💸Trusts: remedies against trustees and 3rd parties

Question 1

Against T: Types of claim

Answer 1

1. Personal claim: For monetary compensation from trustee
2. Proprietary claim: For the return of property owned by the trust

Question 2

Against T: When is a personal claim good/not good?

Answer 2

Good where
* T solvent
* There no property or be claimed
* Where asset lost value

Not good where
* T insolvent
* Trustee has purchased asset which has increased in value
Wrongdoing happened a while ago (personal claims sometimes statute barred 6y after breach)

Question 3

Against T: When is a proprietary claim good?

Answer 3

○ If trustee has misappropriated trust property
○ To acquire an unauthorised profit which a trustee holds on constructive trust
○ trustee bankrupt
○ asset has increased in value
○ Wrongdoing happened some time ago (no statutory time limit)

Question 4

Against T: elements to establish for personal claim?

Answer 4

1. There was a Breach of trust
2. Which trustee(s) are liable for those breaches?
3. Causation (but for)
4. Value
5. Defences

Question 5

Against T: Personal claim: what is the nature of trustees liability

Answer 5

• NO vicariously liability for breach by co trustees
  But can be in breach failing to check the actions of a co trustee
• Trustees are jointly and severally liable=Bs can decide whether claim against one/all/a selection of the liable trustees.

Question 6

Against T: personal claim: what is set off and does it exist for trusts?

Answer 6

• Profit for breach cant make up for loss of another breach
• UNLESS where the profit/loss arise from same breach/transaction

Question 7

Can a trustee avoid liability by retiring from trust?

Answer 7

No

Question 8

Personal claims against trustee: what is the test for causation?

Answer 8

But for test: loss wouldn’t have occurred but for the breach of trust

Question 9

Personal claims against trustee: what can B recover?

Answer 9

• compensation equal to the loss of the trust
• PLUS income from date of breach
  Rate of interest at courts discretion (but usually rate on courts short term investment acc:

Question 10

Personal claims against trustee: 4 defences

Answer 10

1. Exemption clause in trust instrument
2. Knowledge and consent of all beneficiaries
3. S61 TA 1925-acted honestly and reasonably and ought fairly to be excused in respect of the breach.
4. Limitation and laches

Question 11

Personal claims against trustees: what can/cant the trust instrument exempt trustees for?

Answer 11

CAN exclude liability for:
□ Negligent breaches
□ Innocent breaches
NOT:
□ Fraudulent/dishonest breaches

Question 12

Personal claims against trustees: what will happen if an exemption clause in trust instrument is ambiguous?

Answer 12

Ambiguity in clause interpreted strictly against professional

Question 13

Personal claims against trustees: how does the defence of knowledge and consent of all beneficiaries work?

Answer 13

• Bs cany bring a claim if they’ve all consented to a course of action that constitutes a breach of trust (whether before the action occurred or afterwards), they cannot subsequently bring a claim
• B must be of full age and capacity.
  Consent must be freely given and fully informed

Question 14

Personal claims against trustees: when will s61 TA acted honestly and reasonably probably NOT work?

Answer 14

□ Professional trustees
□ Passive trustee (might encourage trustees not to be active in trust business)

Question 15

Personal claims against trustees: what is the defence of limitation and latches?

Answer 15

LIMITATION: Personal claims must be bought within 6 years from:
□ date of breach
□ Breach against minor: when they turn 18
□ Remainder bens: when their interest falls into possession
EXCEPT no limitation period for Fraudulent breach of trust

LATCHES Where no statutory time limit latches will prevent a personal claim where:
1.C knows the facts giving rise to breach
2. C delays in taking action
3. The delay is deemed to constitute acquiescence in or waiver of the breach by the claimant, OR causes detriment or prejudice to the trustee
Delay in itself not usually sufficient, court will want evidence of prejudice

Question 16

Personal claims against trustees: what are 2 options for Ts to claim against co-Ts

Answer 16

1. EQUITABLE INDEMNITY
   T can recover full indemnity from a co trustee who:
   a. Acted fraudulently when the others acted in good faith
   b. Is a solicitor who exerted such a controlling influence that the other trustees blindly followed solicitors advice
   c. Benefited personally from breach
   d. Is also a beneficiary and benefited from breach (indemnity limited to value of their equitable interest which will be impounded to meet the claim
2. CONTRIBITION
   Court can order a co-trustee make a contribution that is just and equitable having regard to the extent of each trustee’s responsibility for the loss.
   Can be up to 100% but will primarily reflect blameworthiness of co trustees

Question 17

Proprietary claims against trustees: when T holds original trust property

Answer 17

No tracing required
Order T to put property back on trust

Question 18

Proprietary claims against trustees: Clean substitution or mixed substitution

Answer 18

CLEAN:
a. Take substitute property (do this if increased in value)
b. Sue for loss to trust and take equitable Lien (charge over property to secure amount due to the trust) (do this where prop decreased in value)

MIXED ( T mixes trust money with other money to buy asset)
a. Claim proportionate share of asset (better if increased in value)
b. Sue for compensation for loss and take Lien over mixed asset for amount the trust has lost (better if decreased in value)

Question 19

Proprietary claims against trustees: Withdrawals through a bank account

Answer 19

Can choose (and take benefit of any increase in value in assets they’re tracing):
a.Tracing rule 1: Re Hallett: T presumed to have spent own first money first (Can take benefit of any increase in value in assets they’re tracing)

b. Tracing rule 2: Re Oatway: first charge on the entire mixed fund (in bank acc) or any property purchased from that fund

Limitations: Rosco v Winder
If T dissipated trust money then pays own money, this does NOT replace trust money (UNLESS specifically intended to) =trusts interests cant be traced beyond the ‘Lowest intermediate balance’ -ie. Bs cant claim anything above the lowest balance to which the account sank after the trust money was paid in

Question 20

Proprietary claims against trustees: Mixed asset from two innocent trust funds

Answer 20

□ B of each trust share ownership of the asset in the same proportions as they contributed to the purchase (pari passu)
□ Neither trust can claim charge over the mixed asset

Question 21

Proprietary claims against trustees: Withdrawals from mixed bank account from 2 innocent trust funds

Answer 21

a. Tracing rule 1: Clayton’s case: First in, first out

b. Tracing rule 2: Barlow Clowes v Vaughan
Claytons case does NOT apply where:
○ it would be impossible to apply FIFO (eg records poor, its difficult to find order payments)
○ FIFO would result in injustice
○ FIFO it would be contrary to the parties’ intentions.
Instead, apply ‘even a slight counterweight’: each trust takes a proportionate share in any remaining assets

Question 22

Proprietary claims against trustees: Withdrawals from mixed bank account (trust + trust + trustee funds)

Answer 22

1. First apply Re Hallet and Re Oatway with the aim of pushing as much of the trustees own money into dissipation as possible
2. Then apply Claytons Case and Barlow Clowes v Vaughan to allocate remaining assets between innocent funds

Question 23

Proprietary claims against other fiduciaries

Answer 23

Tracing rules can be used by any principle against a fiduciary
For a claim against a director, the correct claimant is the company

Question 24

Personal claim against 3rd parties: why can you claim?

Answer 24

Strangers found to be accessories/recipients liable to account for/restore trust property as thought they are trustees but are NOT actual/constructive trustees (so not subject to trustee duties)

Question 25

Personal claim against 3rd parties: types of claim

Answer 25

Intermeddling Recipient liability (aka. Knowing receipt) Accessory liability (aka. Dishonest assistance)

Question 26

Personal claim against 3rd parties: what is intermeddling?

Answer 26

Where 3rd party, NOT a trustee, acts like a trustee, they will be personally liable for losses caused by their actions as if they were expressly appointed trustee

Question 27

Personal claim against 3rd parties: elements of recipient liability (aka. Knowing receipt)

Answer 27

Can claim up to the value of the trust property they received if 3rd party.. **1. Receives prop in breach of trust/fiduciary duty 2. For their own benefit 3. Has requisite degree of knowledge that transfer was in breach, whilst in receipt of (NOT after dispose of) trust prop to make it unconscionable for them to retain**: 1. Actual knowledge 2. Deliberately shuts eyes to obvious 3. Deliberately don’t ask questions 4. Constructive knowledge (knowledge of circumstances which would have caused a reasonable person to deduce that there might have been some wrongdoing) (probs not unconscionable but may be) 5. Innocence (not unconscionable)

Question 28

Personal claim against 3rd parties: elements of Accessory liability (aka. Dishonest assistance)

Answer 28

May bring claim up to value of loss their assistance caused if: 1. Breach of trust or fiduciary duty (committed by trustee/fiduciary whether honest/dishonest) 2. 3rd party positively assisted in the breach 3. 3rd party acted dishonestly: Would an ordinary honest person with the Ds knowledge (inc. Ds experience, intelligence, circumstances) have acted differently? yes=D dishonest

Question 29

Types of proprietary claim against 3rd parties

Answer 29

1.EQUITIES DARLING: Take prop free from equitable interests=no claim) 2. WRONGDOER/GUILTY RECIEPT Where 3rd party: □ Intermeddler □ Would have been guilty of knowing receipt on grounds conscience affected =same tracing rules as trustee 3.INNOCENT VOLUNTEER Where 3rd party had no knowledge AND provided no consideration=CAN bring a claim but Tracing rules kinder: Original form-proprietary claim Clear substitution-proprietary claim Mixed substitution -Trust and innocent volunteer take share proportionate to their contributions to the purchase price. Withdrawals through bank acc- Claytons case and Barlow v Vaughan BUT DEFENCE (for alterations to land) Money used for alterations/improvements, beneficiary cant trace the money to the improvements because: a. The improvements haven't increased the value of the land=money dissipated b. OR Re Diplock defence: The improvement has increased the value of the land BUT it would be inequitable to force the innocent party to sell and deprive them of their land