Trust 13 Liability of Trustees

Question 1

What different ways can a trustee commit a breach?

Answer 1

• acting outside powers
• failing to act in accordance with their duties
• Acting in breach of fiduciary duties

Question 2

Are trustees liable for breaches committed before their appointment?

Answer 2

No
But if they discover a breach, must commence proceedings otherwise could become liable

Question 3

Are trustees liable for breaches once they retire?

Answer 3

They are liable for breaches committed before they retired
Only liable for breaches that occur after where:

• trustee retired to facilitate breach
• trustee parts with property in retiring without due regard

Question 4

Can trustees offset gains from a breach against losses?

Answer 4

• Generally no
• can do if losses and gains arise from same failure

Question 5

What remedies are there for breaches?

Answer 5

• Where trustee misapplied TP, can seek to recover property/TP
• If not possible to recover property or results in loss in trust value, seek compensation
• Trustees only liable for losses where their breach is a ‘but for ‘ cause

Question 6

What defences are there?

Answer 6

• fully informed consent
• if some Bs have fully informed consent have a defence against those Bs
• defence against Bs who instigate or request breach
• Bs consented after the fact by their words or actions

Question 7

What further action may be available to trustees in respect of Bs who instigated the breeech?

Answer 7

May be able to ‘impound’ use that B’s share of the trust fund to indemnify the trustees against claims by the other Bs

Discretion where
- instigated with no need to show benefited
- consented to the breach in writing with no need to show benefited
- consented to the breach not in writing BUT need to show benefited

Question 8

How can trustees avoid liability for breaches/wrongful distribution?

Answer 8

• Advertising for claimants in national newspaper (after 2 months, they can distribute)
• Retaining fund or paying money into court
• Seeking court directions
• Benjamin order
• Taking out insurance against wrongful distribution

Question 9

What’s the default position for trustee liability where there is a breach of trustee duties

Answer 9

Joint and several

Question 10

What’s the default position for trustee liability where there is a breach of fiduciary duties

Answer 10

more likely to be the one trustee

Question 11

Is it an excuse for a trustee to say that they weren’t involved in the trust

Answer 11

No - Co-trustees must act together. Not playing an active role is a breach in itself.

Question 12

How can trustee liability be excluded or limited?

Answer 12

1. Can have exclusion clause in instrument (not where breach is fraudulent)
2. Can rely on s61 TA 1925: gives court discretion to excuse trustee where they acted honestly and reasonably, and ought fairly to be excused
3. If they show they obtained fully informed consent or Bs acquiesced, operates as partial defence

Question 13

What limitation period is there for bringing a claim for breach of trustee duties?

Answer 13

6 years (for beneficiaries vested in possession)
Doesn’t apply for fraudulent breaches or proprietary claims

Question 14

What is the limitation period for bringing a claim

Answer 14

• 6 years from breach if B’s interest is vested
• 6 years from vesting if B’s interest is contingent
• Does not apply to fraud

Question 15

What is the statutory defence to all breaches?

Answer 15

Trust shows they:

• acted honestly
• reasonably
• ought to be fairly excused

Question 16

Trustees are jointly and severally liable, what can a trustee do if they are held to account for the whole of a loss?

Answer 16

apply to the court to make a just and equitable contribution from the other trustees