Liability of trustees

Question 1

What are examples of breaches of trust?

Answer 1

• Acting outside powers
• Failure to comply with duties
• No conflict/no profit rule

Question 2

Are trustees always liable for their own breaches?

Answer 2

multiple trustees who have breached trust are jointly and severally liable

Question 3

How may trustees be protected when making potential breaches?

Answer 3

• trust instrument authorises
• Beneficiaries or court authorises
• statutory defences
• insurance

Question 4

What questions are asked when considering if there is a breach of trust?

Answer 4

1. Did the trustee act in accordance with their powers?
2. Did they comply with trustee duties?

Question 5

Will trustees be liable for a breach of trust before their appointment?

Answer 5

No

Question 6

What should happen/consequences if a trustee is appointed and discovers a breach of trust?

Answer 6

Commence proceedings, or could result in breach of trust

Question 7

Will a trustee be liable for breach of trust that occurred during their time as a trustee after retiring?

Answer 7

Yes

Question 8

When will a trustee be liable for breach of trust after they have retired?

Answer 8

• Trustee retired to facilitate the breach or
• They part with property in retiring without due regard causing loss when transferred to new trustees

Question 9

Are trustees liable for losses if they have not breached the trust?

Answer 9

No

Question 10

When is loss assessed?

Answer 10

Date of trial

Question 11

How is loss taken into account where there has been a misapplication of trust property?

Answer 11

• court falsifies account or
• trustees pay equitable compensation in lieu

Question 12

How is loss taken into account where there has been a breach other than misapplication?

Answer 12

surcharging (equitable compensation)

Question 13

How is loss assessed where there has been a breach other than misapplication?

Answer 13

By reference to what a hypothetical prudent body of trustees would have done

Question 14

What is a bare commercial trust?

Answer 14

Trust only susbists during the course of an underlying commercial transaction

Question 15

How is loss assessed for bare commercial trusts?

Answer 15

But for

Question 16

Are trustees generally permitted to offset any losses caused by breach against any profits they made in other investments or transactions?

Answer 16

NO

Question 17

When will trustees be allowed to offset losses against profits when there has been a breach of trust?

Answer 17

If they arise in the same transaction/course of dealing

Question 18

What can an exclusion clause in a trust instrument not protect a trustee against?

Answer 18

Fraud
Dishonesty

Question 19

What can trustees obtain to ensure their action is not a breach of trust?

Answer 19

Fully informed consent of all beneficiaries

Question 20

If only some of the beneficiaries have consented to an action which would otherwise be a breach of trust, will the trustee have a defence?

Answer 20

Partial defence

Question 21

What is the defence of acquiescence?

Answer 21

Beneficiaries indicated after a breach that they consent

Question 22

Does a trustee have a defence against breach of trust where the beneficiary instigates or requests it?

Answer 22

Only against that particular beneficiary

Question 23

What can a trustee do to protect themselves if a beneficiary has instigated/requested an action which would be a breach of trust?

Answer 23

Impound beneficiary’s interest by using their share to indmenify trustee

Question 24

What are the requirements for the court to impound a beneficiary’s consent to an action that is a breach of trust?

Answer 24

In writing

Question 25

What are the requirements for the common law ability of the court to impound a beneficiary's interest?

Answer 25

Benefit to beneficiary

Question 26

What is the statutory limitation period for breach of trust?

Answer 26

6 years

Question 27

Who does the statutory limitation period for breach of trust apply to?

Answer 27

Beneficiaries with interests vested in possession

Question 28

When does the limitation period start to run if a beneficiary has a future interest?

Answer 28

When interest vests in possession

Question 29

What does the statutory limitation period not apply to?

Answer 29

Fraudulant breaches Proprietary claims

Question 30

What is a proprietary claim?

Answer 30

To recover trust property or traceable proceeds

Question 31

What is the defence of laches?

Answer 31

beneficiary has unconscionably delayed claim even though limitation period not expired

Question 32

What is the statutory relief for beneficiaries under section 61 Trustee Act 1925?

Answer 32

Court has discretion to excuse a trustee where they acted - honestly - reasonably - ought fairly to be excused

Question 33

Who is the s61 relief more likely to apply to?

Answer 33

Lay trustees

Question 34

How may trustees seek a contribution from another trustee if they have been found liable for breach of trust under the Civil Liability Contribution Act?

Answer 34

Where two or more parties are liable for same damage - court may require one party to make a just and equitable contribution to another

Question 35

When may the court be likely to award full indemnity to a trustee who has breached the trust?

Answer 35

- a trustee is morally culpable - trustee is also beneficiary - trustee acts as a solicitor to the trust and breach committed in reliance on advice