Breach of Trust

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Breach of Trust

  1. 1. BREACH OF TRUST &DEFENCES
  2. 2. Learning OutcomeStudents 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 thebeneficiaries4) Nature of Liability5) Measure of Liability6) Defences
  3. 3. What is a Breach of Trust Failure to comply with duties laid upontrustee by the trust instrument and also byequity May be in a positive action, eg;- investing in an unauthorised investment- Maladministration that cause losses to trustproperty Settlor-trustee is liable to the same extent asany other trustee although trust was createdby the same person.
  4. 4. Nature of Liability1) Personal Liability to beneficiaries2) Liability Inter Se : Contribution andIndemnity3) Criminal Liability4) Defences
  5. 5. Basis of liability Liability is compulsory. Compensation to the beneficiaries forwhatever loss Restoration to the beneficiaries of theproperty if an unauthorised profit has beenmade. Objective is not to punish trustee but tocompensate beneficiary. Unless in the case of technical breach whichthe court authorised
  6. 6. Personal Liability to theBeneficiary 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 thesame as damages at common law.- a trustee who committed a breach of trust wasnot liable to compensate the beneficiary forlosses which the beneficiary would have sufferedif there had been no such breach
  7. 7. Liability is Personal NotVicarious A trustee is liable personally for his own breach oftrust- A trustee is liable for his own wrong and not forthose of his co-trustee.- Unless if there is a breach by co-trustee, trusteewill be at faulti) 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 thetrustee was aware of the breach
  8. 8. S35 of the Trustee Act 1949:Implied indemnity of trustees.(1) A trustee shall be chargeable only for money andsecurities actually received by him notwithstandinghis signing any receipt for the sake of conformity,and shall be answerable and accountable only forhis own acts, receipts, neglects, or defaults, and notfor those of any other trustee, or of any banker,broker, or other person with whom any trust moneyor securities may be deposited, nor for theinsufficiency or deficiency of any securities, nor forany other loss, unless the same happens throughhis own wilful default.
  9. 9. Re Lucking’s WT [1968] 1 WLR866 Lucking had committed a BOT inentrusting large sums of money to amanager,without adequatelysupervising him. His fellow trustee, Block, was not liablefor Lucking’s BOT, but entitled to relyon what Lucking had told him aboutthe company’s affairs.
  10. 10. Bahin v Hughes (1886) 31 ChD 390 A passive trustee was liable to thesame extent as an active one. In this the breach was a breach by aco-trustee but trustee left the matter inthe hand of trustee without inquire orstand by to see that breach iscommitted.
  11. 11. Breaches before Appointment A trustee is not liable for breaches oftrust committed before hisappointment. A trustee should on his appointmentexamine any documents and booksrelating trust. If he discover a breach, action shouldbe taken against the former trustee
  12. 12. Breach After Retirement A trustee remain liable after retirementfor breaches committed by him duringhis term of office. If he died, his estate will be liable. He will not be liable if breach iscommitted after his retirement He will be liable if he retire in order tofacilitate a breach of trust
  13. 13. Head v Gould (1989) 2 Ch 250 Kekewich J “… In order to make a retiring trusteeliable for a trust committed by his successor youmust show and show clearly that the very breach oftrust was in fact committed was not merely theoutcome of the retirement and appointment tookplace… It will not suffice to prove that the formertrustee rendered easy or even intended a breach oftrust, if it was not in fact committed. They mustproved to have been guilty as accessories beforethe fact of the impropriety actually perpetrated.
  14. 14. Breach of Trustee –Beneficiary Where trustee in breach is also abeneficiary, his beneficial interest bearsthe loss against the other beneficiaries. A trustee will be required to indemnify hisco-trustees to the extent of his beneficialinterest and not merely the extent that hehas personally received some benefitfrom the breach. Chillingworth v Chambers [1896] 1 Ch685
  15. 15. Criminal Liability Breach of trust is not a criminaloffence But there is a breach of trustcommitted in respect of criminaloffence
  16. 16. Bankruptcy of a defaultingtrustee If a liable trustee for breach of trustbecomes bankrupt, the claim (breach)is provable in his bankruptcy
  17. 17. Measure of liability Trustee liable for the restitution of themoney or thing, or value of the thing, and toaccount for profit made or loss caused.a) Payment to wrong person ormisapplication of Trust funds. Increased rate of interest plus principalamount payable b) Sale of authorised and purchase ofunauthorised investment
  18. 18. DEFENCES A TRUSTEE MAYTAKE
  19. 19. Introduction A trustee who has committed a Breachof trust may be able to escapepersonal liability by bringing the casewithin a few ground in the case of REPAULING’S SETTLEMENT TRUST(1964) Ch 303
  20. 20. Facts of the case The children of the Younghusband’s familysued to recover from the trustee whomanaged their mother’s marriagesettlement. The children were in many occasion facedfinancial difficulties. Main financial sourceswas Mrs Younghusband’s marriagesettlement where she was the tenant for life. The trustee in this settlement has the powerto advance the trust fund up to ½ of thepresumptive share of each children
  21. 21.  Several advances were made to the childrenwho on some occasion received independentlegal advice s to their right under the settlement. The mother’s consent was obtained in everycase. 1954 : an advancement was made in order toavoid estate duty on the death of the mother –children were aware that advancement might bein breach of trust. 1958 : the children brought an action againstthe trustee claiming £29,160 on the ground thatthis sum had been improperly paid out by wayof advancement
  22. 22.  The trustee depends relied on theconsent and acquiescence of theadvanced beneficiaries.
  23. 23. i) Beneficiaries, before the breachconsented to or participated in breach A beneficiary who has participated inor consented to or participated inbreach Wilmer LJ “that if the trustee can established avalid request or consent by advancedbeneficiary to the advance in questionthat is a good defence
  24. 24. ii) Release or Acquiescence After the breach, beneficiaries witherformally or informally showed theirapproval through ‘release oracquiescence Refers to the conduct of thebeneficiaries after breach A release may be formal or inferredfrom conduct
  25. 25. iii) Expiration of 6 years No action against trustee personallyafter expiration of 6 years period of theLimitation Act 1953. Except in cases regarding fraud
  26. 26. iv) Statutory relief s63 ofTrustee Act Power to relieve trustee from PersonalLiability If it appears to the court, the trusteehas acted honestly and reasonablyand ought to be excused for thebreach of trust, the court may relievehim either wholly or partly frompersonal liability.
  27. 27.  RAJA ENA JAINAB ABIDEEN (1930)SSLR 212. Three requirements that trustee oughtto 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 conductof parties, trustee and beneficiary.
  28. 28. v) Advice of Solicitor - Trustee What need to be proved is that thetrustee in committing breach of trustacted on the advice of solicitor.
  29. 29. vi) Breach by a Single TrusteeAlone If breach is committed by one trustee, theco-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 trusteewho has himself the benefit of BOT orbetween whom a relation which will justifythe Court in treating him as solely liable
  30. 30. vii) Exemption Clause in theTrust Document If the trust document has specifymatters which could exclude trusteefrom breach, then the trustee will notbe liable.
  31. 31. Statutory Indemnities. Section 31 – 35 & s64 of the TrusteeAct 1949.

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