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Flashcards in Fiduciary Duties and Breach of Trust Deck (42)
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1

What is the effect of a self-dealing transaction, i.e. where the trustee sells trust property to himself?

Sale becomes voidable by any beneficiary as of right.

2

What is the effect of a fair-dealing transaction, i.e. where the trustee purchases the beneficial interest of any of the beneficiaries?

Transaction can be set aside unless trustee shows
1. Took no advantage of his position
2. Made full disclosure to the beneficiary
3. Transaction was fair and honest

3

Why was the defendant held not to have infringed the self-dealing rule in Holder v Holder?

While he was in name an executor of the will pursuant to which the trust property was sold, he had attempted to renounced that role and had taken no part in the administration of the estate or his duties as executor. Consequently, when he purchased the properties through an agent, there was no conflict of duty and interest.

4

When is the no-profit rule engaged?

Where a fiduciary acquired the profit from a position he was only in by virtue of his position as fiduciary

5

Where the fiduciary has expended significant skill and effort in achieving an unlawful profit, what remedy does he have?

May be entitled to remuneration for valuable services, but this is only to be sparingly authorised - Guinness v Saunders

6

Ratio of Murad v Al-Saraj?

Equity defines 'profit' as including all the benefit which the fiduciary has received during the course of the fiduciary relationship, and not merely just the benefit which flows directly from the particular breach of fiduciary duty.

7

Where is a proprietary remedy preferred to a personal remedy against a fiduciary in breach of the no profit rule?

Where the fiduciary still holds the profit or a substitute property (A-G v Reid)

8

What is the limitation period on actions for breach of trust? 3 qualifications?

6 years of the breach EXCEPT
1. Fraud committed by trustee
2. Actions for recovery of property currently in the trustee's possession or which has been converted to his use
3. Rolling breaches, which reset the clock every day (e.g. bad investments that are ongoing)

9

Are passive trustees liable for the default of an active trustee?

Yes, jointly and severally - barring special circumstances

10

When are lay trustees not liable for the defaults of professional trustees?

Only if the professional trustees exert such influence over the decisions of their fellow lay trustees that they effectively control them (Head v Gould).

11

When will trustees be liable for breaches before their appointment?

Not liable unless they had knowledge to make them suspicious of maladministration

12

4 step process for a prudent new trustee?

1. find out the terms of the trust,
2. inspect the trust instrument and documentation,
3. ensure the trust property is vested in the names of all the trustees and
4. make enquiries where he has any suspicions of past
breaches

13

When are retired trustees liable for breaches committed after their retirement?

Once they have retired from the trust, retired trustees are no longer liable for any breaches, unless they knew that a breach may well occur

14

2 cases in which trustees may seek indemnity from their fellow trustees?

Where those fellow trustees acted fraudulently or were
professional trustees effectively controlling their decisions.

15

When can retiring trustees seek an indemnity from (i) fellow trustees; and (ii) the beneficiaries?

(i) not minors and have capacity
(ii) not minors, have capacity and have knowledge of the nature of any breach

16

What is the effect of a beneficiary instigating, requesting or consenting in writing to any breach, which causes loss to the trust property and therefore other beneficiaries (2 effects, 3 prerequisites)

3 prerequisites - (i) no fraud; (ii) beneficiary knew the facts; and (iii) beneficiary acted of his own free will

2 effects - (i) trustee is entitled to be indemnified and to any other relief from the court; and (ii) the beneficiary may not sue on that breach and must make up any loss out of his own interest (which can be impounded to indemnify the trustee and any person claiming through him)

17

3 advantages of a proprietary remedy over personal remedy for breach of trust?

1. gives the claimant priority over general
creditors on insolvency,
2. allows him to claim any increase in the value of the property, and
3. has no statutory limitation period.

18

3 equitable proprietary remedies that can follow a tracing claim?

1. Ownership (note even proportionate ownership enough to force a sale)
2. Equitable lien over property to recover the value of the money traced into the property
3. Subrogation to revive a debt where owner's money used to pay off debt

19

Property can be traced into the hands of which three categories of persons? When does tracing stop?

1. The fiduciary in breach
2. A person guilty of knowing receipt and
3. An innocent volunteer.

No tracing to Equity's Darling.

20

Remedy where trust money deposited in defendant's account?

Under Re Hallett the beneficiary will have a charge over the account for the amount of money misappropriated.

21

Remedy where asset purchased only using claimant's money?

Under Re Hallett, the beneficiary can choose:
i) Ownership of the property (choose if the property has
appreciated in value); or
ii) A charge over the property for the amount of money
spent on it (choose if the property has depreciated in
value) .

22

Remedy where asset purchased with mixed monies of defendant and claimant?

Under Foskett v McKeown, the beneficiary can choose:
i) Ownership of a proportionate share (choose if the property has appreciated); or
ii) A charge over the property for the amount of money
spent on it (choose if the property has depreciated in
value).

23

Remedy where asset purchased with mixed monies of innocent third party and claimant?

Where all the parties are innocent victims of the mixing, the only option is to share rateably (Re Diplock)

24

Remedy where claimant's money spent improving a house owned by an innocent volunteer?

Depends on whether house's value increased (if not, trust money is dissipated). If value increased, then claimant is entitled to a lien up to the amount of trust money spent.

25

Three presumptions that the claimant can choose between where his money has been paid into defendant's account and then monies are paid out?

1. The defendant (trustee) is presumed to have spent his
own money first (Re Hallett - use if sufficient money left).
2. If later payments have been dissipated, and the first
money spent is on a traceable asset, the defendant is
instead presumed to have protected the trust fund by
dissipating his own money (Re Oatway - use if insufficient money left).
3. The claimant may also be able to cherry-pick if there are sufficient funds left - choose which payments were his and which were defendants (Shalson v Russo - choose payments that were not dissipated and/or increased in value)

26

When is cherry picking not allowed (2 situations)?

Cherry picking is not allowed where it prejudices the claims of others (i.e., multiple beneficiaries) or lets the claimant double-recover

27

What is the lowest intermediate balance rule?

If the defendant spends the beneficiary's
money and his account balance drops below the total trust monies misapplied, any money paid into his account from his own funds cannot be used to repay the beneficiary - these payments are not traceable because they were never the beneficiary's in the first place.

28

What is the difference between a deposit account and a current account where there are payments by a defendant in and out of a bank account containing money belonging to multiple beneficiaries?

Deposit account - the balance in the fund is shared rateably between the beneficiaries.

Current account - the rule is first-in-first-out per Clayton's case, save where this is (i) impractical; (ii) unjust; or (iii) the fund is intended to be shared rateably

29

What are three defences to a proprietary claim?

1. Equity's Darling
2. Dissipation; or
3. Inequitable

30

Why was the beneficiary's claim to a lien refused in Re Diplock?

The money had been used to improve existing hospital facilities and the money could only be repaid by selling the hospital, so it would have been inequitable to recognise the beneficiary's lien and allow them to force a sale.