet requirement)

Conscious Impropriety
- They need not known they were participating in breach of trust, merely that the scheme was in some way illegal

Question 26

What claim do you have against a dishonest accessory to breach of trust?

Answer 26

Personal claim (as they likely won’t have the property)
- Treated as constructive trustee
- Can be sued personally for losses resulting from breach