Equity Flashcards
(17 cards)
Re Baring’s Settlement Trusts
Protective trust:
- Consequences of forfeiture may be beneficial to beneficiary, esp. where effect is to protect trust property from creditors
- BUT sometimes it may have adverse consequences for the beneficiary, e.g. in Re Baring’s Settlement Trusts, wife had a protected life interest w/ income payable to her until some event happened by virtue of which the income would become payable to somebody else
o She failed to obey court order to return children to jurisdiction of court; husband obtained sequestration order against her property sufficient to forfeit her life interest, b/c she no longer had right to receive income from trust property
o Thus, discretionary trust arose, even though sequestration order was temporary
CF Re Oppenheim’s Will Trusts
Re Oppenheim’s Will Trusts
Protective trust:
Tenant for life under protective trust had been certified as person of unsound mind; receiver was appointed to conduct his affairs
o Harman J held: this did not effect forfeiture b/c the statutory agent was akin to his personal agent
CF Re Baring’s Settlement Trusts
Inland Revenue Commissioners v. Willoughby
- Distinction between tax avoidance and mitigation
o Hallmark of tax avoidance: taxpayer reduces his liability to tax w/o incurring economic consequences that Parliament intended to be suffered by any taxpayer qualifying for such reduction in his tax liability
o Hallmark of tax mitigation: taxpayer takes advantage of a fiscally attractive option afforded to him by tax legislation, and genuinely suffers the economic consequences that Parliament intended to be suffered by those taking advantage of the option
Re Cook
- Once equitable interest has been created, will be lost if property is transferred to person who has sole legal and beneficial title to it; person cannot be trustee for himself
- Re Cook: land was held on trust by husband & wife for themselves; since there were 2 of them, each could hold legal title to land on trust for him/herself and the other
o But when husband died, entire interest in property, both legal and equitable, vested in the wife
o Held: legal interest had swallowed up the equitable, so there was merger of 2 interests trust was terminated
Shell UK Ltd v. Total UK Ltd
Where property is negligently damaged, beneficiary has no direct claim against tortfeasor for property damage/economic loss, b/c such a claim can be brought only by person who has legal proprietary interest or possessory interest in property
- Claim can only be brought if trustee is made party to proceedings
Claimant, Shell, stored oil at terminal tanks & pipelines were held on trust for C by 2 companies defendant (Total) negligently overfilled fuel storage tank, which exploded and damaged tanks & pipelines in which C had beneficial interest –> Ct had to decide whether C could sue for damage to property in which it had a beneficial interest and whether it could also sue for consequential economic loss
o Total accepted liability for the destruction of anything which was the property of Shell, but disputed liability for the loss of profits that Shell claimed to have flowed from the destruction to the tanks/pipelines
o CoA acknowledged the lesser nature of the beneficiary’s proprietary interest; C did not have direct claim against D for consequential economic loss b/c it was neither the legal owner of the property nor in possession of it
o BUT it was held that such a claim could be brought if trustees were joined as parties to the proceedings, since their legal title to the property could be used to establish the claim, even though the loss was suffered by the beneficiary
Knott v. Cottee
Concerning falsification: purchase of unauthorized investments.
Testator, who died in 1844, bequeathed his personal estate to be held on trust and invested in ‘the public or Government Stocks or Funds of GB, or upon real security in England or Wales.’ In breach of trust, the executor invested in foreign stocks and Exchequer bills; in a suit by the beneficiaries, he was required to deposit the Exchequer bills in court, and in 1846 they were sold, under an order of the court, at a loss
o Ct made a decree in 1848 declaring the investments to be unauthorized
o By that time, price of bills had risen; if they had been sold then, there would have been a profit
o Unauthorized investments could be falsified; executor was personally liable for breach of trust
o One issue for court was whether the executor should be credited w/ proceeds of Exchequer bills as sold in 1846, or w/ their increased value in 1848, when they were declared to be unauthorized
o Romilly MR held that executor should be charged w/ the amount improperly invested, and credited w/ the proceeds actually received on their sale
- This approach is sensible: to fail to give credit for the amount actually raised through sale of bills would ignore the reality of the state of the trust fund
Re Massingberd’s Settlement
Concerning falsification: improper sale of authorized investments.
T’s of a settlement had power to invest in consolidated annuities (type of gov. bond). In 1875, they sold Consols and reinvested in certain unauthorized mortgages; mortgages were called in and whole of invested money was recovered
o Proceedings later began in 1887, at which time Consols stood higher than they had in 1875
o Unauthorized sale of Consols was falsified. CoA held that trustees must produce either the Consols sold or their present money equivalent
o The value of assets sold in breach of trust should be assessed at the date of judgment, or exceptionally, at the later date when they would have been properly sold
But such valuation does not occur on date at which the claim is brought
Suggests that trustees must ‘restore’ the trust fund to the position it would have been in had the unauthorized investments in the mortgages not occurred: the trust fund would, at the date of judgment, still have had the Consols, so it was incumbent on T’s either to purchase the Consuls for the trust, or to give the trust sufficient money to purchase the Consols; position is opposite from CL
Thornton v. Stokill
What if B wants to ‘adopt’ an unauthorized investment as partial satisfaction of any claim he may have: if the value of the unauthorized investment is still less than the purchase price, should B be able BOTH to accept the investment as part of the trust’s assets, AND sue T for the difference between the value of the investment & the value that the trust fund should have?
Court held that a B had a stark choice between adopting the investment or falsifying the disbursement. Here, £400 of trust money had been invested in houses in breach of trust. Court insisted that B’s could not claim the houses & the difference in value between the houses and the misapplied £400
CF: Re Lake
Re Lake
Solicitors acting for a trust invested £5,500 in a contributory mortgage; mortgagor later sought to set aside the mortgage for fraud, and trustees agreed to compromise claim in return for payment of £500
o Wright J held: by entering into compromise agreement, T’s had adopted the mortgaged however, he also found that it was still possible to recover the difference between the £5500 lost through the unauthorized investment and the £500 recovered by adopting the mortgage
Fry v. Fry
Example of surcharging the account.
o Testator, who died in 1834, provided by his will that the Langford Inn should be sold ‘as soon as convenient after [his] decease… either by auction or private sale, and for the most money that could be reasonably obtained for the same’
o However, T’s had some trouble in selling
o In 1836, T’s advertised & offered to sell for £1000; they refused an offer of £900
o In 1843, new railway opened, which deprived the Inn of much of its business and made it difficult to sell
o Inn was again advertised in 1854 but no offer received
o Romilly MR held T’s liable for breach of trust in consequence of their negligence for so many yrs in not selling the property
o T’s would be liable for the difference between amount eventually received and £900
Nestle v. National Westminster Bank plc
When assessing the loss suffered by the trust fund (for purposes of surcharging), it is important to establish what value the fund should have at the date of judgment rather than at the date of breach; the burden rests upon C’s to establish what would be the value of the fund had there been no breach of trust
o E.g. in Nestle v. National Westminster Bank plc, a bank had acted in breach of trust in failing either to review the trust instruments or to take legal advice on the scope of its powers; was also in breach of trust b/c it did not properly diversify the investments of the fund
o When B took an account of the trust, she was entitled to surcharge the account
o However, B’s claim for reparative compensation failed b/c she had not shown the extent of the trust’s loss, and the onus was upon her to do so
o Had steps been taken to establish the shortfall in the fund, B should have sought to ascertain the difference between fund’s current value and what it would have been worth had it been handled by a prudent trustee –> Staughton LJ
Target Holdings Ltd v. Redferns
- The case concerned Mirage Properties Ltd, the owners of a commercial property in Birmingham, which agreed to sell it to Crowngate Developments Ltd for £775,000. Crowngate applied for a loan from Target Holdings; the loan application form stated that the property was valued at £2 million; on this basis, T agreed to lend Crowngate a total of £1.7 million on the security of the property; this was all part of a mortgage fraud perpetrated by Crowngate & Mirage to inflate the price of the property artificially.Target was unaware of this fraudulent scheme
- Redfern was firm of solicitors acting for both Crowngate & Target. R held the mortgage advance on a bare trust for Target, w/ authority to release the money to Crowngate only upon receipt of the executed conveyances & mortgage of the property. However, R released the money before the docs were executed; was admitted this was a breach of trust; later revealed the property was only worth £500,000
- R was probably involved in the fraudulent scheme, and could have been sued by Target in the tort of deceit however, this would have required T to establish all the elements necessary for such a claim
- T instead sought summary judgment for breach of trust; T asked R to reconstitute the trust fund by paying the difference between the value of the property (£500,000) and the money advanced to Crowngate (£1.7 million)
- This argument succeeded in CoA, which held that, as soon as the money had been transferred in breach of trust, C had a right to have the trust fund reconstituted, even though T had later received the security that it was intending to obtain and regardless of the fact that the security was worth much less than anticipated, since CL principles of causation did not apply to a claim for breach of trust
- BUT CoA decision was unanimously overturned by HoL
- Lord Browne-Wilkinson gave the leading speech; the result in the case is generally accepted as sensible; however, some of the reasoning & dicta in Lord Browne-Wilkinson’s speech are controversial
Youyang Pty Ltd v. Minter Ellison Morris Fletcher
Unclear why equitable principles should differ to any significant degree between ‘traditional’ and ‘commercial’ trusts (as distinguished by Lord Browne-Wilkinson in Target Holdings) –> High Ct of Australia suggested that such a divide was unnecessary
o The case was similar to Target: Minters were solicitors who held money on trust for Youyang, but in breach of trust released money to a company called ECCCL before obtaining the stipulated bearer deposit certificate
o High Ct said: the creation of the trust in favour of Y was not an end in itself; the terms of the trust which bound Minters were concerned w/ the application of the trust moneys in completion of a larger commercial transaction w/ Youyang and Minters’ client, ECCCL as the principal actors
To acknowledge that situation did not necessarily mean embracing any theory of reductionism, whereby ‘commercial’ trusts did not provide the full panoply of personal & proprietary rights and remedies designed by equity
Rather, regard should be had to the scope & purpose of the trust which bound Minters
Magnus v. Queensland National Bank
If compensation in equity were to operate along similar lines to compensation at CL, might be expected that C’s failure to act reasonably in mitigating his losses should reduce the amount C could recover.
When a plaintiff fails to take the most obvious steps to alleviate his losses, we may rightly say that he has been ‘the author of his own misfortune’; at this point, P’s failure to mitigate may become so egregious that it is no longer sensible to say that the losses which followed were caused by the fiduciary’s breach, but until that point, mitigation will not be required
This threshold seems very high. In Magnus, it was held that a trustee bank was liable where it had paid money to the wrong person, even though the beneficiaries were aware of this and had not taken steps to recover it from the recipient
Dimes v. Scott
There is long-standing authority that there is no right to set-off where the gains made are entirely distinct from the losses caused
Testator who died in 1802 left his estate upon trust for his widow for her life, and after her death upon trust for claimant estate included an investment in an East India Company loan bearing interest at 10%; retention of investment was not authorized by the will
o Instead of selling this unauthorized investment w/in a year of testator’s death, T’s retained it and paid the whole income to the widow = breach of trust
o However, in 1813 the loan was repaid, and the proceeds were invested in Consols w/ a yield of 3%; the price of Consols was lower than it had been a year after the testator’s death, and T’s were able to purchase more Consols than they would have been able to purchase if they had made the switch a year after the testator’s death
o Lord Lyndhurst LC held that T’s were liable for breach of trust in paying the whole income to the widow, and that they could not set off against that liability the extra Consols, which the delay had enabled them to purchase
Fletcher v. Green
Where a gain is made and a loss suffered in the course of the same transaction, the gain can be set off against the loss
Trustees made a secured loan to a firm of which one of the trustees was a partner –> the security was sold at a loss, and the proceeds were paid into court and invested in shares that increased in value
o It was held that this gain could be set off against the loss suffered from the sale of the security, presumably b/c this all formed part of the same transaction
Bartlett v. Barclays Bank Trust Co Ltd
May sometimes be difficult to ID whether the gain & loss arise from 1 single/2 distinct transactions
T was a bank that had failed to oversee the actions of a company in which the trust held a majority of the shares; directors of that company invested in 2 building developments, one of which was profitable (Guildford), but the other caused a huge loss to the company (Old Bailey)
o Brightman J allowed the gains made from the Guildford project to be set off against the losses suffered through the Old Bailey project
o The 2 projects may at first appear to be distinct, but in fact they could be considered to be part of a single breach of failing to supervise speculative property developments –> the same breach resulted in both projects, so it was only fair to set the gains of one off against the losses of the other
