Breach of Trusts/Tracing Flashcards
(188 cards)
1
Q
what is a breach of trust?
A
A breach of trust occurs where a trustee fails to perform any of his duties or improperly exercises any of his powers.
2
Q
what must the beneficiares do?
A
The beneficiaries may proceed against a trustee who commits a breach even where the trustee believed what he was doing was in the best interests of the trust: Re Brogden [1888
-if theres a breach of trust theres a breach of trust
3
Q
what if breach was mere techincal?
A
unless the breach was a mere technical breach which the court would have in any event sanctioned, Lee v Brown [1798]; Brown v Smith [1878].
4
Q
what will ct do in regard to technical?
A
the ct will police trust generally if doubt always ask ct then technically its a none breach
5
Q
Injunctions- what is injunction for?
A
if ther eis an anticipated brach of trust so if ben claim obvs prove this, that a cours eof actom the turste wants to udnetake breach of terms of turst or its terms then the ebenfic can go to ct and in ct if equity, this disrec aticle order against trustee to stop him prusing certain coruse of conduct for e.g unauth title of trust assets which would potut rustee in breach of perhaps terms of trust
6
Q
cases for injunctions?
A
This remedy is available to prevent anticipated breaches of trust:
Dance v Goldingham [1873] – to restrain an unauthorised sale.
Riggal v Foster [1853] To restrain unnecessary mortgage.
Fox v Fox [1870] – To prevent improper distribution.
7
Q
what happened in dance v goldingham?
A
Dance v gold- r..a.wtruste want to enter into mrotgage trnas to brro money secured on trut assets using as security for loan, trustee have abuse lgal poswer over prop. But if ben feel that put truste in b.o.t ocoudl give injuction to retsrin that. Or if trustee eking to distribute trust prop in wy ben gthink in contrary to terfms of trust giving prop or income or money to people whoa re enitled theremay be acause a debate over the construction, terms of trust instr some1 should get this money or not but obvs if ct resolves that q of con, ct can resolve any issues relating ot trust they than may issue injuction to rsstain would be rbeach there.
8
Q
Personal Remedy against Trustees?
A
Personal rem obvs if trustee mismanaged rust prop, committed breach with trust, enter into perhaps reckless investments of turst fund whichc auses huge lost of fund, or investing trust assets high risk shares or by their conduct created a loss ot be, ben can sue them perosnallh for breach of trust fo comp. trustee is then personaly loiable
9
Q
when is trustee personally liable?
A
Trustee is personally liable to beneficiaries for any benefit which he receives as a result of his office as well as for any loss suffered by the trust.
10
Q
what did we look at last week in reference to this?
A
now that we looked at last week- trusteeship is very onerous, very strict. If you make investments that cause loss u can put hand in pocket and pay compo to ben, if u recieev a personal gain as a result of ur fid duty, make unayuth gain e.,g reciev bribes, fhr case..u can hold those on a c.t. weird type an account to beneficaires. So if u enrich urself personally as result of foficers trustee u can be held account for those gaisn to ben. Ur first and fundamental duty of duty to ebneficary- LAST WEEK
11
Q
when will a trustee not be vic liable?
A
A trustee will not be vicariously liable for the breaches of co-trustees or the dishonesty or neglect of agents who act for the trust, unless there is default on the trustee’s part: Townley v Sherborne [1634].
12
Q
Liability of Incoming and Retired Trustees - what is liability here?
A
Re Strahan [1856]
An incoming trustee is not liable for breaches committed by his predecessors, but if he becomes aware of such a breach after assuming office, he must take immediate steps to remedy it.
13
Q
what happened in head v gould?
A
Head v Gould [1895]
A retired trustee will be liable for breaches he committed while in office, but not for breaches committed by other trustees after his departure, unless his retirement was intended to pave the way for the commission of the breach.
14
Q
what does this illustrate?
A
Again illustrates – rule to shed start and end date of liabuktiy is whilst u I office, not before and when u ;leave not liable after
Ur time period of ptoenial laib for dec u made whilst u were trustee during lifetime of ur office- THAT THE GENRAL RULE
time period potential for liability
15
Q
Joint Liability- what about joint liability?
A
interesting 1
16
Q
joint liability?
A
Where two or more trustees are involved in committing a breach their liability is joint and several and the beneficiaries may sue all or any of them.
17
Q
e.g of this
A
If 2 trustees e.g ab and b managing million pound trust fund some screw up and fund reduce in valude bad or reckless investment decisions.. Where 2 or more truste involved in commiting breach, gerneal rule is their liability join in several ben may sue all or any 1 of them
So if a and b screw up amnage of turts prop ad cause loss of trust fund ben could sue and ab togev or b or a. if that ahappens person who sued a is personal laible to repair loss of fund, through his mismanagement, person sued can claim contribution
18
Q
what if one trustee sued?
A
If one trustee sued, he can claim a contribution from any other trustees under the Civil Liability (Contribution) Act 1978. The court sets the level of each trustee’s liability according to their culpability.
19
Q
so judge may sue do what?
A
so judge may say a sued shoudltn by himself a claim contrib form b who trustee office at time and b should pay 50% of this equally his dec. or could say a primarily repsosnible and b ahd much liable role. Judge will set portion of laibiltiy according to blaine, cpulabiltiy of breach
But in theory if 1 is sued any other trustee who trustee who trustee at material time can be a contrib can be claimed from them.
20
Q
what happens where 2 trustee sued?
A
Where two trustees sued one may be able to claim an indemnity from the other, especially against a solicitor-trustee by his co-trustee who has placed complete reliance on the solicitor regarding trust affairs: Chillingworth v Chillinghworth [1896]; Re Linsley [1904].
21
Q
example of this sueing?
A
Trust adiars, bc of his export knowledge
So if 2 sued a and b , a could say well I want full indemnity from b cos actually b he was solic he made all dec and I want him to pay pout my laibilty cos basically his fault- that’s a common law principle
22
Q
what is an indemnity?
A
An indemnity can also be claimed by a trustee against his co-trustee where the co-trustee has acted fraudulently in initiating the breach Re Smith [1896].
23
Q
so whoever is to blame what?
A
So whoever most to balme u can pin more liability on them
24
Q
Measure of Trustee’s Liability?
A
Once breach of trust established, it is necessary to work out extent of trustee’s liability.
25
what is the basis of this assessment?
The basis of assessment is to work out the loss occasioned to the trust estate by the breach.
See: Target Holdings v Redferns [1994] HL
26
Target Holdings Ltd v Redferns [1966] 1 AC 421
A trustee who has acted in breach of trust is only liable to compensate the trust for loss which was CAUSED by the breach. A causal link is required. The case concerned a complex mortgage fraud. Mirage Properties Ltd agreed to sell properties in Birmingham to Crowngate Developments Ltd a company owned by Mr Kohli and Mr Musafir for £775,000.To execute the fraud Kholi and Musafir arranged for the purchase to be made through two intermediary companies they owned (Panther Ltd and Kholi & Co), so that it appeared that the sale to Crowngate was for a consideration of £2 m. Crowngate applied to Target Holdings for a loan of £1.7m and employed Redferns as their solicitors. The loan application was supported by a £2m valuation of the properties
27
what about this?
I don’t wnt to go into fact of this not gonna examine on it but just mention it, broad rule is a trust used acted in breach of trust only liable r.a.w so is this elemtn fo causation, would loss arisen anyway or has it arise- that what target case estanital about.
28
example?
made by a firm of estate agents. The loan was paid into Redferns’ client account on 28.6.89 without any express instructions as to the release of the funds. On 29.6.89 £1.25 m was transferred to the account of Panther in Jersey, although at this stage the contract for the purchase of the properties had not yet been entered and it was not until July that the contracts and mortgages in favour of Target were executed. Subsequently the value of the properties dropped sharply and Target sought to recover their loss.
The estate agents were in liquidation. Target therefore sought to recover its loss through summary judgment (allowing for the amount received from the sale of the property) from Redferns. The transfer of funds BEFORE the contracts for sale and the mortgages had been entered into had constituted a breach of trust. Did Redferns have a defence?
29
at first instance it was held what? $
At first instance it was held Redferns had an arguable defence. CA disagreed which held that once a breach of trust was established the trustee was obliged to make good the deficiency in the trust fund and the rules about remoteness of damage applicable to contract claims had no application. Gibson LJ dissenting took view transaction would have gone ahead anyway and Redferns breach of trust did not cause the loss.
Redferns appealed to HL. HL held Target was not entitled to final judgment. Lord Browne-Wilkinson stated that the underlying principle as ‘there does have to be some causal connection between the breach of trust and the loss to the trust estate for which compensation is recoverable, viz the loss would not have occurred but for the breach’.
30
his lorship took what view? $
His lordship took the view that the transaction would have gone ahead irrespective of the breach of trust, the breach had not been the cause of the loss suffered.
In short causation must be established, i.e the breach of trust was the cause of the loss.
31
Other Examples:
Some e.gs on losses tot rust and breaches
32
knott v cottee case?
Knott v Cottee [1852]
A trustee who makes an unauthorised investment is liable to pay the difference between the cost of the investment and the price at which it is sold.
33
knott in other words?
Knott v cotee- r.a.w- so fi trustee outside tems inves powers under trust isn’t or permitted by law makes reckless investment which causes a loss, the trustee must make good of tht loss to bene. And pay diff btw costa nd investment and the price which it sold. And obvs if sold for less. Have to put hand in his pocket and compensate for nay shortfall caused to the beneficair. The turst fund,
34
wright v morgan?
Wright v Morgan [1926]
| If all beneficiaries are of full age, they may choose instead to adopt an unauthorised investment.
35
wright in other words?
Wright v morgan- r.a.w – in which case theyre essentially no loss, simply adopted same investment shoudltn happen, gone ahead, wave right to claim, they adopt inevstm thrn becomes just unauth investment in trust prop but they’ve got a consent
36
fry v fry?
Fry v Fry [1859]
A trustee who improperly retains an unauthorised investment will be liable to pay the difference between the price at which it is sold (or its value at the judgment date if not sold) and what it would have fetched if it had been sold at the appropriate time.
37
fry v fry in other words?
Whuchfry v fry- gives rule her e r.a.w – so what tryna do, trustee for buying something and not selling peak market conditions, if investment decision wrongly retained purchase of asset and then markets crashing and not selling it to selvige the loss, again trustee by nto selling in way which best protects ecnomoic value of trust fund can be liable for short fall ,
38
re bells indenture?
Re Bell’s Indenture [1980]
A trustee who improperly sells an unauthorised investment may either be required to replace it or pay the difference between the price at which it was sold and what it will cost to replace it.
39
re bells in other words?
Re bells – r.a.w – so the basic rule all these gcases, if there unauth in vestment in some shae or form and u can estba breach, then its any short fall, difference in value which would be basis of compensation for beenficairs hw that diff in value is arrived at for shortfall. Tis a short fall ruke.
40
shepherd v mouls?
Shepherd v Mouls [1845]
Trustees must invest trust funds without undue delay. Undue delay may render the trustee to pay interest on the uninvested fund.
41
trustees who manage trust funds what?
Trustees who mamage trust funds- common law duy to invest case re rag not in notes, wragg, trustee of common law duty ot invest if trust fund, cant just put it under matres, gotta invest it show bank crown, get retrun get some int. rptoect value of fund and prfoetc against value of investment
42
what happened in shephard?
Shephered- sr,,aw – undue delay may render- that compensaito part of won money. So if trustee given 10,000 in bag doesn’t put in bank to creatre return shove undermattres he could be liable int erest loss on period where money dog nothing.a gain shortfall which proper ivestment would go. Moment not too bad cos int low ..
43
what about 2 cases?
Dimes v scott, wills – 2 cases which give us this absic rule
44
dimes v scott/wills v gresham?
Dimes v Scott [1828]/Wills v Gresham [1854]
Trustees cannot ordinarily set-off a profit made from one transaction against a loss from another entered into in breach of trust, unless the profit and loss resulted from the same transaction/same policy decision to pursue a particular course of investment (Bartlett v Barclay’s Bank (No 1) [1980].
45
so what do you need?
so u need that investment nexus to allow for a set off – okay we made bad elgal investment these shares which wont powerd to by. Can only buy uk shares under trust unst. Brought these shares in clumba etc, suffered loss but we bought shares in uk comoany which made huge profit. Are w eliable for the shortfall in unauth investment outside uk Columbia yes we are, can we set the loss offer against gain made on lawful invest. Answer no unless u can show nexus in the investment policy. So genrall cannto set off loss made from legal inves which causes los against profit gained on good invesmtnet. Cos 1 just doing job and another breach turst. So genrall u cant set off unless u can show that necus
46
what happened in guardian ocean?
Guardian Ocean Cargoes v Banco do Brasil No 3 [1994]
Once extent of trustees liability is determined interest will be charged on sum due from date of the breach, which will follow prevailing commercial rates.
47
---
– once you pay interest on compensation not really damges here its compensation breach of trust dmages for breach of contract, why do people claim intersta nyway. Well get interst bc , idea behind itnerets is that it compensates person who suffered loss, put position wouldn’t been in had loss not been occurred with a finaicla award of money is compensaton. Get interst on that bc that compensates for your sort of theoretical loss of use of money. Its not , getting comp, interst on it for loss of use of money, that’s sort of logic behind it
48
Trustee Defences to a Personal Action
Several defences are available to a trustee who is being sued personally for a breach of trust:-
49
if trustee is sued for breach of trust what?
If trusree is sued for breach of truste, trustee ca invoke sevral defence to prevent personal liability kicking in.
What defences do trustee have against personal action for comp for breach of trust. Seevral defences consider ‘
50
what about beneficiary participation in concurrence of breach?
(i) Beneficiary(s) participation or concurrence in breach, where beneficiary acts of own free will and understood trustee’s actions.
51
benficaires somewhow what?
Beneficarys themselves somehow participated or concurred iun breach bnut the beneficiary act own free will and understood trustees actiosn and went along with it. Knew trustee should by shars in colum and was awar-
52
what happened in holder v holder? and repaulings?
Holder v Holder [1968]; Re Pauling’s WT [1963] (consenting beneficiary under undue influence/no real participation therefore.)
53
holder and paulin in other words?
holder and re pauking r.a.w- 1 has to be careful that there is no undue influence o part of ben who perhaps giving concurrent uor consent to behavioruw hich amounts ot breach ot=f trust. Have to be fully aware whats gpoing on and give free and informed cosnetn for that defence to work.
54
acquiesence or release of ben ?
(ii) Acquiescence or release by Beneficiary
- Acquiesne- r.a.w so basically been saying ima ware breach of trust but not gonan take any action agains tu –kinda like estopeel- ebn simply goeds along with it. Bit like 1st defence. Sort of rpomsie dw not gonna sue u for nay loss
55
what happened in re garnett ?
Re Garnett [1885]/Re Blanchford [1863]
A trustee will also have a good defence against a beneficiary who learns of a breach after its commission and then releases the trustee from liability or otherwise acquiesces in the breach.
56
impounding the beneficiary interest?
(iii) Impounding the Beneficiary’s Interest
Rule her where breach commited at instig or consent of ben- so ben given clear consent , court may as discretion may order tha ben interst should be impounded partly hi fault and papl towards repair
57
where breach committed at the instigation?
Where breach committed at the instigation or with the consent of a beneficiary, the court may order that his interest should be impounded and applied towards the repairing the breach either under its inherent jurisdiction or under S.62 Trustee Act (TA) 1925.
See Fuller v Knight [1843]/Chilingworth v Chambers [1896].
58
so court saying what?
So ocurt syain partly ben – impound ben interst and use It to restore to compensate loss tot ruts fund genrlly. Remainder ben don’t lose out. Sort of punishment of been wh incurred or encouraged ben to breach trusy which caused a loss
59
what about s.62 ?
S.62 TA 1925:- S,62- satturoty impounding jurisdiction
60
allows the benficiarys interest to be impounded what?
Allows the beneficiary’s interest to be impounded in the event of a breach whether he benefited from it or not:
Where the beneficiary instigated the breach; or
Where the beneficiary consented in writing to the commission of the breach.
To trusytee carrying out this breach of turst
61
(iv) Relief from liability under S.61 TA 1925
Where trustee has committed a breach but in so doing has ‘acted honestly and reasonably such that it would be fair to excuse him from liability’.
62
s.6 ?
s. 6 – broad discretion here useful to trustee who beig sued for beach of trust. Trutsee may be negilgient, a,mlciou, reckless or made accidental msitsk ehwich caused loss. Trustee can breach trust calculaitn wy car;ess way by acicdnt. BREACH IS ABREACH. But there are various degress of innoncr and nmaliocusness.
s. 61 not offnce but opp relief for turste sue for extent of cupabiltiy
ss. 61 sats where tr r.a.w – cout can mitigate lioabilti liabi entirely- accidntl breach or gonan cut compo by 80%- so all very discretionary
63
what happened in perrins v bellamy?
Perrins v Bellamy [1899] – where trustees sold leaseholds belonging to the trust on the erroneous advise of their solicitors.
64
what happned in re de clifford?
Re De Clifford [1900] – where trust money entrusted by trustees to a solicitor in good faith to defray trust expenses was lost on the solicitor’s bankruptcy.
65
re de clifford in other words?
Re de Clifford – r.a.w sensible cause of ction just unlucky- loss but wasn’t malicious bust these things happen – so liab was removed under s.61
66
what happened in evan v westcombe?
Evans v Westcombe [1999] – where a personal representative had, on legal advice, taken out an insurance policy in favour of a missing beneficiary who later reappeared and brought a claim for an account and lost interest in respect of his share of the estate.
67
evans in other words?
Evans v west- r.a.w – ig et tjat often with turst context of wils and things. Might be vlaid trust or may be evidentially and concept certain but the trustees say … can do is work out share aligate shars, tka eout msising ben insurance which basically allows trustee to disrib fund. People missing dea dor nto sure. Thee people then tujrn up few yrs later this perosnt ake out insuance o trustes aren’t hen sued. Not given 12 for bloke couldn’t track. So can get missing ben insurance. So is cliam insurance shar epeosn who mssg o dea – peros rep r.a.w case.- here defence kicke din and liab was mitigated. Said well why didn’t get use wyhy didn’t e=isnurnce pah out but may nto have covere ufll loss.
68
(v) Exemption Clauses in Trust Instruments?
Provide a good defence and often broadly drafted:
Armitage v Nurse [1998]
‘No trustees shall be liable for any loss or damage which may happen to the trust fund…at ay time or from any cause whatsoever unless such loss shall be caused by his own actual fraud’. Clause valid and could excuse gross negligence but not dishonesty.
69
what are exemption clauses in other words?
Exemptoon causes – rust very elastic could have bare trust o 75% trust doc – either rocngtetx turst obvs kicked in. extent powers an dutys depends on..
Very flex htings turts basic philio person who sets out trust can do what wants, set out terms an docnd. Now in doing that can u have an exlusion or emption clause/trust ins which sya if anything goes wrong can u exclude liability?
Can u have sucg an exemption clause, but these goes really
If exemption clause is allowed ot be so wide turste cant be personal liable for nayhting hat his dfence, if so broad then get to he point what spojt having trust udnemrin basis of trust. Can u have xmption clauses and how ide can be. Ca and an be wide
70
armitgae v nurse in other words?
Armitahe v nurse- certain things u cannot exempt or exclude ;laib for. Cos got o very heart of trusteeship and if remove those no point having trust
Lj millet judgemnt – no trustee r..w – this clause was vlaid so shws u can have very broadelcusion clauses. U can even exclude liab for gross neg in mamaging trust fund but cant exclude is fruadlent behaviour. Cos fraud not to gbehave fraud or to act in goo fiaht form bad faith , os the essence of fid duty , which truste owes benfic, so to act in good fauth ijn non fraud maner. This is central to role of trutse and to act and to excuse fraud would be simply going throgu 5 right into central apect of tursteesgu.
71
so what can u not exclude?
So cnat elcude liabity for conduc thwich amout s ot fraud in this sens.e but clvude by approp clud but if such a clause did exist… can have evry broad exlxcusion causs but sem from armitge u annot ezlcude frau dor conduct amount to fruador dishonesty. But can eslcue carelssnes or negligence.
72
(vi) Statute-Barred Claims against Trustees
Final aspct is time limit
| Sometime slimtiaiton act can give offence
73
what about s.21 3?
S.21(3) Limitation Act 1980- general rule an action for breach of trust against trustee must be commenced not more than 6 years from the date when cause of action accrued (breach).
74
s,21 3 in other words?
s.21 3 r.a.w limit act- trustee – personal alciton must be commence r..aw – so for a personal acton agains truste for breach of trust. Seking com equity loss of fun, whether defnce val or not. 6 years to sue trutess personally for any loss caused, fate running form date of vreach. Even if ben didn tknow until 6 yrs breach of turst. So biut like conratc law. Perosnal acito and if issue proceedings outside peiorod ull be time barred. That is defence trustee can run. So its perosnla action. 6 yr limitation period.
75
so that general rule what?
So that genral rule an action r.a.w
| An action started outside this period will be statute barred unless:
76
An action started outside this period will be statute barred unless:
- action is for fraudulent breach of trust (Gwembe Valley Development Co v Koshy [2003])
- action is to recover trust property/its proceeds in trustee’s hands/previously converted by him to his own use.-Aciton is fraud r..a w- rpove fraud not always eay in cvil case- looka t tracing claim sin min cos then not personal action its action in rem against proper y itself.
Action is to recover r.a.w
77
other stuff important for exam?
Other stuff quite important but this is important for exam- always exam q on tracing.
PROPEEITARY PROCCES OF GTRACING
78
foswkett v mckwoen tracing?
Foskett v McKeown [2000] HL, Lord Millett:
‘Tracing and following are both exercises in locating assets which are or may be taken to represent an asset belonging to the claimants and to which they assert ownership…
79
what was said?
…Following is the process of following the same asset as it moves from hand to hand….Tracing is the process of identifying a new asset as the substitute for the old …[and]…where one asset is exchanged for another a claimant can elect whether to follow the original asset into the hands of a new owner or to trace its value into the new asset in the hands of the same owner…
80
what was said in other words?
whanf tp hand so if a holds car on trust for ben passes to x and pas to y and z each time the car is simply changing hans, this is following .. Tracing ris slightly more ompli,atced
He syas this si process of iden- underline word subsitture r.a.w
So if a car is rare rolls Royce hold tust for ben by a who then sells to b , a tkes money from sale and buys loads of shars which then doube in value. Can ben claim shares an dincreas ein value which now rep what car was –its changed identiy. Trust asset gone form car to money to shars. Tracing is diea bringing claim to subsiture asset.
81
so what about tracing?
…Tracing is also distinct from claiming. It identifies the traceable proceeds of the claimants property. It enables the claimant to substitute the traceable proceeds for the original asset as the subject matter of his claim….’
Tracing r.a.w claimant (the ben)
82
Points to Note:?
Tracing will be available where a personal action will not suffice, e.g trustee bankrupt etc
83
so tracing assets being substited?
So tracing asstes being substited ben claimaing an asetinghteir euit title, often to the new asset. Now it’s a proepriary claim. Claim to asstes or their subsitturs. Why traing prop claim sin tracing important for ben
84
tracing bc propeirty claim?
Well tracing bec propetiary claim means that ben under tturst some descirp can claim cetain equit entilemnt into the new popery. Which been subsitued for the old. Wheetehr care for money. Money for sharss. And if all that done rbeahc of trust, by trustee an dgone bankrupt no point sueing him peronlaly for nay loss which may result, not worth suing,but if u can identify equit entileemnt to what si now new priop enw asset, you can assert as ben a priority like quistclose trust, equit entileemnt over that new subsititued asset. Gives u a propeiatray claim.
85
so tracing is what?
So travin is process also where c opp
Tracing is a process whereby the claimant is given the opportunity to identify his property.
86
tracing allows a claimant to?
Tracing allows a claimant to assert a proprietary claim to the property in question, i.e a claim to the asset, the thing itself.
87
tracing is avial at?
Tracing is available at common law and in equity
88
why are we concerned with tracing in equity?
We are concerned with tracing in equity, as rules are more sophisticated and flexible.
89
and crucical tracing IS MIXING $
– and cruiclal tracing in eq allows us to deal with problem called MIXTURES- when u start mixng up protpert. Partic where tart mixing up trustess own money with money hes pilledge dfrom trust fund. Then he buys load sof shares with mixture or trustee mixes 2 trust funds creates mixture an dbuy asset out of mixture. Ben can bring equitable tracing claim into those mixturs in various ways.
90
common law cant what?
Common law cant traced into mixtures in equity u can. Equity tracing rulses v important.
91
Conditions for Tracing in Equity
To trac ein eq to bring propeitay claim to asset or substitute, to assert prop entitlement to asset or new substitute asset even where pruchsased out of mixture of moneys, turst money. To brign any sort of eq tracing cliam 3 hurdles nes to cross
-3 Conditions for an Equitable Tracing Claim:
92
what is initial fid rels?
Initial Fiduciary Relationship
-need intial trust rels where essen fid rels btw intial parties essentialy court engrafts c.t. onto that rels btw fid effectively trustee an dht einnconent party, real end proper who ebn. As well see many case cases are result driven- come into due course
93
what is meant by property in a trace form? 2nd req?
(ii) Property in a Traceable Form
- so has o still exits. So if trustee takes 200,00 trust fund soend scasino lose lot thn ben can bring prop claim anyway cos money gone but if buysx load of shred which double in value got a gain- got ubsitue asets shares up aor own 0 new form of proper- like overreaching which u can trace into.
94
what is 3rd req?
(iii) No inequitable Results
- genral rule bring tracing lciam I eq no ineq result- called chnag ein psoiton defnce. The person whoa fected by tracing claim would it creat an unfai ro inequit result t aloow tracing lcima. Or si there so soet of innco part change positon in good faith in receiving this pro which turn sout to be trust prop.
95
(i) INITIAL FIDUCIARY RELATIONSHIP
to bring any equi tracing claim need to show inti fid rels
96
case for intiial?
Box v Barclays Bank [1998] Ferris J:
‘…equitable tracing is only available where there is an equity to trace which requires that there must be an ‘initial fiduciary relationship’’ between the person claiming to trace and th party who is said to have misapplied that person’s money…’
97
more on box?
This requirement is easily met as between trustee and beneficiary, whether under an express trust, resulting trust or constructive trust.
so as to alow ven prop claim tot hat pro
98
other recog fid where?
Other recognised fiduciary relationships where tracing orders have been made:
99
what about re diplock?
Re Diplock [1948]; Fiduciary relationship exists as between Executors and deceased’s next of kin.
IMPROTNAT CASE LAW OF TRACING – FID.- misspalied gave to worg people, people should hve had could bring eq tracing clai against recipient of that rpop to asset a priot eq entile to it. Subject to defence recip coild run on change of pspoiton.
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what cases after re diplock?
Chase-Manhatten Bank v Israel British Bank [1981]; Fiduciary relationship exists between banks where mistaken overpayment made by one to the other and other realises error (constructive trust imposed).
Agip v Jackson [1992]; In cases of commercial fraud, such as embezzlement of company money by an employee or agent a fiduciary relationship will exist and be breached.
101
chase in depth?
Chase manhan- int case –sai fi dif r.a.w – what haoened as had 2 banks moneyw as trnamitted byelctronic transfer bank who make transfer mande second transfer later on mill dolal, recip bank ove rpai mdillion pai- pull wa,s mistake in oayment rec got paid twice should have got paid cne and jusge said that when recip bank relaised rceievd 2nd payment in erro, their conscience copr cons affected and helf on c.t for th eorginal payer and original banka ssert prop money ben – under c..t – this very improtnat case reaosnign wa when 2nd recip bank kew of mistake, the c..t kicke n in-whenever justice good conscience require it- t5hat poit eq interin money crystalised in favour of payer bak, priopery ckaim money overany1 else
102
Re Diplock [1948]
Rngradted on fid rels esntial was c.t. to protect int ben with inncone tpeopel conenrned in’caase rrediplock
103
re diplcok in depth?
By his will Diplock gave the residue of his property on trust for ‘…such charitable OR benevolent…objects in England as my executors …may in their discretion select…’
He and the executors thought this was a valid charitable gift, but it was held that it was not (see Chichester Diocesan Fund v Simpson [1944]).
104
chair?
chari, exlcuisve charibt , charibtle ben
105
2nd exclusively what re diplock?
2nd exlcusibely ded to charity –diplock drafte willa n excustors excuse basis this as valid gift chairy. Discrton whicb charity give to. Problem waa slater went to court the onext to kin of will, if that git failed of chairbtl gift then have intestesse the gift og residue. Gif tin relaitont his prop resi left over. Hav intestee. So result is.it goes intes trules, basically next o kin, so next next to kin if can find agru this wasn’t valif clause gift, they get ll prop.
106
more on riplock?
Excuetors defate diwl bad, money given away th enxt to kin said should have doen that this wasn’t valid charitable gift because wasn’t exlcsuively charitable ebcuase of word or and they were right. Not exlcusivley charitable . Charitbel or benevolent. Could ahvebenevlent fof eobejct which sint charitable.so as the question fo cosnturticon.t h wor or si conejucitve, carrie sformer over 2nd bit. So looking at whole ot an exlcusive chairbtle gift. Can hve beneolvent object or cause not chairb, therfor ehwolt hig take as whol isn’t exclusively charibtle.0tght arg fo consturciton’so wrongly assume is being chairbtle, property to dfif peole isntituions they appled
107
chister did what?
Chister disconse fund rule- USD WORD OR can be tretad as bei not conjeuctve but disjucton. And ? Wuld ave ben alright but or sigegstive alternaitves. Chairbtle an dno charit therofr howle gft.. Claus ehwhol couldn be charibtle .therpfr eside wasn’t subject tot aht clause.
108
what did residue bit?
Residue bti faile dot the enxt to kin.
109
the exectuors did what?
The executors distributed £203,000 among a considerable number of charities and when the invalidity of the charitable gift was discovered the next of kin claimed to recover the money wrongly distributed to these charities.
110
exectors in other words?
The execturos distubuted. When invliddiscoverd next kin saidas that gift fial foes to su by default.w e want the reisude. The money ahd already ebne given away ot these charities wrongly under tha wrong chairbtle clause.
111
what about the next of kin?
The next of kin succeeded in a personal claim and were also entitled to trace against the volunteer charities.
Next-of-kin therefore having exhausted their remedies against the executors successfully claimed the money back from the charities.
(So enxt of kin having exhauste r.s.e – did this by qsserit equitbae entitlement tot race. Effectively executre next to kin.. Tar money equity. Euity entilent against innocent charities hwo wrong ly reicived it and they won)
112
next of kin in other words?
Next to kin suveed in personal claim agains texcutors, but also brogut propeirty calims seeking to trace again volunteer charity,es people who innconety reicved this money had givne to them nd sicreiton fo truste wornglya citng lause vlaid.
113
but their claims to assert equit entimelent what?
But their claims to asset equi entitlemet to money givne to vairosu chairitos – was subject defenceso 3 conditons were met. 1. intifial fid rels, enxt kind eeffecitvel y..t. engrafted to rptpect it . 2nd propert tracable form chairbtle had receivd it,a naiicpated, spent or gamabled awyal.3 rd uestion was there an inequitablr euslt- court did say where charities pent money I good faith cudlnt trace. But where could find money in good faith no change of psoiton and coudld elcar ehod up omoney onc.t next of kin, charge asset smoeny itnrodue.. Money or something
114
tracing all about prop?
Tracing all about oroepritary claims- READ RE DIPCLOCK ULTIAMTE CASE
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(ii) PROPERTY IN TRACEABLE FORM
A tracing order would be futile unless there is property to trace into.
-u nee cash money shatres some sort of substitute asset.
116
what does this depend on?
This depends on what the trustee/fiduciary does with the trust assets in his hands.
117
what about various possib?
Various possibilities exist:
118
diff scenarios where what?
Diff scneairis where rules of eq bene defleiped, all aim to protect innconent beneficiaires. Deisgned to protect innoce pos of bene.
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1st scenario?
(a) Tracing into Unmixed Funds
So tracing into unixed funds r.a.w – so if trustee goes bankrupt crediots cannot trust that money cos ben money truw equit ownership = prooerity
120
more on tracing into mixed funds?
Where the trust fund remains intact and is kept separately by the trustee (T), the beneficiary (B) is entitled to trace into the fund to the exclusion of T’s other creditors. B has an equitable title which gives him priority.
121
another e.g od mixed dunds?
Where T withdraws trust money and without mixing it uses it to purchase a specific asset, B has a right to trace into the asset, or claim a charge over it: Re Hallett’s Estate [1880].
122
e.g of this??
Where t withdraws r.a.w – read hllets stare-. So b takes out 10,00 trust fund and buys vase which eprhsp goes up in value or down, he can claim th asset held on c.t estsentialy for the ben or they can claim change over the asset
123
another e.g mixed funds 2?
Where T withdraws and squanders trust money without mingling it with his own, B’s right to trace in equity in priority to other creditor’s is lost (dissipation).
124
mixed funds 2 in other words?
Where t- r.a.w- noright to trace cos dispp- u can sue truste personally- u can bring peronal cliam but if gone bankrupt.. So can u brign claimt money no cos no proepritayr no property money has gone
125
2nd scenario?
(b) Tracing into Trusts Funds which are Mixed with Trustee’s Own Funds
126
what about tracing into trust funds which are mixed with trustees own funds?
so got naught turtsee whos of trust fund some shape or form, express ttrust years or ago, or solic trust account for clients,…? Takes money otut ruste 1 form or another,t akes money, nixes with his won money, what happens then,w ell if truste here becomes bankrupt after mixing turst fudns with wkn money
127
what about t bankruocy?
Where T becomes bankrupt after mixing trust funds with his own, B cannot trace into any part of the mixed fund in priority to T’s other creditors if the mixing was authorised by the terms of the trust: Space Investments v Canadian Imperial Bank [1986].
cannot r,a,w which is unlikely-
128
Unlawful Mixing of Trust Fund with Trustee’s own money?
Wht about where we have unlawful mxiicing
-Now it gets interesting
So sol trustee take 10,000 mixes it wil 10,000 got in his deposit acoutn,w hats position here
Where no withdrawls made
129
where no withdraws are made adrer what?
Where no withdrawals are made after mixing B can lay claim to the part of the mixed fund derived from the trust in priority to T’s other creditors: Re Hallett [1880].
130
more where no withdraws made?
Where no withdrawls made r.a.w – si trustee solic naughty solic goes bsut, do crdiotrs get 20,00 no the ben can lay cliam eq prioertary claim ,. What happens were truste withdraws- reha;etd r..aw-let ssy trustee solic takes out 20,00 and buys shars or car with it. Re hallet and isnclar v brou0 say ben-obtain frist charge over prop purchase toe xtent trust prop used to effect purchase. Or effectively tehyre claiming itn in asset really under c.t. to reflect their perceange share.
131
another example of mixed funds 4?
Where T withdraws the mixed fund and purchases specific property with it it emerges from Re Hallett/Sinclair v Brougham [1914] that B obtains a first charge over the property purchased to the extent that trust money has been used to effect the purchase.
132
what if prop purch out of mixed increases valu?
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If property purchased out of the mixed fund increases in value, B can claim the increase in value pro rata.
133
increase =?
increase- so fi solic takes 10,00 from client acoutn, mix 10,00 own money buys 20,00 worth ofs hares in amrks spaeners double in value, the benefit can claim, properitary share of tha equitab title those shares and claim increase in value.
134
what about foskett v mckewon?
Foskett v McKeown [2000] HL
Claimants whose money was wrongly used to purchase at least two out of five premiums on a life insurance policy, were entitled to a proportion (40%) of the policy proceeds/payout (£ 1million) and not just a charge over the proceeds to the amount of their contribution to the premium payments.
135
fosken in other words?
Foskett v mckwoen- lord walkers judgement read his judgemnt- claimants who money ,entiled to prop r.a.w – tehya ctually claimed the icnrease
136
what about bank accounts?
Bank Accounts:-
Bank accounts. What ahoens where trustee takes say 10,00 solci fro client acocutn, mix with 10,00 won money, owncurent oacocutn so, 20,00 or dposit account and tyhen takes out 10,00 goes gambling lose the lot. Equity protets be here ans asya truste deemd to spent and blown his won money
137
where t withdraws mixed and squandewrs it?
Where T withdraws part of the mixed fund and ‘squanders it’, T is deemed to have spent his own money first, leaving B with a priority claim to the balance in the mixed fund, so as to recover what is due to the trust, Re Hallett [1880].See also Lord Walker Re Lehman Bros International (Europe) [2012] 3 AER 1.
sot ehy can claim whatevrs left, rehallet look at all cases
138
where t after mixing trusts funds with his own purchases what?
Where T after mixing trusts funds with his own purchases property with part of the mixed fund and then squanders the balance, If T is deemed to have spent his own money first (Re Hallett (above) this would mean in effect that T’s money was used to purchase the property while the trust money was dissipated.
139
to a void this what?
To avoid this Re Oatway [1903] declares in such circumstances B will have a charge over the property purchased out of the mixed fund in priority to any other creditors.
140
what about this basic presumptiion?
Sometiems this absic presumption can create aprob, so here where sya trustee, solic 10,00 client account breach of trust mix 10,00 ,so 20,000 mixe this fund with hs won,t he pruchases prow tih aprt of mxif und elts say buys some sahres, 10m00 wiorht of shares an dthen dsquanders balance on gambling hol no fi apply rehallet ruke uf t spent mobey firdt this woud mean effect, trustees money used to purchase prop to 1st point
141
where trust money gambled?
. Wehre of trust money , 2nd lot gmabled away gone, so toa void that oddity re oatw ayd eveloped expectio says in such circum ben will have chare over prop purchased or c..t out of prop purchased out of mixed in rpooerirty to any toher creditos. So ur everse rule each time to protect inncoen tben. So if mixed with won moey buys and ssert swaunder the rest, if you apply the strict re halel rule that hes blown his own money firds. In this case own money went out first I tiem, broguth shrea that goen up so protect shim.
142
so what does re oatway do?>
So re oatway tinkers that rule, saign whatever happens u itnerp whaht ahpepend to protect each time itnerst of ben, obvs if itner bankrupt no worth prrsonal so then swuabble over assets
143
another scenario of mixed trust funds?
Where T has mixed trust money with his own funds then withdraws part of the mixed fund and later pays in additional money of his own:
where can beneficiaries trace in to
144
what happened in roscoe v winder?
Roscoe v Winder [1915] establishes that B will only be able to trace into the lowest intermediate balance and thus has no priority over T’s other creditors in respect of the additional payment.
145
benefic only what?
bene can only trace into lowest – before time when fresh cash put into the acocutn, so tis the lwoers intermieda balcne, or mixture.a nd they have no proiority over trustee other crediot, each tiem trustee goen bust in repstc of additional payment
Personal claim aint worth ‘so we have these proepritary dispiutes
146
person claim aint worth so what do we have?
Personal claim aint worth ‘so we have these proepritary dispiutes
147
example of rule in roscoe?
Example of Rule in Roscoe v Winder [1915]
148
e.g of roscoe?
E.g:
T pays £1,000 of trust money into his account, which already contained £1,000 of his own money.
T then withdraws £1,800 leaving a balance of £200.
A week later T pays £800 of his own money into the account.
B can only trace into the lowest intermediate balance, i.e the £200.
149
rosecoe e.g in other words?
So e.g says r.a.w week laterunderline= time gap boosting it to 1,000- ben only trace itno lowest i.e to the 200, so tehyve lost 1000 but can trace into 20% not the rest
150
what about postion for b?
Position obviously more precarious for B where account holding the mixed fund contains a zero balance or is overdrawn at the time of the subsequent payment of T’s own money.
cos means no properitay entitlement to blancde of thaht money
151
roscoe recently affirmed what?
Roscoe v Winder recently affirmed in Bishopsgate Investment Management v Homan [1995] CA.
152
roscoe in other?
Roscoe v win r..aw whyd o u thinkw e ahev this lowers inter bance rule, is it fair? Why it far?-do u agree that rule- gives snapshot of that time point
153
Backward Tracing?
Where T borrows money to purchase an asset and thereafter utilises trust funds to pay off the loan, is B then entitled to trace into the asset so acquired ?
154
backward tracing in other words?
so our naughty sol borrows money from barc bank to buy brand new spoets car 50,000 sue client account money to pay off itn on laon can beneficares rhe throgub background tracing say you’ve used some fo our moe y can we claim int in the posh sports car? Can they backward trace into the asset, which their money used or beit for a loan. Answer is bit unclear, an we have abckgward tracing its all aovu tloands, using for loan, can been claim thei rmoney and want share of te asset
155
can u backward trace asset requi?
Can u backward trc einto asset required? That the isus e- bishopgate- diverge of opion- could have backround trcng r.a.w
In Bishopsgate v Homan (above) there was a divergence of judicial opinion:
156
vine lot and dillion ljj
Vinelot and Dillon LJJ supported backward tracing in limited circumstances, viz:
157
where t acquireed asset with money bott
Where T acquired an asset with money borrowed from an overdrawn or loan account and there was an inference that the borrowing was done with the intention that it would be repaid with the misappropriated trust funds;
158
think if you shouw what?
I think if uc an show Infernece and intention that trust fund would be sued the seem fair toa low back tracing claim. What do you think?- Quesiton of evidence or tricky water?S – background trace or not – opent o much compelxiity, setting parmeters of rule quite tricke=y
159
leggart lj ?
Leggart LJ refused to a recognise such a claim.
160
Tracing into Two Trust Funds which have become Mixed?
Where one trustee administers two trust funds and mixes both with his own money, he is deemed to have spent his own money first, Re Hallett [1880].
161
whats the postion for tracing into 2 trust fund mixed?
Tracing into 2 trust funds become mizxed – whats position here?
Well where 1 truste admisters 2 trust funds, and mxies both with his won money, re ahllet applies thay fi any loss he bear slos himself, he blonw own money firs- u protect innconet ben each trust rule here
162
claytons case what? rule?
Where two trust funds have been mixed, Clayton’s Case [1816] dictates that the first of the two trust funds to be paid into the account is deemed to have been withdrawn first, so that the beneficiaries under the second trust will be entitled to trace into the balance of the account in priority to the beneficiaries of the first trust.
(F.I.F.O Rule: ‘First in First Out’).
163
what hapepens in this sit?
What happens where got 2 innconet trust fudns been pillaged and money mixed up , taken it from peter and apul trust. Rule in claytons case says r.a.w – only relsly paplies money MIXED I CURRENT ACOCUNT VERY CONTROVERSILA OLD ALW- npt sure if good law
164
trustee blown own money ?
trustee, blown own miney first, complete rouge this guy, got 10,00 won money, 10 trust a trust b that’s 30,0 goe casion 20 ahs gone only got 10,00 left how dow e apportion the lso,, who gets it trust fund a b or do we split it.
165
who tkaes hit innconet ben?
Who takes the hit, innocent ben under trust a or nnconcent ben under trust b- obvs 10,00 his goen but 2 innocent peole been screwed over clayton case say if current account which active rule is first in first out, first of 2 innc trust fun
166
1st money what?
-r.a.w -1stmoeny paidf I out fo 2 innco trust funds 1st trust out- rule fo tiem and convience, sow hagt left is there toptoect whoever paid later. First in first out. So if second in b, there monyis mproetected. This sems quite harsh ruel cos just turns on tmeing. Ver unfair
167
Recent Judicial Comments on Claytons Case & ‘The FIFO Rule’?
Barlow Clowes v Vaughan [1992] : FIFO rule in Clayton’s Case merely a rule of convenience and will not be used to determine such competing claims where the court discovers a contrary intention, express or implied.
168
commerzbank case?
Commerzbank Aktiengesellschaft v IMB Morgan [2004]: Court refused to apply Clayton’s case where its application would lead to injustice and beneficiaries should bare loss/misfortune in a shared manner, pro rata/ pari passu.
- INUSTICE UNDERLINE trust a trust b 50/50 share the hit
169
where speci prop pruchased with money from?
Where specific property is purchased with money from mixed trust funds both sets of beneficiaries will have a charge over the property, and will rank pari passu, in proportion to the share of the purchase price derived from the their respective trust funds, Sinclair v Brougham [1914].
170
what about fifo rule?
Clayton’s case FIFO rule unjust and rarely applied nowadays, see Barlow Clowes v Vaughan [1992]; Commerbank v IMB Morgan [2004].
171
why against fifo?
Clayton case fifo rule said unjust often not applied nowadays bc someone gone down nto wroth being sued personally
172
Tracing into Trust Funds which have been paid to Innocent Volunteers?
Lets go back to re diplco, bmebr lot charities given money in good faith thinking clause, allowing the excecutros have dsicreiton to distribute whatewvr chairites sort fit, then dsitrib these charities after distrib taken palce next kin said clasue bad drafted weren’t exlcusive charitable, resulting trust residuary estte next of kidn, sued execudtros mal admistrimatirn, breach trust fid
173
also ben prop claim?
. Also bene rpeorptiary claims that given to recipetn chairte.s charities were innocent volutners, innocent money took in godo faith. Relal woenr enxt of kind wanted their prop back. Ben next kin right to trace extnds to where r .a.w lik e seen in re dip
174
bs right to extend where t trasnfers?
B’s right to trace extends to where T transfers trust money or property to an innocent volunteer (V), Re Diplock (above).
175
where trust money in tact?
Where trust money remains intact or the trust property remains undisposed of in V’s hands, B will have no difficulty in recovering it from him through the tracing process.
176
where v sells trust prop?
Where V sells such trust property after receiving it and keeps the proceeds separate from his own funds, B becomes entitled to trace into the proceeds.
177
where prop subsequntly pruchased using mixed fund?
Where property is subsequently purchased using the mixed fund, V and B will rank pari passu in their respective entitlements in accordance with the rule in Sinclair v Brougham [1914].
178
boscawen case?
Boscawen v Bajwa [1995] 4 All.E.R 796
Money held on trust by solicitor for Abbey National, which advanced the same intending it to be used to complete the purchase of a house owned by Bajwa, which was subject to
179
a charge in favour of what?
a charge in favour of Halifax. In breach of trust the money was used to redeem the charge but purchase fell through.
180
held what?
CA held: Abbey National money could be traced into the discharge of the debt and that they should be subrogated to the position of the Halifax which had been creditor of the legal charge.
181
so pro didnt?
so pro didn’t change ahdns still woned by seller..another mort, but money with rognly relase did pay off morthga, another morgater advanced under purchase theys teped into sheos of old mortgaee andf tok voer charge??
182
(iii) NO INEQUITABLE RESULTS
An equitable tracing order is discretionary and will not be awarded if in the court’s view it would lead to an inequitable result, Re Diplock [1948].
t his related to doctrine change of positon
The effect
183
closely againt rule ?
Closely allied to the rule against ‘inequitable results’ is the doctrine of change of position.
184
effect of doctrine?
The effect of the doctrine in this sphere may well be that where V acting good faith utilises trust money received by him in improving his own property or has committed himself to other expenditure which he would not otherwise have done if the trust money had not been available to him, the court can relieve him wholly or in part from his liability to make restitution to B.
See Re Diplock [1948]; Lipkin Gorman v Karpnale [1991] HL.
185
what do i need to do?
look at those cases
186
whether on ?
Whether on the given facts it is in fact inequitable to trace will be a very individualistic/subjective question.
187
e.g what?
E.g placing a charge over the innocent recipient’s land, might create an inequitable result, as this could lead to a sale order being sought to realise the charge’s value/home loss etc.
188
however what?
However if the innocent recipient is a multi-millionaire, and who spent the trust money he innocently received improving his land, a different result might occur, it not being inequitable here to make a charging order/to trace. See Goff and Jones Law of Restitution 6th ed 2002, p.111.
