13) Liability of trustees Flashcards
(64 cards)
1
Q
Examples of breach
A
- Acts outside of powers
- Fail to comply with any applicable duties.
- Breach of fiduciary duty (no-conflict, no-profit, self-deal).
2
Q
Breach of trust
A
- Breach of trust has caused a loss of the trust fund
- Look at both income and capital.
Los may invovle trust fund not having produced as much income or caoital growth as it shoudl have done if the trustee had acted in accordance with dities
3
Q
Breach of fiduciary duty
A
- May look for loss
- But may also be looking to establish any unauthorised profit.
4
Q
Remedies for breach
A
- Will depend on nature and consequences of breach
- May seek personal claim
- May seek a proprietary claim over an asset held by the trustee
- Equitable remedy - restore trust fund, or rescind transaction (rarely possible with third party)
5
Q
Breach with no loss or profit?
A
- May mean tha tthere is no remedy
- Technical breach of trusust, may choose to do nothing or affirm act.
- May have lost conidence andd seek to remove trustee - or to bring trust to an end.
6
Q
Trustee Duties
Liable for breach
A
- Trustees are onlu liable for their own breaches
- Co trustees must act together. Co-trustees will be jointly and severally liable
- Failure to take an active role in trust may amount to a breach of trust.
- Defences may be available
7
Q
Fiduciary Duties
Who is liable?
A
- Less likely to be co-trustee liability
- Fiduciary are liable for thier own breaches of duty
- Breach of no profit, profiteer will be liable for it.
- Breach causing loss, then there may be other breaches too.
- Strangers to the trust may be liable if they assisted a breach or knowingly received proceeds
8
Q
Defences and protection of trustees
A
- Check trust instrument to see whether it authorises an act which would otherwise be a breach.
- Check for an exclusion clause reducing liability in some way.
- Breaches might also be authroised by beneficiaries or the court.
- Statutory defences and statutory limitation period.
- Trustees may also take insurance out.
9
Q
Multiple defendants
Apportionment of liability
A
- Beneficiary cannot recover loss more than once.
- Can sued D;s together and joint them in action.
- Or can sue one for the full amount
Joint and several liability
10
Q
If one trustee is sued for the full amount, what might they do?
A
- Seek to recover indemnity or contribution from their co-trustees.
11
Q
To establish liability for a breach of trust two questions should be asked:
A
- Did the trustee(s) act in accordance with their powers?
- If so, did they comply with their trustee duties.
12
Q
Acting outside powers
Breach of powers
A
- Making an unauthorised investment
- Wrongful distribution
- Misappropriation of trust property.
13
Q
Acting in breach of duties
Breach of trust
A
Falling below standard of behaviour of trustee
* Failure to carry out a positive duty such as not distributing trust property.
* Failure to take into account standard investment criteria
* Failure to properly consider advice when exercising investment powers;
* Failure to comply with DoC when exercising investment powers
* Failure to properly monitor investments
14
Q
Co-trustees
Who has breached the trust
A
- Need to identify which of trustees has committed the breach.
- Joint liability
- Jointly and secerally liable
15
Q
LIability for breach of trust before appointment as a trustee
A
- Trustee will not be liable for breach that took place before being appointed
- If a trustee discovers that a breach of trust occurred, they shoudl commence proceedings to recover from former trustee
Re: Strahan
16
Q
- If a trustee discovers that a breach of trust occurred,
A
- They should commence proceedings to recover from former trustee.
- Failure to take such action may result in new trustee becoming liable for breach of trust.
17
Q
Liability for breach of trust after retirement when breach occurred when acting trustee
A
- Trustee will continue to be liable for any breaches committed during the time they acted as trustee, even after they have retired
18
Q
Liabiility for breaches of trust that occurred after trustee retires
A
- Where the trustee retired to facilitate the breach
- The trustee parts with trust property in retiring without due regard, so loss is suffered when property is transferred to new trustees Head v Gould
19
Q
Effect of breach
A
- Did the breach cause any loss?
- Are there any defences available to exclude or limit the liability of trustee?
- If more than one trustee is liable, how should liability be apportioned?
20
Q
Are trustees always liable?
A
- Not liable for losses unless they have breached their duties.
21
Q
If a trustee holds investment notwithstanding poor performance
A
- Trustee may become liable
- Breach of duty to review investments and consider whether to vary them
22
Q
How is loss assessed?
A
- Loss is assessed at the date of trial
- Takes into account to determine the expected value of the trust fund.
- If the actual value of the trust fund is lower than the expected value, trustees will be personally liable eto compensate the trust fund for the difference
23
Q
Taking an account
Before Target Holdings v Redferns
A
- Clear different principles applied to assessment of loss depending on the relevant breach of trust involved.
- Misapplication of trust funds
- A different type of breach
24
Q
Misapplication
A
- Court would “falsify” the account in case of misapplication
- Requiring trustees to return the trust to the position that it would have been
= Reconstituting the trust fund - Ideally with same type of property, if not the same type trustees will need to pay equitable compensation in lieu
- If a benefit to trust, may affirm the transaction
25
Other breaches that do not involve misapplucation of trust fund
* Taking an account is then known as "*surcharging*"
* Court will be looking to assess the expected value of the trust fund if the breach had not occurred.
* Trustee will be expected to pay equitable compensation for loss shown to be "but for" the cause.
= **reparaion claim**
26
Assessment of loss in cases other than misapplication
* Complicated
* Assessed by ref to a hypothetical prudent body of trustees would have done in the cirucmstances
* Identify the loss that can be attributed to the breach
27
The modern approach to causation
## Footnote
Following *Target Holdings v Redferns*
* Courts taken a less rigid approach to the distinction between falsification and surcharging
* Unclear to what extent tradition approach has survived targets
28
Facts of *Target Holdings*
* A commercial trasnaction
* Solicitor holding funds on trust for a mortgage lender until parties ready to complete
* Upon completion S was suupposed to release funds. S released early to intermediary. Ultimately funds got to borrower
* Borrower went insolvent, lender was unable to recover loan money via security.
* Sued S arguing for falisfication.
**No loss cused by breach**
29
Following *Target Holdings v Redferns* what has changed
Courts have taken a less rigid approach to distinction between *"falsification"* and *"surcharging"*
* Traditional approach to causation still applies to traditional trusts, but not to bare commercial trusts.
30
What did *Target* draw a distinction between?
* Traditional trusts
* Bare commercial trusts
31
What happenst to bare commercial trusts once a transaction is complete?
## Footnote
*Target*
* Bare trust completely falls away once the commercial transaction has been completed
* The trustee then has no continued obligation to reconstitute the trust fund.
## Footnote
Endorced in *AIB Group (UK) plc v Redler and Co*
32
How is loss caused by the misapplication of trust funds by trustees of a traditional trust assessed?
Falsification relevant
33
How is loss caused by breach of a bare commercial trust assessed?
* On a "but for" basis?
34
Offsetting losses against gains
## Footnote
General rule
Trusteees are not permitted to set off the losses caused by a breach of trust against profits they have made on other investments or trasnactions.
35
When is it possible for trustees to offset losses against profits?
When they arise from the same transaction or course of dealing
## Footnote
Bartlett v Barclays Bank Trust Co Limited
36
Bartlett v Barclays Bank Trust Co Limited
## Footnote
Offsetting losses against gains
* Trustees had majority shareholding in company
* Failed to properly supervise it
* Made two investments in property, one was profitable, other made a large loss.
* Trustees could offset profit against loss. **As arose from the same breach (ie the failure to monitr the company's speculative investments**
37
Defences to breach of trust or fiduciary duty
* Exemption clauses
* Beneficiary insitgation / consent / aquiescence
* Statutory limitation rules / defence of laches
* Statutory relief under 61 TA 1925
38
Exemption Clauses
## Footnote
Defences?
* Trust instruments will often contain exemption clauses that have the effect of limiting or excluding trustee liability for particular sorts of breach.
**Duty exists, protected from personal liability**
* Cannot be relied upon for fraudulent breach or dishonesty
39
Armitage v Nurse
## Footnote
Exemption clause
Trustee cannot rely on an exemption clause if they have acted dishonestly
40
Insitigation, consent and acquiescence
## Footnote
Defences
* Trustees will not be liable for a breach of trust or fiduciary duty if they received **fully informed consent of all benenficiaries**
* If all beneificaries **insitgate or request the breach** - partial if not all beneficiaries.
* If beneficiaries **affirm**, by words or actions
41
INSTIGATION - Impounding a beneficiary's interest
Using some or all of the instigating beneficiary's share of the trust fund to indemnify the trustees against a claim by the other beneficiaries
* Courts discretion
* No requirement to show instigator benefitted from breach
## Footnote
s62 TA 1925
42
CONSENT - Statutory power to impound beneficial interests
* Applies where beneficiary has consented to the breach, but only where the consent **was provided in writing**
* Beneficiary need not have benefitted
## Footnote
Statutory power
43
Common law discretion to impound beneficial interest in cases of consent
* Need not be consent in writing
* Beneficiary does have to have benefitted from breach
44
Name the two different to impound a beneficiaries interest
## Footnote
Defence: Consent
* s62 TA 1925
* Statutory power - instigation and consent
* Common law - consent
45
Where a beneficiary instigates or requests a breach, who do the trustees have a defence against?
The insitgator beneficiary only.
Might be able to impound insitgating beneficiaries share of the trust fund.
46
Statutory limitation period for beneficiaries with *interests vested in possesion*
**s21(3) Limitation Act 1980** the limitation period for bring a claim for breach of trust is **six years from the breach**
47
Statutory limitation period for beneficiaries with *with future interests*
Limitation period only starts to run when their interest vests in possession.
Claim for breach of trust is six years from vestin in possession therefore
## Footnote
s21(3) Limitation Act 1980
48
For what type of breaches does the limitation period not apply?
* To fraudulent breaches
* or proprietary claims against the trustee.
49
If a trustee is also a beneficiary and receives an unfairly large distribution from the trust.
After six years....
## Footnote
statutory limitation
* onlu the excess can be recovered
* Unless the trustee acted dishonestly or unreasonably in making the distribution.
* Dishonest = may be possible to make a claim
50
Equitable defence of laches
* If statutory limitation period has not yet expired...
* Trustees may still be able to rely on equitable doctrine.
* To argue beneficiary **has waited too long to bring a claim**
* This will be highly fact-specific
51
What is needed for the defence of laches
* Trustees need to demonstrate
* The beneficiary knew of a breach
* Delayed their claim unacceptably
* Making it unconscionable for the beneficiary to assert their beneficial interest
52
Section 61 TA 1925
Court discretion to excuse a trustee where the trustee "acted honestly and reasonably" and ought farily to be excused for the breach of trust.
53
Three requirements for s61 TA 1925
Trustees bear the burden of establishing three requirements:
* Honesty
* Reasonableness
* They ought "fairly" to be excused
**Court has wide discretion and does not use defence lightly**
54
Cases where s61 TA 1925 may apply
* Trustee has inadvertently acted outside their powers:
- Making an unauthorised investment
- distributing to the wrong person.
* More likely to be successful when a *lay trustee*, especially if they sought advice
* Harder to prove professional acted reasonably, or that it is fair to grant relief
55
Will taking advice necessarily grant relief under s61?
* No but an important consideration
* *Re Evans*
56
Re Evans
* An individual acted as executor of her father's estate
* Believing a missing beneficiary (her brother) to be dead.
* Sought legal adcice and took out beneficiary insurance before distributing estate.
* Brother alive and insurance policy did not cover the loss
* Court agreed it was appropriate to grant relief
57
Apportionment of liability
* Trustees are jointly and secerally liable for breach
* One trustee may compensate trust fund for entire loss
* Trustee is likely to seek contribution from co-trustees under ***Civil liability contribution Act 1978***
58
Civil liability contribution Act 1978
**s1(1)**
* Where two or more parties are liable for the same damage.
* Court has discretion to require one party to make a "just and equitable" contribution to another.
**Presumption of equal responsibility, may depart from this where facts indicate. **
59
Civil liability contribution Act 1978
**Unequal contributions**
* Reflect differing levels of culpability.
60
Full indemnity
## Footnote
s2(2) Civil liability contribution Act 1978
* Very rare cases
Only likely where:
1. A particular trustee is morally culpable for the breach
2. Trustee is also beneficiary
3. Trustee acts as solicitor, breach is committed in reliance on their advice. **Will not necessarily grant indemntiy**
61
Indemnity case law: Solicitor trustees
* Re: Partington
* Head v gould
62
Re: Partington
## Footnote
Indemnity Case: Solicitor trustees
* Two trustees, one was a solicitor, the other was the testator's widow
* Solicitor took sole responsibility for the adminsitration, failed to inform the widow.
* Negligently made an unauthorised investment
* Court made a full indemnity ont he basis that it was **reasonable for the widow to have relied on the advice**
## Footnote
Contrast to *Head v Gould*
63
Heaad v Gould
## Footnote
Indemnity case law: solicitor trustees
* Where lay trustee took an active role in the breach of a trust.
* Solicitor Trustee did not have controlling influence over their co-trusteee
**Indemnity inappropriate**
## Footnote
Contrast with *Re Partington*
64
Contributions between trustees and third parties
Trustees who are liable for breach of trust
* May seek contributions from **professional advisors** who provided negligent advice which led to the breach
* May also seek compensation from **strangers to the trust** - especially who benefit
