Breach of trust Flashcards
(16 cards)
What does it mean that trusteeship is a joint office?
As trusteeship is a joint office it will often be the case that more than one trustee will be liable.
Can a trustee be liable for a breach of trust before appointment as a trustee?
*A trustee will not be liable for a breach of trust which took place before they were appointed.
*On appointment, if a trustee discovers that a breach of trust occurred, they should commence proceedings to recover from the former trustee.
*Failure to take such action may result in breach of trust.
Will a trustee continue to be liable for breaches after they have retired?
A trustee will continue to be liable for any breaches committed during the time they acted as a trustee after they have retired.
Trustee will only be liable for breaches after they retire in two cases:
- Where the trustee retired to facilitate the breach, or
- The trustee parts with trust property in retiring without due regard, so loss is suffered when the property is transferred to the new trustees.
Is it possible to exclude the liability of trustees?
Yes, it is possible to exclude or limit liability by using an exemption clause. This does not apply where the breach is fraudulent.
Is it possible for trustees to rely on any statutory provisions to limit their liability?
Trustees may rely on 61 Trustee Act 1925: “acted honestly and reasonably, and ought fairly to be excluded for the breach of trust”
This might be applicable where the trustee sought and relied on legal advice before taking a course of action.
What is the limitation period for bringing a claim against a trustee?
6 years from the breach.
What does that limitation period apply to?
Is insurance an option to cover liability?
Yes, can obtain indemnity insurance and it is possible for the insurance premiums to be paid out of the trust fund.
Does not apply to fraudulent breaches of trust.
Explain consent and acquiescence
Trustees will also be excused from liability for breach of trust if they can show they obtained the fully informed consent of the beneficiaries or that they acquiesced.
Both can provide a partial defence against individual beneficiaries.
What discretion does the court have under s62 Trustee Act?
Under s62 Trustee Act 1925, the court has the discretion to ‘impound’ the beneficiary’s interest under the trust in order to satisfy the claims of the other beneficiaries. The court will do this where it is considered ‘just’ to do so which will usually be where the beneficiary has actively encourage the breach.
What are the remedies available to trustees due to a breach of trust?
Explain the ‘but for’ test
*As a broad rule trustees will only be liable for losses where their breach can be shown to be a ‘but for’ cause.
*This loss is assessed at the date of the trial, rather than the date of breach.
*Trustees are not liable for losses unless they have breached their duties. They are not insurers.
*However, the trustee may become liable if they continue to hold the investment despite its poor performance. This would be a breach of their duty to review investments and consider whether to vary them.
Is it possible to offset losses against gains?
In general, trustees are not permitted to set off the losses caused by a breach of trust against profits they have made on other investments or transactions.
However, it is possible to offset losses against profits where they arise from the same transaction or course of dealing.
How are trustees liable for breach of trust?
They are jointly and severally liable.
What does jointly and severally liable mean from the trustees perspective and the beneficiaries perspective?
From the perspective of the trustees, there is a further question which is that of how the liability should be apportioned between them under the Civil Liability Contribution Act 1978.
If one trustee is sued for the full amount of the loss to the trust fund, they are likely to seek a contribution from their co-trustees.
Would the court award an idemnity?
It is rare for the court to award a full indemnity, as this effectively exempts a trustee from liability for a breach. In general, an indemnity will only be awarded where the indemnifying trustee has benefitted from the breach (including cases where they are also a beneficiary of the trust) or where a trustee is found to have been solely responsible for the duty that was breached.
As trusteeship is a joint office, an indemnity is very unlikely in practice but may happen where there is a significant disparity in the knowledge and experience of the trustees, resulting in one trustee taking full responsibility for a particular course of action. The most likely scenario where this will occur is where one trustee is a solicitor and another relies upon their advice as to the legality of a decision.
