Trusts - Personal Claims Against Trustees (7) Flashcards
What are personal claims?
Personal Claims Against Trustees: Personal claims are brought by beneficiaries to restore a trust to its pre-breach position, or disgorge trustees of unauthorised profits (Re Dawson).
Interest: Claims include interest (Wallensteiner v Moir).
How is a claim established?
Establishing Claim: To establish a successful claim, the following elements must be met:
Breach: Trustee must have committed a breach of duty, which caused loss to the trust or resulted in an unauthorised gain.
Causation: The breach must have caused loss to the truth (or an unauthorised gain to the trustee).
Limitation: Claims must be brought within six years, subject to exceptions.
Defences: Any available defences must be dispelled.
When will a personal claim be inapprorpriate/disadvantageous?
Appropriate Claim: Personal claims may be inappropriate or disadvantageous where:
Trustee is insolvent, as beneficiary will rank as an unsecured creditor;
Trustee has used money to buy an appreciating asset (proprietary claim better);
Trustee’s breach is outside of the limitation period.
Is a causal link required between trustee’s breach and the loss/unauthorised gain?
Causation: There must be a causal link between the trustee’s breach, and the loss/unauthorised gain (Target v Redferns).
(1) Breach: Trustee must have committed a breach of duty.
Non-Fiduciary: If non-fiduciary duty, is it subject to the ‘reasonable trustee’ test?
Fiduciary: If fiduciary, is there an unauthorised gain that can be accounted for?
Passive Trustees: Trustees cannot be vicariously liable, but passive trustees may be sued.
(2) Loss or Gain: Did the breach result in a loss to the trust, or a gain to the trustee?
Interest: The court may award interest. Typically 1% above minimum lending rate.
(3) Liable Trustees: Which trustees are liable? They are jointly and severally liable only if liable individually.
What are the limitation period for personal claims?
Limitation Periods: Personal claims are statute barred at six-years from cause of action (s21 LA 1980). There are exceptions.
(1) Beneficiary Exception: Though one beneficiary may be barred, it does not mean all are (Re Somerset). However, the barred beneficiary cannot benefit.
(2) Statutory Exceptions: The six-year bar does not apply if:
Beneficiary has a contingent future interest (Armitage v Nurse);
Breach was fraudulent;
Trustee deliberately concealed the right of action - runs from ‘reasonably diligent discovery’ date;
Beneficiary was disabled when grounds arose - runs from end of disability or death;
Beneficiary was a child - runs from 18th birthday;
Beneficiary is bringing proprietary claim.
What is the doctrine of laches?
Laches: Courts can refuse claims if ‘inequitably’ delayed, even within the limitation period (s36(2) TA 1925).
Delay: Inequitable delay means there has been considerable time since breach, implying that a breach was waived, or neglectfully overlooked (Lindsay Petroleum v Hurd).
In Practice: Laches will generally only be imposed if delay causes unfairness to the trustee or prejudices their ability to defend the claim.
What are the defences to a personal claim?
Defences: Liable trustees may have a number of defences available to them.
(1) Merits of Claim: The trustee committed no breach, or breach caused no personal gain or loss to trust.
(2) Beneficial Instruction: A beneficiary instructed the breach. That beneficiary may be ordered to wholly or partially indemnify that trustee (s62 TA 1925).
(3) Beneficial Consent: A beneficiary consented to the breach in words or conduct. They need not knowingly consent to ‘breach’, merely the actions constituting breach (Re Pauling’s Settlement).
Requirement: Beneficiary must have been sui generis and capable, with full knowledge of facts.
Effect: Beneficiary barred from claim. Other beneficiaries are not (Re Somerset).
(4) Court Consent: Court may authorise breach if a trustee brought the full matter to their attention at first instance (s57 TA 1925).
(5) Exemption Clause: The trust instrument may expressly relieve trustees for liability, other than for fraud or dishonesty (Armitage v Nurse).
Vague Clauses: Vague clauses are construed in favour of beneficiaries’ (Wight v Olswang).
(6) Court Relief: Courts may relieve a trustee if they acted honestly and reasonably, and have good reason for failing to obtain court direction at first instance (s61 TA 1925). Evidence is required (Santander v RA Legal).
Example: Lay trustees who seek professional advice before making an incorrect choice are probably acting honestly and reasonably.
Fraud: Fraud is never honest and reasonable.
Professional Trustees: Professional trustees rarely succeed, even if they sought direction (Re Waterman’s Will).
Passive Trustees: Passive trustees rarely succeed, so as to encourage non-passivity.
In Practice: In practice, it is difficult to give good reason for failing to seek court direction.
When may a trustee want an indemnity or a contribution?
Indemnity and Contribution: Trustees may be able to seek a full equitable indemnity, or partial statutory contribution, from other liable trustees.
(1) Statutory Contribution: Trustees can recover contribution from other liable trustees, awarded as ‘equitable and just’ in proportion to the responsibility of each party (s2 Civil Liability (Contribution Act) 1978).
Limitation: This is barred at two-years from judgment.
(2) Equitable Indemnity: Trustees may be able to pursue a full indemnity from a liable co-trustee if:
Fraud: Co-trustee acted fraudulently whilst others acted in good faith.
Solicitor Influence: Co-trustee was a solicitor who exercised such a controlling influence that other trustees blindly followed them.
Personal Benefit: Co-trustee personally benefited from the breach.
Beneficial Trustee: Co-trustee was a beneficiary who benefited from the breach (indemnity capped at the value of their beneficial interest).
