Unit 8 Flashcards
Equitable Remedies I: Actions Against Trustees
What are personal claims?
Compensation against offending trustee.
Better course of action if T does not hold trust property due to dissipation.
What are proprietary claims?
Claiming on the trust asset.
Better if T has trust property (either in original or substituted form) or T is bankrupt.
Should both personal & proprietary claims be considered?
YES
Decipher which is better in the exam + explain why (demonstrates critical evaluation).
What is the case analysis structure to follow for personal claims?
(1) Which trustees are in breach?
(2) Did the breach cause loss to the trust?
(3) Possible defences
(4) How much compensation is payable?
(5) Contributions / indemnities from co-trustees.
What must be considered when discussing (1) ‘which trustees are in breach?’
T not vicariously liable for defaults of their co-trustees.
See if any duties / powers have been breached (units 6/7).
T must act as an ordinary prudent businessman (Speight v Gaunt).
T must act jointly in the administration of the trust (they are all jointly and severally liable). Will be liable if they:
- leave matters in the hands of co-trustee
- allow trust funds to remain in sole control of co-trustee
- fail to watch over and correct any conduct of co’s (Styles v Guy; Bahin v Hughes)
- fails to take action knowing a co is committing / about to commit a breach
What must be considered when discussing (2) ‘did the breach cause loss to the trust’?
Loss and causation is required. ‘But for’ test (Nestle v National Westminister Bank).
What must be considered when discussing (3) ‘consider possible defences’
Knowledge + consent of Bs. Must be >18 + consent freely given with full knowledge of the facts. Court may impound B’s share of the trust (their B interests) if B benefitted / intended / instigated the breach (s62 TA 1925).
s61 TA 1925. Court has discretion to relieve Ts who were honest + acted reasonably. Reluctant to relieve passive Ts (Ts must act jointly in the administration of the trust).
Exclusion clause. Express clauses in the TD stating T will not be liable for losses caused by negligent / innocent breaches. n/a for fraud.
s21 LA 1980. Personal claims must be brought within 6 years starting from the date of breach / death of LT. n/a for fraud breaches. B cannot unreasonably delay proceedings (doctrine of laches).
What must be considered when discussing (4) ‘how much compensation is payable’
Loss to the trust + interest from date of breach
Interest rate is down to court’s discretion.
What must be considered when discussing (5) ‘contributions / indemnity’
Equitable indemnity: recover full from a co-T who:
(a) acted fraudulently; or
(b) professional with controlling influence (Bahin v Hughes); or
(c) benefitted personally from breach; or
(d) is also a B benefitting from the breach.
Civil liability contributions: s1(1) CL(C)A 1978 – extent of the co-T responsibility for the loss.
What are the tracing rules?
Prop. claim is going after the trust property which requires there to be an asset / form of property B can assert these rights against. The tracing rules help identify the trust property where it has been substituted in form.
Types of tracing rules:
- Clean substitution
- Mixed asset
- Withdrawals from a mixed bank account
What is clean substitution?
100% of an asset purchased by funded by the trust. B can either:
- Take the substitute property; or
- Take a charge (equitable lien) over the sub property.
What is a mixed asset?
Whole of mixed fund used to purchase one asset.
Under Foskett v McKeown, B has 2 options:
- Claim proportionate share of asset; or
- Bring personal claim against T for comp secured by lien.
What are the withdrawals from a mixed bank account and what are the rules for this?
When trust money has been taken and paid into an account with a balance (often T’s own account and money).
Presumed T spends own money first (Re Hallett).
Re Hallett does not always provide B full compensation. B can take a lien over the purchased assets (Re Oatway). Lien = amount taken from the trust.
[Question – can Re Oatway be used to claim increased value? Foskett says B is entitled but Oatway did not concern increased asset values - not conclusive].
B will not be entitled to claim subsequent monies paid into the account once trust fund has been spent unless subsequent payment was intended to repay the trust (Roscoe v Winder).
Can equitable proprietary claims and tracing be applied to other fiduciary relationships?
YES
e.g. company director steals money from the company. the company can asset their prop. rights to obtain the trust money back.
