WS 7 - Remedies Against Trustees and Fiduciaries

Question 1

Stages to answering a remedies against fiduciaries/trustees question (PERSONAL CLAIMS)?

Answer 1

1) Explain why discussing personal/proprietary claims
2) Identify the breach of trust
3) Establish that the breach of trust has caused loss
4) Consider the defences available for trustees
5) Consider contributions and indemnities

Question 2

Structure for answering a question relating to a proprietary claim?

Answer 2

1) Identify the breach of trust and loss caused
2) Consider whether proprietary claim is relevant
3) What has happened to the trust property? Which of the following scenarios apply?

Question 3

Different scenarios under a proprietary claim?

Answer 3

. Where T holds original trust property

. Where T has made a straight exchange of trust property for an asset = no mixing

. Where T has purchased an asset using partly own money, and partly money drawn wrongfully from trust = mixed asset purchase

. Where T has mixed trust funds with own money, and spent only part of this total fund on something

. Where T (who is a trustee of more than one trust) mixes two trust funds together

. Where T (who is a trustee of more than one trust) mixes two trust funds together with his own money

Question 4

If the trustee in breach has disappeared, can you sue the other trustees? General rule

Answer 4

There is no vicarious liability between trustees - they can only be sued if they have breached their duties themselves.

Question 5

General duty of care owed by trustees

Answer 5

Trustees must reach the standard of a “reasonably prudent man of business” (Speight v Gaunt)

NB - with regards to investments trustees must take such care as is reasonable when investing for a person for whom they feel morally bound to provide (Learoyd v Whiteley)

Question 6

How might the trustees breach their duties?

Answer 6

. Duty to be active in the affairs of the trust
. Duty to actively watch over, and if necessary, correct conduct of fellow trustees (Styles v Guy)
. Duty to keep the trust property in joint control and not allow co-trustees to control it (unless there has been a delegation under ss.11 and 12 Trustee Act 2000)
. Duty to ensure trust property is vested in names of all trustees
. Duty to do something to stop a breach if you are aware of it being committed
. Duty to care under s.1 TA 2000 (applies only to investment and delegation duties)

Question 7

s.4 TA 2000

Answer 7

Duty to consider suitability and diversification of investments. Investments must be kept under review.

Question 8

s.5 TA 2000

Answer 8

Should take advice before selecting investments

Question 9

What is the form of liability between co-trustees who have breached?

Answer 9

If breach by co-trustees has been established, joint and several liability applies (you may sue any/all of the trustees for all/any amount of the money).

Question 10

Nestle v National Westminster Bank

Answer 10

Trustee only liable if breach has caused loss. There must be evidence to show profit from a particular investment was less than what a reasonable man would have accrued.

Question 11

If various breaches have caused both loss and profit general rule is that beneficiary may keep the profits and sue for the loss. What is the exception?

Answer 11

Bartlett v Barclays Trust [1980] - If the loss and profit arise from the same breach, court will allow the profit to offset the loss.

Question 12

Defences (in brief)

Answer 12

1) Trustees had knowledge and consent of the Bs
2) Express exclusion clause
3) s.61 Trustee Act 1925
4) Limitation and laches
5) s.62 Trustee Act 1925

Question 13

Knowledge and consent of the beneficiaries

Answer 13

will only work if all the b’s are sui juris and have given consent with full knowledge of the facts. Bs must fully understand what he is concurring in, but need not know it’s a breach (Re Pauling’s Settlement Trust)

Question 14

When is an express exclusion clause valid and when void?

Answer 14

May relieve trustees of liability for negligent or innocent breaches but void if breach = fraudulent or dishonest (Armitage v Nurse [1998] - CoA - exemption clause was valid in this case)

Question 15

Bogg v Rapper

Answer 15

Trustee who prepares trust instrument is not prevented from relying on an exemption clause included in it.

Question 16

Wight v Olswang [1998]

Answer 16

where there is doubt about the protection afforded, construe against the trustee

Question 17

Baker v JE Clark & co [2006]

Answer 17

Provisions of UCTA do not apply to trustee exemption clauses

Question 18

s.61 Trustee Act 1925

Answer 18

Trustee may be relieved of liability, wholly or in part, if he acted honestly and reasonably. Court reluctant to grant relief if:

a. Trustee a professional (Bartlett v Barclays Trust) - even if they have taken advice (National Trustee Co of Australia v General Finance)
b. Breach was committed as a passive trustee (courts wish to encourage trustees to be active)

Question 19

Limitation:

Answer 19

s. 21(3) Limitation Act 1980: Statutory limitation period of 6 years for bringing a breach of trust action. Does not apply:

i. To a prop claim (see. s.21(1)(b))
ii. For a fraudulent trustee (see s.21(1)(a)
iii. Also - if remainderman, then limitation time starts from date when his interest falls into possession

Question 20

Laches (equitable doctrine):

Answer 20

courts will not allow claim to succeed where inequitable (e.g. where C has acquiesced in breach for long period)

Question 21

s.62 Trustee Act 1925

Answer 21

If a trustee has committed a breach at the request/instigation of beneficiary, court may make order for impounding of the interest of the beneficiary in the trust estate by way of indemnity to the trustee.