Trusts VI Remedies - Personal Claims and Proprietary Claims Flashcards
Comment on vicarious liability between trustees and nature of liability
There is no vicarious liability between trustees; they can only be sued if they have breached their own duties
Liability is joint and several: claimant may sue any/all of the trustees for all/any amount of the money.
Duties of trustees
(6)
BIG SUV
Duty to do something to stop a Breach if they are aware of it being committed
Duty of care (reasonable skill care in Investment and delegation duties)
General duty of care - trustees must reach the standard of a reasonable prudent man of business (Speight v
gaunt)
Duty to actively watch over, (Supervise) and if necessary, correct conduct of fellow trustees (Styles v Guy)
Duty to keep trust property in joint control (not Unique control) and not allow co-trustees to control it (unless there has been a delegation under ss.11 and 12 Trustee Act 2000)
Duty to ensure trust property is Vested in names of all trustees
Must the beneficiary must suffer a pure loss to have cause of action against the trustees?
What if the trust posts both loss and profit
Trustees are only liable if the breach has caused loss (Nestle v National Westminster Bank), for example, there must be evidence to show profit from a particular investment was less than what a reasonable man would have accrued
General rule:”beneficiary can keep the profit and sue for the loss. But - if the loss and profit arise from the same breach, court will allow profit to offset the loss (Bartlett v Barclays Bank Trust Co Ltd)
4 defense available for trustees for breach of trustees’ duties
61 CELL
s.61 TA 1925:
Trustees may be relieved of liability (wholly or in part) if they have acted honestly and reasonably
Consent
if the beneficiaries are sui juris with full knowledge of the facts and have given consent. The beneficiaries only need to know what they are concurring to, not if the trustees action would amount to a breach (Re Pauling’s Settlement Trust)
Exclusion clause
May be a relief for negligent or innocent breaches, but not fraudulent (Armitage v Nurse)
Laches and Limitation
Limitation: 6 years after breach. Does not apply to a proprietary claim and for a fraudulent trustee
Laches: court will not allow claim where inequitable (e.g. where the claimant has acquiesced in breach for long period)
Pursuant to s.61 TA 1925, when does a trustee will be held liable even if he has acted honestly and reasonably?
if trustee is professional (Bartlett v Barclays Bank Trust Co Ltd), even if they have taken advice (National Trustee Co of Australia ltd v General Finance Co); or
breach was committed as a passive trustee (since the court does not want to encourage passive trustee)
Remedies for breach of trust
Contributions:
under s.2 civil liability (Contribution) Act 1978, the court may order such contribution as is just and equitable vis-a-vis each trustees’ responsibility for the loss. The court may find trustee owe different amounts.
Indemnity: a trustee is entitled to 100% indemnity from co-trustees also in breach.
indemnity can be sought where:
co-trustee fraudulently obtained benefit from breach;
co-trustee received trust property and used it for his own benefit (Bahn v Hughes);
Trustee blindly followed advice of co-trustee who is a solicitor (Re Partington), but must show that solicitor exerted such a controlling influence that he did not exercise own judgement (Head v Gould)
Personal claim vs Proprietary claim
Proprietary claim may be better if:
the trustee is bankrupt. personal claim will be pointless. But Proprietary claim will give the claimant priority over trustees’ creditors
If the property held on trust has increased in value
Has the trustee died. Proprietary claim can be lodged against his executors
Conversely, personal claim will be better if
the trust property has been dissipated
if the limitation period to issue a personal has expired (6 years)
Remedies where trustee holds the original trust property
Make a proprietary claim against original trust property
Remedies where the trustee has made a straight exchange of trust property for an asset aka clean substitution
Re Hallett’s Estate, beneficiary can either
claim ownership of the new asset; or
claim an equitable lien (a charge over the asset to secure the amount)
Remedies where trustee used partly own money partly money drawn wrongfully from trust = mixed asset purchase
Foskett v Mckeown, beneficiary can either
claim proportionate share of asset (choose if asset has gone up in value);
enforce a lien upon the asset for the precise amount of money taken (if asset has depreciated)
Remedies where the trustee has mixed trust funds with own money, and spent only part of this total fund on something = mixed bank account
The court will presume against the wrongdoing trustee. The presumption may be (whichever most disadvantageous to the trustee applies)
The trustee deemed to have spent own money first (most common, Re Hallett’s estate); OR
The trustee deemed to have spent trust money first (Oatway)
However, if the trust money has already dissipated and the trustee pays in own money later, beneficiary cannot claim the money (Roscoe v Window)
Forskett v Mckeown implies that the beneficiary will be entitled to recover any increase in the value of the purchase not merely a share equivalent to the trust money taken.
The trustee mixes two trust funds together
FIFO (Clayton’s case) , unless three i’s
would result in injustice
is impractical, difficult or expensive to ascertain order of payment; or
is contrary to parties intentions
If FIFO not apply, divide the account balance/assets in proportion to original contributions (Barlow Clowes International)
The trustee mixes two trust funds together with his own money
For withdrawal: treat the money in the way most disadvantageous to trustee (Re Hallett’s estate and Reoatley) (Trustee’s own money first or trust money first)
FIFO for the balance (Clayton’s Case)
