Unit Eight Flashcards
Is this statement TRUE or FALSE?
Where someone (who is not a trustee) is implicated in a breach of trust, the beneficiaries may be able to bring an equitable personal action against them, or an equitable proprietary action (if they have received trust property in breach of trust and still holds it or its traceable substitute).
The statement is TRUE. The beneficiaries may seek a personal remedy against a non-trustee, third party through either recipient liability or accessory liability. A proprietary remedy is a further possibility in the circumstances described in the statement. A company may seek similar remedies against third parties in similar circumstances.
From the actions against third parties listed below, match it to the state of mind required for the liability.
Recipient Liability
Unconscionability
From the actions against third parties listed below, match it to the state of mind required for the liability.
Accessory Liability
Dishonesty
From the actions against third parties listed below, match it to the state of mind required for the liability.
Intermeddling
Strict Liability
Gustav, a company director, steals company money and gives it to his wife Cindi.
Is the following statement TRUE or FALSE?
The company cannot use equitable tracing against Cindi as the company is the legal owner of the stolen money and is not a beneficiary under a trust.
The answer is FALSE. Gustav’s theft represents a breach of his fiduciary duty to the company. This makes equitable remedies available to the company as well as the ability to trace into a mixed fund in the hands of a third-party recipient.
Wayne is a trustee. He stole £40,000 from the trust and gave it directly to his partner, Henrietta, telling her not to ask where the money came from. She paid the money into her bank account, which contained £30,000 of her own money. A few days later, Henrietta withdrew £30,000 and spent it on a holiday to the Maldives. Henrietta has now been declared bankrupt because her debts exceed her assets. The beneficiaries seek your advice on whether they can claim anything from Henrietta.
Which case would you apply to determine whether Henrietta spent her own money or the trust’s money on her holiday to the Maldives?
(A) Re Hallett.
(B) The Rule in Clayton’s case
(C) Re Oatway
(D) Foskett v McKeown
The answer is A. It is necessary to determine whether Henrietta was a wrongdoer or an innocent volunteer before allocating the withdrawal from the mixed bank account. She is clearly a wrongdoer, as she chose not to inquire where the money came from, despite being put on notice that there was some illegality involved. The relevant case to apply would be Re Hallett, as she is taken to spend her own money first, where, as here, it has been dissipated. If the first withdrawal had been spent on an asset, the appropriate case would be Re Oatway. Clayton’s case is relevant where the account holder is innocent. Foskett v McKeown relates to the purchase of an asset with a mixed fund, rather than the allocation of withdrawals from a bank account
Rory is a trustee of the Smith family trust. Rory has wrongly taken £50,000 from the trust bank account for his own benefit. Rory was able to withdraw the trust money because Carl (the manager of the bank where the trust had its account) did not query why only one trustee had signed the cheques when the account mandate required the signatures of both trustees.
Which ONE of the following statements is CORRECT?
(A) The beneficiaries cannot bring any action against Carl because he did not receive any trust property for his own benefit
(B) Carl will be liable to the beneficiaries because of his assistance in Rory’s breach of trust; strict liability applies.
(C) Carl may be liable for assisting Rory’s breach of trust if he had knowledge making it unconscionable for him to have acted as he did
(D) Carl will be liable for assisting Rory’s breach of trust if he was dishonest which means not acting as an honest person would have acted in the circumstances
The answer is D. This statement reflects the requirements which need to be established for a claim in dishonest assistance (accessory liability). The standard of honesty is objective. However, there are subjective elements - the court will ask: ‘How would a hypothetical honest person knowing the facts the defendant knew and with the defendant’s knowledge and experience have acted?’ If he would have refused to proceed or asked questions before getting involved or sought advice, then a defendant who reacts differently is dishonest. It often comes down to whether the claimant acted any differently to someone else in his profession/business would have acted.
David is a trust of King family trust. The trust owned two small sculptures by Amy Chatterton worth £30,000 when the trust was created five years ago. David recently sold the sculptures to Louis Braden. David used the sale proceeds to pay off his gambling debts.
Is the following statement TRUE or FALSE?
The trust will not be able to bring an equitable proprietary claim against Mr Braden to recover the sculptures if he was not aware that the sculptures belonged to the trust.
The statement is TRUE. A bona fide purchaser for value without notice is “equity’s darling”. A third party such as Mr Braden who purchases the trust property in good faith without knowledge of its true provenance takes the property free from the equitable interests of the beneficiaries. Consequently, the trust would have no proprietary claim against him to recover the sculptures.
Arun is a trustee of a substantial trust fund. Six months ago, Arun took £30,000 from the trust bank account and paid it direct to a gallery with £10,000 of his own money to buy a painting. The painting is now worth £45,000. Arun took a further £20,000 from the trust and gave it to his mother, Mina. She genuinely had no idea that the money did not belong to her son. Mina used the money to buy a car and to install central heating in her house.
Which ONE of the following statements is CORRECT?
(A) The beneficiaries of the trust are likely to succeed in a proprietary claim against Mina’s house to recover the cost of the central heating.
(B) The beneficiaries only remedy is to claim a three-quarters share of the painting.
(C) A lien would allow the beneficiaries to require the sale of the painting to recover what they are owed from the sale proceeds.
(D) The beneficiaries will have no remedy against Mina as she is an innocent volunteer.
The answer is C. This is a mixed asset situation (one asset purchased with a combination of the trust’s money and the trustee’s personal funds). As the painting has been bought, in part, with the trust’s money, the beneficiaries could exert their equitable lien over the painting to cover their £30,000. (Given the painting’s increase in value, this would not be the best course of action.)
Alison is a trustee for Danielle. In breach of trust, Alison took £30,000 of trust money and gave it to her son, Basil, for his 21st birthday. Basil was an innocent volunteer. Basil paid the £30,000 into his bank account, which already contained £10,000 of his own money. He withdrew £8,000 to pay off a car loan.
Alison took a further £5,000 of trust money and gave it to her boyfriend, Chris. Chris knew that Alison had stolen the money from the trust. Chris paid the £5,000 into his bank account, which already contained £10,000 of his own money. He withdrew £8,000 to pay off his credit card balance.
Which ONE of the following statements is the CORRECT advice which you would give Danielle?
(A) No action will lie against Basil because he was innocent.
(B) Danielle can sue Chris in a personal claim for knowing receipt
(C) Danielle could bring a proprietary claim against Basil and use the presumption in Re Hallett’s Estate to show that he dissipated his own money on repaying the car loan.
(D) Danielle could bring a proprietary claim against Chris and use the presumption in Clayton’s case to show that he dissipated his own money on repaying the credit card balance
The answer is B. Chris has received trust property in breach of trust with knowledge that made him unconscionable (BCCI v Akindele). This means that Danielle could bring a personal claim for knowing receipt or a proprietary claim to recover the property.
Harper is the trustee of the Fitch family trust. He sold some shares belonging to the trust for £10,000 and spent the money on his daughter’s wedding. Harper’s cousin, Victor, who is a stockbroker, carried out the sale on Harper’s behalf and accounted to Harper for the sale proceeds.
Is the following statement TRUE or FALSE?
Victor is only liable to the beneficiaries if he knew that Harper was committing a breach of trust.
The statement is FALSE. Victor is liable to the beneficiaries for assisting a breach of trust if he did not act as an honest stockbroker would have acted in the same circumstances (Royal Brunei v Tan). It is not necessary for a third-party stranger to know he is assisting a breach of trust; it is sufficient to be implicated in something which is illegal (Barlow Clowes v Eurotrust).
With the help of her stockbroker husband, a trustee stole shares from the trust fund. The trustee sold the shares for £30,000; she gave the sale proceeds to her son who spent the money on his wedding and honeymoon. The son knew that his mother has stolen the shares. The trustee has just been made bankrupt.
What kind of claim should the beneficiaries bring and against whom?
(A) The beneficiaries should bring a personal claim against the husband as he has intermeddled in the trust.
(B) The beneficiaries should bring a proprietary claim against the trustee as she is bankrupt.
(C) The beneficiaries should bring a personal claim against the husband and a proprietary claim against the son.
(D) The beneficiaries should bring a personal claim against the husband and a personal claim against the son.
(E) The beneficiaries should bring a proprietary claim against the husband.
Option D is correct. The husband has acted dishonestly by assisting the trustee in the theft of the shares from the trust and the son received trust property with knowledge that made his retention of that property unconscionable.
A director of a company has wrongly taken £30,000 from the company bank account. The director was able to withdraw the money because the manager of the bank where the company had an account did not query why only one director had signed the cheques when the account mandate required the signatures of two directors. After giving, £10,000 of the money to their grandson for university fees, the director gave £5,000 to their goddaughter for her birthday. She had no idea the money was stolen and used it to pay for a weekend at a luxury spa. The director used the remaining money to buy a luxury yacht and pay for sailing lessons.
Which of the following statements best describes the action the company can bring?
(A) The company cannot bring any action against the bank manager because he did not receive any company property for his own benefit.
(B) The company will be able to bring a claim against the bank manager because of his assistance in director’s breach of duty; strict liability applies.
(C) The company cannot bring any action against the grandson because he has spent the money he received.
(D) The company will be able to bring a claim against the director to recover the yacht.
(E) The company will be able to bring a proprietary claim against the goddaughter as she has received company money for her own benefit.
Option D is the correct answer. The director has breached his fiduciary duty to the company. As a result, the company will be able to bring a proprietary claim against him and use equitable tracing to establish that company money was used to buy the yacht.
A trustee for two beneficiaries stole £45,000 from the trust and gave it to their girlfriend.
Which of the following statements best describes the beneficiaries’ ability to bring a personal claim against the girlfriend?
(A) The beneficiaries will have to prove that the girlfriend received the trust property in breach of trust for her own benefit and that she acted dishonestly.
(B) The beneficiaries will not have to prove anything as strict liability applies against a person who has received trust property in breach of trust.
(C) The beneficiaries will have to prove that the girlfriend received the trust property in breach of trust for her own benefit and her subsequent actions were negligent.
(D) The beneficiaries will have to prove that the girlfriend received the trust property in breach of trust for her own benefit and her knowledge of the facts made her retention of the property unconscionable.
(E) The beneficiaries will have to prove that the girlfriend received the trust property in breach of trust for her own benefit and her knowledge of the facts made her actions reckless.
Option D is correct. To make the girlfriend personally liable to pay compensation, the beneficiaries will have to show that she is a wrongdoer on the ground of knowing receipt (recipient liability). They will have to prove that she received the trust property in breach of trust for her own benefit and her knowledge of the facts made it unconscionable for her to have dealt with the property as she did (BCCI v Akindele). According to the Akindele decision, unconscionability is wider than dishonesty (so Option A is wrong).
In breach of trust, a trustee gives some of the trust’s shareholdings to their daughter. The daughter sold the shares and used the sale proceeds to buy a sports car.
Which of the following statements best describes the beneficiaries’ position?
(A) The only action which the beneficiaries can bring is a personal action against the trustee for compensation for breach of trust.
(B) The only action which the beneficiaries can bring is a proprietary action against the daughter to recover trust property.
(C) The beneficiaries cannot bring a proprietary action against the daughter as the misappropriated property has changed form.
(D) The beneficiaries can bring a proprietary action against the trustee for breach of trust.
(E) The beneficiaries can bring a personal claim against the trustee for breach of trust or a proprietary action against the daughter to recover trust property
Option E is correct. The breach by the trustee gives the beneficiaries the right to seek personal compensation from the trustee for the loss to the trust. Additionally, as the daughter has received trust property arising from that breach, the beneficiaries could bring a proprietary claim against the daughter to recover the trust property, regardless of whether the daughter knew about the provenance of the shares she received or whether she was an innocent volunteer (so Options A and B are wrong because in each case the suggested claim is not the only claim which the beneficiaries can bring).
