Post on 14-Apr-2017
transcript
BREACH OF TRUST & DEFENCES
Learning Outcome
Students will be able;1) To define what is a breach of trust.2) To understand the basis of liability3) To learn on personal liability to the
beneficiaries4) Nature of Liability5) Measure of Liability6) Defences
What is a Breach of Trust
Failure to comply with duties laid upon trustee by the trust instrument and also by equity
May be in a positive action, eg;- investing in an unauthorised investment- Maladministration that cause losses to trust
property Settlor-trustee is liable to the same extent as
any other trustee although trust was created by the same person.
Nature of Liability
1) Personal Liability to beneficiaries2) Liability Inter Se : Contribution and
Indemnity3) Criminal Liability4) Defences
Basis of liability
Liability is compulsory. Compensation to the beneficiaries for
whatever loss Restoration to the beneficiaries of the property
if an unauthorised profit has been made. Objective is not to punish trustee but to
compensate beneficiary. Unless in the case of technical breach which
the court authorised
Personal Liability to the Beneficiary
Compensation to beneficiaries. Remedy sought is compensation for breach. Target Holdings v Redferns [1995] 3 WLR 352. HOL : - the principle on compensation for breach is the
same as damages at common law.- a trustee who committed a breach of trust was
not liable to compensate the beneficiary for losses which the beneficiary would have suffered if there had been no such breach
Liability is Personal Not Vicarious
A trustee is liable personally for his own breach of trust
- A trustee is liable for his own wrong and not for those of his co-trustee.
- Unless if there is a breach by co-trustee, trustee will be at fault
i) for leaving the matter in the hands of a co-trusteeii) Standing by while breach is committediii) Allowed trust fund to remain in sole control of a co-
trustee.iv) Failed to take steps to obtain redress after the
trustee was aware of the breach
S35 of the Trustee Act 1949:
Implied indemnity of trustees.(1) A trustee shall be chargeable only for money and
securities actually received by him notwithstanding his signing any receipt for the sake of conformity, and shall be answerable and accountable only for his own acts, receipts, neglects, or defaults, and not for those of any other trustee, or of any banker, broker, or other person with whom any trust money or securities may be deposited, nor for the insufficiency or deficiency of any securities, nor for any other loss, unless the same happens through his own wilful default.
Re Lucking’s WT [1968] 1 WLR 866
Lucking had committed a BOT in entrusting large sums of money to a manager,without adequately supervising him.
His fellow trustee, Block, was not liable for Lucking’s BOT, but entitled to rely on what Lucking had told him about the company’s affairs.
Bahin v Hughes (1886) 31 Ch D 390
A passive trustee was liable to the same extent as an active one.
In this the breach was a breach by a co-trustee but trustee left the matter in the hand of trustee without inquire or stand by to see that breach is committed.
Breaches before Appointment
A trustee is not liable for breaches of trust committed before his appointment.
A trustee should on his appointment examine any documents and books relating trust.
If he discover a breach, action should be taken against the former trustee
Breach After Retirement
A trustee remain liable after retirement for breaches committed by him during his term of office.
If he died, his estate will be liable. He will not be liable if breach is
committed after his retirement He will be liable if he retire in order to
facilitate a breach of trust
Head v Gould (1989) 2 Ch 250
Kekewich J “… In order to make a retiring trustee liable for a trust committed by his successor you must show and show clearly that the very breach of trust was in fact committed was not merely the outcome of the retirement and appointment took place… It will not suffice to prove that the former trustee rendered easy or even intended a breach of trust, if it was not in fact committed. They must proved to have been guilty as accessories before the fact of the impropriety actually perpetrated.
Breach of Trustee – Beneficiary
Where trustee in breach is also a beneficiary, his beneficial interest bears the loss against the other beneficiaries.
A trustee will be required to indemnify his co-trustees to the extent of his beneficial interest and not merely the extent that he has personally received some benefit from the breach.
Chillingworth v Chambers [1896] 1 Ch 685
Criminal Liability
Breach of trust is not a criminal offence But there is a breach of trust
committed in respect of criminal offence
Bankruptcy of a defaulting trustee
If a liable trustee for breach of trust becomes bankrupt, the claim (breach) is provable in his bankruptcy
Measure of liability Trustee liable for the restitution of the
money or thing, or value of the thing, and to account for profit made or loss caused.
a) Payment to wrong person or misapplication of Trust funds.
Increased rate of interest plus principal amount payable
b) Sale of authorised and purchase of unauthorised investment
DEFENCES A TRUSTEE MAY TAKE
Introduction
A trustee who has committed a Breach of trust may be able to escape personal liability by bringing the case within a few ground in the case of RE PAULING’S SETTLEMENT TRUST (1964) Ch 303
Facts of the case
The children of the Younghusband’s family sued to recover from the trustee who managed their mother’s marriage settlement.
The children were in many occasion faced financial difficulties. Main financial sources was Mrs Younghusband’s marriage settlement where she was the tenant for life.
The trustee in this settlement has the power to advance the trust fund up to ½ of the presumptive share of each children
Several advances were made to the children who on some occasion received independent legal advice s to their right under the settlement.
The mother’s consent was obtained in every case. 1954 : an advancement was made in order to
avoid estate duty on the death of the mother – children were aware that advancement might be in breach of trust.
1958 : the children brought an action against the trustee claiming £29,160 on the ground that this sum had been improperly paid out by way of advancement
The trustee depends relied on the consent and acquiescence of the advanced beneficiaries.
i) Beneficiaries, before the breach consented to or participated in breach
A beneficiary who has participated in or consented to or participated in breach
Wilmer LJ “that if the trustee can established a
valid request or consent by advanced beneficiary to the advance in question that is a good defence
ii) Release or Acquiescence
After the breach, beneficiaries wither formally or informally showed their approval through ‘release or acquiescence
Refers to the conduct of the beneficiaries after breach
A release may be formal or inferred from conduct
iii) Expiration of 6 years
No action against trustee personally after expiration of 6 years period of the Limitation Act 1953.
Except in cases regarding fraud
iv) Statutory relief s63 of Trustee Act
Power to relieve trustee from Personal Liability
If it appears to the court, the trustee has acted honestly and reasonably and ought to be excused for the breach of trust, the court may relieve him either wholly or partly from personal liability.
RAJA ENA JAINAB ABIDEEN (1930) SSLR 212.
Three requirements that trustee ought to be fairly excused.
A) trustee had acted honestly Trustee had acted reasonably –
depends on the ctc of the case Court will take into account the conduct
of parties, trustee and beneficiary.
v) Advice of Solicitor - Trustee
What need to be proved is that the trustee in committing breach of trust acted on the advice of solicitor.
vi) Breach by a Single Trustee Alone
If breach is committed by one trustee, the co-trustee will not be held liable.
Dicta in Bahin v Hughes; ‘But as far as cases had gone at present,
relief has only been granted against trustee who has himself the benefit of BOT or between whom a relation which will justify the Court in treating him as solely liable
vii) Exemption Clause in the Trust Document
If the trust document has specify matters which could exclude trustee from breach, then the trustee will not be liable.
Statutory Indemnities.
Section 31 – 35 & s64 of the Trustee Act 1949.