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W301 UNIT 27: Personal remedies against a trustee for breach of trust

By johirst

Open University Law W301

Added: August 31, 2011 19:25:38

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W301 UNIT 27: Personal remedies against a trustee for breach of trust

W301 UNIT 27: Personal remedies against a trustee for breach of trust

Personal action against trustees for compensation for loss to the trust fund

1 Which trustees to sue?
1.1 Active breach of trust
1.1.1 dishonestly appropriating property
1.1.2 not performing investment duties
1.1.2.1 Trustee Act 2000
1.1.2.1.1 reasonable care
1.1.2.1.2 consider suitability
1.1.2.1.3 diversification
1.1.2.1.4 review trust instrument
1.1.2.1.5 take advice
1.1.2.1.6 conduct reviews
1.1.3 failing to exercise duty of care
1.1.4 not distributing to correct beneficiaries
1.2 Trustees act unanimously when exercising powers and discretions
1.3 Claimant who brings personal action treated as unsecured creditor
1.4 Jointly and severally liable
1.5 Passive breach of trust
1.5.1 Never vicariously liable for breaches of co-trustees
1.5.2 Cannot escape liability by retiring
1.5.3 Duty to ensure property vested in names of all trustees
1.5.4 Duty to be active in the adminstration of the trust
1.5.5 Duty to watch over the other trustees
1.5.5.1 Styles v Guy (1849)
1.5.6 Duty not to stand by or fail to seek redress
2 Compensation
2.1 Beneficiaries seek compensation not damages
2.2 Type 1 breach
2.2.1 Misapply trust money
2.2.1.1 Require money to be restored
2.2.2 common law remoteness does not apply
2.2.2.1 Target Holdings Ltd v Redfern [1996]
2.3 Type 2 breach
2.3.1 Authorised act done badly i.e. breach of duty of care
2.3.1.1 Account for what they should have received
2.3.2 common law remoteness rules may apply
2.4 Causation
2.4.1 'but for' test
2.4.1.1 loss may be increased by extraneous factors
2.4.1.1.1 Re Dawson [1966]
2.4.1.1.2 Target Holdings Ltd v Redfern [1996]
2.5 Loss assessed at date of judgment
2.6 Nestle v National Westminster Bank plc [1993]
2.6.1 breach of investment duties
2.6.2 predated Trustee Act 2000
2.6.2.1 standard of care was that of ordinary prudent businessman acting for someone morally bound to provide for
2.6.2.2 standard is now 'reasonable care'
2.6.3 must show
2.6.3.1 breach of duty
2.6.3.1.1 misunderstood investment powers
2.6.3.1.2 failed to keep investments under review
2.6.3.2 breach results in decisions trustees would not otherwise have made
2.6.4 criticism
2.6.4.1 merges two stage test
2.6.4.1.1 1. is there a breach?
2.6.4.1.2 2. What loss did it cause?
2.7 Interest
2.7.1 payable on misapplied funds
2.7.1.1 traditionally 4%
2.7.1.2 now same as court's special account for funds invested with the court
2.7.1.2.1 Bartlett v Barclays Bank
2.8 Set off
2.8.1 not permitted for separate transactions
2.8.2 only for gains and losses arising from same wrongful investment policy
2.8.2.1 Bartlett v Barclays Bank
3 Defences
3.1 s61 Trustee Act 1925
3.1.1 may relieve partly or wholly
3.1.1.1 if acted honestly
3.1.1.1.1 in good faith
3.1.1.2 and reasonably
3.1.1.2.1 care and skill of a reasonable man
3.1.1.3 and ought fairly to be excused
3.1.1.4 reluctant to relieve paid professional trustees
3.1.1.4.1 Bartlett v Barclays
3.2 Knowledge and consent of beneficiaries
3.2.1 only adult beneficiaries
3.2.2 consent given freely
3.2.2.1 without undue influence
3.2.2.1.1 children presumed to be under influence of parents
3.2.2.1.1.1 re Pauling's ST
3.2.2.1.1.2 lasts for short time after majority
3.2.3 full knowledge of the facts
3.2.3.1 need not be aware it is a breach
3.2.4 must be fair and equitable to use defence
3.2.5 consenting beneficiaries interest may be impounded
3.2.5.1 'inherent jurisdiction'
3.2.5.1.1 if beneficiary instigated or requested breach
3.2.5.1.1.1 with motivation of securing personal benefit
3.2.5.1.2 OR consented to breach
3.2.5.1.2.1 and received benefit
3.2.5.2 s62 TA 1925
3.2.5.2.1 instigated, requested or consented in writing
3.2.5.2.2 will consider whether benefited or intended to benefit
3.2.5.3 if other beneficiaries sue trustees
3.2.5.3.1 consenting beneficiary will not benefit from restored trust money
3.2.5.3.1.1 Fletcher v Collis [1905]
3.2.5.4 trustees must pay balance
3.3 Limitation Act 1980 and laches
3.3.1 s21 LA 1980
3.3.1.1 six years from date of breach
3.3.1.1.1 exceptions
3.3.1.1.1.1 fraudulent breach
3.3.1.1.1.2 actions to recover trust property held by trustee
3.3.1.1.1.3 trustee has purchased trust property or a beneficial interest
3.3.1.2 Statute barred beneficiary cannot benefit from one who is not statute barred
3.3.2 Laches
3.3.2.1 bar on fraudulent action if beneficiary knew and delay renders unjust
3.3.2.1.1 20 years guide
3.3.3 Limitation period postponed
3.3.3.1 until claimant reaches 18
3.3.3.2 or interest of remainderman falls into possession
3.3.3.3 if breach deliberately concealed by trustees
3.3.3.3.1 starts when could reasonably have discovered
3.4 Exclusion clauses
3.4.1 Armitage v Nurse [1997]
3.4.1.1 exemption clauses in trust instruments are valid
3.4.1.1.1 even for gross negligence
3.4.1.1.2 but not for dishonest breaches
3.4.1.2 unless exclude liability for all duties
3.4.2 Trust Law Committee consultation
3.4.2.1 propose that professionals not be protected
3.4.2.2 but lay trustees should
3.4.3 Law Commission
3.4.3.1 professional trustees should not be protected
3.4.3.2 but entitled to recover cost of indemnity insurance
3.4.3.3 proposal rejected
4 Contribution from other trustees
4.1 full indemnity
4.1.1 equitable rules
4.1.1.1 trustee who has exclusively benefited from the breach
4.1.1.2 or professional whose advice has been blindly followed
4.1.1.2.1 100%
4.1.1.3 or beneficiary who has actively participated in breach which was done with aim of benefiting him
4.1.1.3.1 to extent of interest
4.1.1.3.2 contribution rules then apply
4.2 contribution
4.2.1 Civil Liability (Contribution) Act 1978
4.2.2 having regard to responsibility for loss
4.2.3 likely to order equal contribution from all trustees
4.2.4 not from entirely innocent trustees