Trustees: breach of trust - personal claims

Question 1

If a trustee has committed a breach of trust, what are the two kinds of a claim a trust can bring?

Answer 1

Personal claim = trust seeking monetary compensation from wrongdoer (must be financially solvent)

or

Proprietary claim = trust reclaiming trust property (must have property or substitute)

Question 2

What is the limitation period for bringing a personal claim for breach of trust?

Answer 2

Any action must be brought within 6 years of the breach

• 6 year period only starts to run for minor beneficiaries when they turn 18 + for remainder beneficiaries when their interest falls into possession on death of life tenant
• Nb. no limit on actions brought in respect of fraud committed by a trustee (or for bringing proprietary claim)

Remember! Rolling breaches, eg. ongoing bad investments, reset the limitation clock every day because each time they recur they create a fresh cause of action

Question 3

Are trustees automatically liable for the acts or omissions of their co-trustees?

Answer 3

No → to bring a personal claim, the individual trustee must be in breach of trust

but nb. being passive is often a breach of trust

eg. if one trustee has taken active steps to defraud, the other trustees may be liable for being passive in that fraud by not taking active steps to review & correct conduct

Question 4

What is the liability of trustees where more than one trustee has breached trust?

Answer 4

Their liability is joint & several ie. trustees can choose whether to sue all the wrongdoing trustees or just one of them for the full loss

Question 5

Will trustees be liable for breaches committed before they were appointed?

Answer 5

Generally not liable for breaches committed prior to become trustee, unless had knowledge to make them suspicious of maladministration

Question 6

Will trustees be liable for breaches committed after they retired?

Answer 6

Generally, retired trustees are no longer liable

Nb. will not escape liability if retire in order to ensure anticipated breach doesn’t occur during their term of office

Question 7

How is causation established in a personal claim?

Answer 7

Must show that the liable trustee’s breach caused the loss (but for)

(nb. don’t need to consider remoteness)

Question 8

If the trust can establish breach & causation, what will the value of the claim be?

Answer 8

The loss that the breach caused + interest

damages/account of profits/restitution

Question 9

What are the 4 possible defences to a personal claim available to a wrongdoing trustee?

Answer 9

1) Exemption clause: there may be a valid exemption clause in the declaration of trust that excludes or limits trustee liability

2) Fully-informed beneficial consent: the consenting beneficiary can’t bring a claim - but a non-consenting beneficiary can

3) s61 Trustee Act: the court has the discretion to excuse trustees from liability if they acted honestly & reasonably & ought fairly to be excused (v difficult to satisfy!)

4) Claim brought outside limitation period

Question 10

If the trust bring a claim against one trustee where there is more than one trustee in breach, what can the defending trustee claim against the other wrong-doing trustees?

Answer 10

An indemnity or a contribution

Question 11

What is an indemnity & what kind of relief will it entitle the breaching trustee to?

Answer 11

Indemnity is a full recovery of payment → a trustee who is sued for breach can recover an indemnity from a co-trustee who:

a. Acted fraudulently when others acted in good faith; or

b. Is a solicitor who exercised such a controlling influence that the other trustees blindly followed the solicitor’s advice; or

c. Has benefitted personally from the breach; or

d. Is also a beneficiary & benefitted from the breach (if so, indemnity is limited to the value of their equitable interest)

Question 12

When can a defending trustee claim a contribution towards compensation from a co-trustee?

Answer 12

Court can order other wrongdoing trustees to make a just & equitable contribution (anything up to 100%), having regard to the extent of their responsibility for the loss

Question 13

What are the 5 steps to establishing a personal claim?

Answer 13

STEP 1: identify the breach of duty

STEP 2: identify who is liable for the breach (if more than one, will be jointly & severally liable)

STEP 3: establish causation ie. that the breach caused the trust to suffer a loss (value of claim is full loss + interest)

STEP 4: Consider any defences
i. Exemption clause
ii. Fully-informed beneficial consent
iii. s61 TA 1925
iv. Limitation period

STEP 5: Consider any indemnity or contribution