Breach of trust (short notes)
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This document discusses breach of trust and defenses for trustees. It defines breach of trust as failing to comply with duties outlined in the trust instrument or by equity. Trustees can be personally liable to beneficiaries for losses caused by their breaches. However, trustees have several defenses that may allow them to avoid personal liability, including: consent of beneficiaries, approval of beneficiaries after the breach, expiration of the limitation period, statutory relief if the trustee acted honestly and reasonably, advice of a solicitor, breach by a single trustee alone, and exemption clauses in the trust document. The document analyzes these defenses in detail using case examples.
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BREACH OF TRUST & DEFENCES
Breach of Trust is failure tocomplywithduties
laidupontrustee bythe trust instrumentand
alsoby equity
May be ina positive action,eg;
investinginanunauthorisedinvestment
Maladministrationthatcause lossesto
trust property
Settlor-trustee isliable tothe same extentas
any othertrustee althoughtrustwascreatedby
the same person.
Nature of Liability
1. Personal Liabilitytobeneficiaries
2. LiabilityInterSe :Contributionand
Indemnity
3. Criminal Liability
4. Defences
Basis of liability:Liabilityiscompulsory.
1. Compensationtothe beneficiariesfor
whateverloss
2. Restorationtothe beneficiariesof the
propertyif an unauthorisedprofithas
beenmade.
Objective isnot to punishtrustee but to
compensate beneficiary.
1. Personal Liabilityto the Beneficiary
Compensationtobeneficiaries: Remedysought
iscompensationforbreach.
Target Holdings vRedferns [1995] .
HOL : the principle oncompensationforbreach
isthe same as damagesat commonlaw.
A trustee whocommittedabreachof trustwas
not liable tocompensate the beneficiaryfor
losseswhichthe beneficiarywouldhave
sufferedif there hadbeennosuchbreach
Liabilityis Personal Not Vicarious
A trustee is liableforhis ownwrong and not
for those of hisco-trustee. Unlessif there isa
breachby co-trustee,trustee will be atfault.
S. 35 of the Trustee Act 1949: Implied
indemnityoftrustees.
(1) A trustee ……shall be answerable and
accountable onlyforhisownacts, receipts,
neglects,ordefaults,andnotforthose of any
othertrustee,or of anybanker,broker,or other
personwithwhomanytrust moneyor
securitiesmaybe deposited,norforthe
insufficiencyordeficiencyof anysecurities,nor
for anyotherloss,unlessthe same happens
throughhisown wilful default.
Re Lucking’s WT[1968] 1 WLR 866
Luckinghad committedaBOT in entrusting
large sumsof moneytoa manager, without
adequatelysupervising him.
His fellowtrustee, Block, was not liable for
Lucking’sBOT,but entitledtorelyonwhat
Luckinghad toldhimaboutthe company’s
affairs.
Bahin v Hughes (1886) 31 Ch D 390
A passive trustee wasliable tothe same extent
as an active one.
In thisthe breachwas a breach bya co-trustee
but trustee leftthe matterinthe handof
trustee withoutinquire orstandbyto see that
breachis committed.
Breaches before Appointment:
A trustee is not liable for breachesof trust
committedbefore his appointment.
Breach After Retirement
A trustee remain liable afterretirementfor
breachescommitted byhimduring his term of
office. If he died,hisestate will be liable.](https://image.slidesharecdn.com/breachoftrustshortnotes-160121153619/85/Breach-of-trust-short-notes-1-320.jpg)
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He will not be liableif breach iscommitted
after his retirement
He will be liableif he retire inordertofacilitate
a breach of trust
Head v Gould(1989) 2 Ch 250
H: In orderto make a retiringtrustee liable you
mustclearlyshowthe breachby him.
Breach of Trustee – Beneficiary
Where trustee inbreachisalso a beneficiary,
hisbeneficialinterestbearsthe lossagainstthe
otherbeneficiaries.
A trustee will be requiredtoindemnifyhisco-
trustees tothe extentof hisbeneficial interest
and not merelythe extentthat he has
personallyreceivedsome benefitfromthe
breach.
Chillingworth v Chambers [1896] 1 Ch 685
Criminal Liability
Breach of trust isnot a criminal offence.But
there isa breach of trust committedinrespect
of criminal offence
Bankruptcy of a defaultingtrustee
If a liable trustee forbreachof trust becomes
bankrupt,the claim(breach) isprovable inhis
bankruptcy.
MEASURE OF LIABILITY
Trustee liable forthe restitutionof the money
or thing,or value of the thing,andto account
for profitmade or losscaused.
a) Payment to wrongperson or
misapplicationofTrustfunds.
Increasedrate of interestplusprincipal amount
payable
b) Saleof authorized and purchaseof
unauthorized investment
DEFENCES A TRUSTEE MAY TAKE
A trustee whohascommittedaBreach of trust
may be able to escape personal liabilityby
bringingthe case withinafew ground .
RE PAULING’SSETTLEMENT TRUST (1964)
Facts: The childrenof the Mrs. Young husband’s
familysuedtorecoverfromthe trustee who
managedtheirmother’smarriage settlement.
The childrenwere inmanyoccasionfaced
financial difficulties.Mainfinancial sourceswas
Mrs Younghusband’smarriage settlement
where she wasthe tenantfor life.
The trustee inthissettlementhasthe powerto
advance the trust fundup to ½ of the
presumptive share of each children.
Several advanceswere made tothe children.
The mother’sconsentwasobtainedinevery
case.
1954 : an advancementwasmade inorderto
avoidestate dutyonthe deathof the mother –
childrenwere aware thatadvancementmight
be in breachof trust.
1958 : the childrenbroughtanactionagainst
the trustee claiming£29,160 on the groundthat
thissum hadbeenimproperlypaidoutbyway
of advancement
The trustee reliedonthe consentand
acceptance of the advancedbeneficiaries.
i) A beneficiarywhohas participated in or
consentedto breach.
WilmerLJ:“that if the trustee canestablisheda
validrequestorconsentbyadvanced
beneficiarytothe advance inquestionthatisa
gooddefence”
ii) After the breach, beneficiarieswhether
formallyor informallyshowedtheirapproval
through ‘release or acquiescence.](https://image.slidesharecdn.com/breachoftrustshortnotes-160121153619/85/Breach-of-trust-short-notes-2-320.jpg)
Breach of trust (short notes)
- 1. 1 BREACH OF TRUST & DEFENCES Breach of Trust is failure tocomplywithduties laidupontrustee bythe trust instrumentand alsoby equity May be ina positive action,eg; investinginanunauthorisedinvestment Maladministrationthatcause lossesto trust property Settlor-trustee isliable tothe same extentas any othertrustee althoughtrustwascreatedby the same person. Nature of Liability 1. Personal Liabilitytobeneficiaries 2. LiabilityInterSe :Contributionand Indemnity 3. Criminal Liability 4. Defences Basis of liability:Liabilityiscompulsory. 1. Compensationtothe beneficiariesfor whateverloss 2. Restorationtothe beneficiariesof the propertyif an unauthorisedprofithas beenmade. Objective isnot to punishtrustee but to compensate beneficiary. 1. Personal Liabilityto the Beneficiary Compensationtobeneficiaries: Remedysought iscompensationforbreach. Target Holdings vRedferns [1995] . HOL : the principle oncompensationforbreach isthe same as damagesat commonlaw. A trustee whocommittedabreachof trustwas not liable tocompensate the beneficiaryfor losseswhichthe beneficiarywouldhave sufferedif there hadbeennosuchbreach Liabilityis Personal Not Vicarious A trustee is liableforhis ownwrong and not for those of hisco-trustee. Unlessif there isa breachby co-trustee,trustee will be atfault. S. 35 of the Trustee Act 1949: Implied indemnityoftrustees. (1) A trustee ……shall be answerable and accountable onlyforhisownacts, receipts, neglects,ordefaults,andnotforthose of any othertrustee,or of anybanker,broker,or other personwithwhomanytrust moneyor securitiesmaybe deposited,norforthe insufficiencyordeficiencyof anysecurities,nor for anyotherloss,unlessthe same happens throughhisown wilful default. Re Lucking’s WT[1968] 1 WLR 866 Luckinghad committedaBOT in entrusting large sumsof moneytoa manager, without adequatelysupervising him. His fellowtrustee, Block, was not liable for Lucking’sBOT,but entitledtorelyonwhat Luckinghad toldhimaboutthe company’s affairs. Bahin v Hughes (1886) 31 Ch D 390 A passive trustee wasliable tothe same extent as an active one. In thisthe breachwas a breach bya co-trustee but trustee leftthe matterinthe handof trustee withoutinquire orstandbyto see that breachis committed. Breaches before Appointment: A trustee is not liable for breachesof trust committedbefore his appointment. Breach After Retirement A trustee remain liable afterretirementfor breachescommitted byhimduring his term of office. If he died,hisestate will be liable.
- 2. 2 He will not be liableif breach iscommitted after his retirement He will be liableif he retire inordertofacilitate a breach of trust Head v Gould(1989) 2 Ch 250 H: In orderto make a retiringtrustee liable you mustclearlyshowthe breachby him. Breach of Trustee – Beneficiary Where trustee inbreachisalso a beneficiary, hisbeneficialinterestbearsthe lossagainstthe otherbeneficiaries. A trustee will be requiredtoindemnifyhisco- trustees tothe extentof hisbeneficial interest and not merelythe extentthat he has personallyreceivedsome benefitfromthe breach. Chillingworth v Chambers [1896] 1 Ch 685 Criminal Liability Breach of trust isnot a criminal offence.But there isa breach of trust committedinrespect of criminal offence Bankruptcy of a defaultingtrustee If a liable trustee forbreachof trust becomes bankrupt,the claim(breach) isprovable inhis bankruptcy. MEASURE OF LIABILITY Trustee liable forthe restitutionof the money or thing,or value of the thing,andto account for profitmade or losscaused. a) Payment to wrongperson or misapplicationofTrustfunds. Increasedrate of interestplusprincipal amount payable b) Saleof authorized and purchaseof unauthorized investment DEFENCES A TRUSTEE MAY TAKE A trustee whohascommittedaBreach of trust may be able to escape personal liabilityby bringingthe case withinafew ground . RE PAULING’SSETTLEMENT TRUST (1964) Facts: The childrenof the Mrs. Young husband’s familysuedtorecoverfromthe trustee who managedtheirmother’smarriage settlement. The childrenwere inmanyoccasionfaced financial difficulties.Mainfinancial sourceswas Mrs Younghusband’smarriage settlement where she wasthe tenantfor life. The trustee inthissettlementhasthe powerto advance the trust fundup to ½ of the presumptive share of each children. Several advanceswere made tothe children. The mother’sconsentwasobtainedinevery case. 1954 : an advancementwasmade inorderto avoidestate dutyonthe deathof the mother – childrenwere aware thatadvancementmight be in breachof trust. 1958 : the childrenbroughtanactionagainst the trustee claiming£29,160 on the groundthat thissum hadbeenimproperlypaidoutbyway of advancement The trustee reliedonthe consentand acceptance of the advancedbeneficiaries. i) A beneficiarywhohas participated in or consentedto breach. WilmerLJ:“that if the trustee canestablisheda validrequestorconsentbyadvanced beneficiarytothe advance inquestionthatisa gooddefence” ii) After the breach, beneficiarieswhether formallyor informallyshowedtheirapproval through ‘release or acquiescence.
- 3. 3 Thisrefersto the conductof the beneficiaries afterbreach A release maybe formal orinferredfrom conduct iii) Expirationof 6 years No actioncan be taken againsttrustee personally, afterexpirationof 6yearsperiod underthe LimitationAct1953; Except in cases regardingfraud. iv) Statutory reliefs.63 ofTrustee Act Powerto relievetrustee fromPersonal Liability If it appearsto the court, the trustee hasacted honestlyand reasonably andought to be excusedforthe breachof trust, the court may relieve himeitherwhollyorpartlyfrom personal liability. RAJA ENA JAINAB ABIDEEN (1930) SSLR 212. Three requirementsthattrustee oughttobe fairlyexcused. 1) trustee had acted honestly 2)Trustee had acted reasonably – dependson the circumstancesof the case 3) Court will take intoaccount the conduct of parties,trustee and beneficiary. v) Advice of Solicitor- Trustee What needtobe provedisthatthe trustee in committingbreachof trust actedon the advice of solicitor. vi) Breach by a Single Trustee Alone If breach iscommittedbyone trustee,the co- trustee will notbe heldliable. Dicta inBahin v Hughes;‘But as far as caseshad gone at present,relief hasonlybeengranted againsttrustee whohashimself benefitedof BOT. vii) ExemptionClause in the Trust Document If the trustdocumenthas specifymatterswhich couldexclude trustee frombreach,thenthe trustee will notbe liable. Statutory Indemnities. Section31 – 35 & s64 of the Trustee Act 1949. DEFENCES (summery) RE PAULING’SSETTLEMENT TRUST (1964) The trustee reliedonthe consentand acceptance of the advancedbeneficiaries. i) Beneficiarywho has participated in or consentedto breach. ii) After the breach, beneficiarieswhether formallyor informallyshowedtheirapproval through ‘release or acquiescence. iii) Expirationof 6 years (Except incases regardingfraud.) iv) Statutory reliefs.63 ofTrustee Act (the trustee hasacted honestlyand reasonably) RAJA ENA JAINAB ABIDEEN (1930) SSLR 212. Three requirementsthattrustee oughttobe fairlyexcused. 1) trustee had acted honestly 2)Trustee had acted reasonably – dependson the circumstancesof the case 3) Court will take intoaccount the conduct of parties,trustee and beneficiary. v) Advice of Solicitor- Trustee vi) Breach by a Single Trustee Alone vii) ExemptionClause in the Trust Document Statutory Indemnities.