Proprietary Remedies for Breach of Trust


Published on

Published in: Law, Technology, Business
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Proprietary Remedies for Breach of Trust

  2. 2. Learning Objectives• Students will be able ;i) To know the remedies for breach of trustii) To understand the concept of personalremedies against the trusteeiii) To learn about proprietary remedies and itsadvantagesiv) To understand the concept of tracing and itsimplementation06/14/13EQUITY & TRUST II(DR. ZURAIDAH)2
  3. 3. Introduction• Remedies are available to guard againstbreach of trust.• These can be divided to two:i) Personal remedies against trusteeii) Proprietary remedies available to thebeneficiaries.06/14/13EQUITY & TRUST II(DR. ZURAIDAH)3
  4. 4. Personal Remedies against trustee• It can be divided to three;i) Measure of liabilityii) Investmentsiii) Interest06/14/13EQUITY & TRUST II(DR. ZURAIDAH)4
  5. 5. Measure of liability• When there is a breach of trust, directly orindirectly, there will be interest.• If there is unauthorised profit: trustee willhave to account for profit.• Trustee will be liable only for loses arisingform the breach of trust• They are not insurer to the trust property06/14/13EQUITY & TRUST II(DR. ZURAIDAH)5
  6. 6. Dimes v Scott (1928) 4 Russ 195• They are not allowed to set off profit made inone transaction against loss in another.• Such profits belonged to beneficiaries• Trustee cannot claim the profit just to lessentheir own liability for loss caused by a breach.• These will not apply if profit and loss can beseen to be part of the same transaction06/14/13EQUITY & TRUST II(DR. ZURAIDAH)6
  7. 7. Investment1) If trustee make unauthorised investment,they will be liable for any loss which isincurred when the investment is realised2) Where unauthorised investment areimproperly retained, the measure of liabilityis the difference between the present valueof investment and the price06/14/13EQUITY & TRUST II(DR. ZURAIDAH)7
  8. 8. 3) If trustee are directed by trust instrument tomake a specific investment but they either:i) Make no investment orii) invest somewhere.They will be liable to supply the amount of thespecific investment – had they invested at propertime.4) A trustee used trust money for his own business –liable to hold for profit06/14/13EQUITY & TRUST II(DR. ZURAIDAH)8
  9. 9. Interest• Replace a loss with an interest• Traditional rate 4 %• May be liable for higher rate at the discretionof the court06/14/13EQUITY & TRUST II(DR. ZURAIDAH)9
  11. 11. Meaning PR• A kind of remedy where the plaintiff can claimthat property in the hands of the defendant isto be treated as that of plaintiff.• It is not the same as ‘real remedy.’06/14/13EQUITY & TRUST II(DR. ZURAIDAH)11
  12. 12. • It entitles the plaintiff to treat any property,usually money, in the hands of the defendantas being the plaintiff to the extent that he canclaim repayment in full regardless of thedefendant’s insolvency.06/14/13EQUITY & TRUST II(DR. ZURAIDAH)12
  13. 13. Advantages Proprietary Remedycompared to Personal Remedy• 1) Satisfaction of the plaintiff’s demand doesnot depends on the solvency of the defendant• 2)The plaintiff will be able to take advantagesof the increase in value of the said property06/14/13EQUITY & TRUST II(DR. ZURAIDAH)13
  14. 14. • It concerns an income producing assetswhereby interest will be calculated from thedate on which the property came to thedefendant’s hand.06/14/13EQUITY & TRUST II(DR. ZURAIDAH)14
  15. 15. • Equitable Proprietary Remedy is known astrustee• This is a kind of remedy which entitles aclaimant to treat specific property as his own• Two types:• A) Tracing at Common Law• B) Tracing at Equity06/14/13EQUITY & TRUST II(DR. ZURAIDAH)15
  16. 16. (i) Tracing at Common Law• The owner of property can claim for thereturn of such property or its value• If the property had been converted to otherproperty and can be identifiable on itsphysical sense, the beneficiary still can claimagainst the trust property06/14/13EQUITY & TRUST II(DR. ZURAIDAH)16
  17. 17. • However, if the property has changed eitherin cash/other form/mixed with other money,the tracing under common law is no longerpossible.• So long as the property is identifiable, it canbe recovered.• Once mixed, it is not traceable06/14/13EQUITY & TRUST II(DR. ZURAIDAH)17
  18. 18. • Taylor v Plumer (1815) 3 M & S 562. LordEllenborough:• “ It makes no difference in reason or lawinto what other form, different from theoriginal, the change may have been made,whether into that of promissory notes forthe security of the money which wasproduced by the sale of goods if theprincipal . . . for the product of orsubstitute for the original thing still fills themature of the ting it self,06/14/13EQUITY & TRUST II(DR. ZURAIDAH)18
  19. 19. • as long as it can be ascertainable to be suchand the right only ceases when the means ofascertainment fail, which is the case when thesubject is turned into money and mixed andco-founded in a general mass of the samedirection.06/14/13EQUITY & TRUST II(DR. ZURAIDAH)19
  20. 20. ii) Tracing Under Equity• The concept is more wider and flexible• It applies not only when the property is in thehands of trustees or other fiduciaries, but alsoin a commercial context.06/14/13EQUITY & TRUST II(DR. ZURAIDAH)20
  21. 21. c)Who can trace• It is not confined to claims between trusteeand beneficiary but also between fiduciaries.• This concept can be seen in few cases.06/14/13EQUITY & TRUST II(DR. ZURAIDAH)21
  22. 22. Re Hallet (1880) 13 Ch 696• A solicitor had deposited part of his client’smoney into his account which also comprisedmoney from his marriage settlement. Hemade various payment from and into theaccount and also incurred debts. At his deaththe account was sufficient to meet claims ofthe trustees in the marriage settlement andthe client but not his personal debts.06/14/13EQUITY & TRUST II(DR. ZURAIDAH)22
  23. 23. • Held : Both the trustee and the client wereentitled to charge the money in theaccount and they had priority over thegeneral creditors. Mr. Hallet , the solicitor,stood in a fiduciary position towards theclient.• Jessel MR : “Has it ever been suggesteduntil recently that there is any distinctionbetween an express trust or an agent or abailee or a collector of rents or anybodyelse in a fiduciary position06/14/13EQUITY & TRUST II(DR. ZURAIDAH)23
  24. 24. Sinclair v Brougham (1914) AC 398• The need to determine the right of depositor totrace into the general assets of the Society whichhad been subject to winding up.• HOL : There was a fiduciary relation between thedepositors and the directors; the directors hadmixed the funds and the depositors had the rightto trace them into the hands of the Societyrecognising an equal claim if the shareholderswith whom they shared pari passu06/14/13EQUITY & TRUST II(DR. ZURAIDAH)24
  25. 25. Re Diplock (1948) Ch 465• Next of kin were held entitled to trace themoney in equity into charities hands becauseexecutors clearly stood in a fiduciaryrelationship to the estate.06/14/13EQUITY & TRUST II(DR. ZURAIDAH)25
  26. 26. d) Tracing of Unmixed Fund• If the trustee has sold the trust property,rightly or wrongly, the beneficiary may takethe proceeds if he can identify them06/14/13EQUITY & TRUST II(DR. ZURAIDAH)26
  27. 27. • If the proceeds of sale have been used topurchase other property, the beneficiarymay• 1) follow them and may elect either to takethe property purchased or hold it assecurity for the amount of trust laid out inthe purchase• 2) he is entitled at election either to takethe property• 3) to have a charge on the property for theamount of trust property.06/14/13EQUITY & TRUST II(DR. ZURAIDAH)27
  28. 28. • The position can be seen in the case of ReHallet’s Estate (1880) 13 Ch 696• It shall never be valid against a bona fidepurchaser for value.06/14/13EQUITY & TRUST II(DR. ZURAIDAH)28
  29. 29. e) Tracing of Mixed Fund• A complicated situation• This is when the trustee has mixed the trustfunds with other money or other property.• The position on this unmixed fund depends ondifferent situations, eg whether theownership of the mixed fund must beapportioned between two trust or a trust andan innocent volunteer.06/14/13EQUITY & TRUST II(DR. ZURAIDAH)29
  30. 30. i) When the whole blended property isliable• The beneficiaries will have the first chargeover the mixed fund or any propertypurchased with it unless of the trustee canprove that the part of the mixed fund is hisown.• The burden is on the wrongdoer to show thatthe asset or balance represents his ownmoney.06/14/13EQUITY & TRUST II(DR. ZURAIDAH)30
  31. 31. • If the presumption in Re Hallet workedunjustice, it should not be applied.• Re Oatway [1903] 2 Ch 356. Joyce J• “It is, in my opinionj, equally clear that whenany of the money drawn out has beeninvested and that investment remains in thename or under the control of the trustee … hecannot maintain that the investment whichremains represent his own money alone..”06/14/13EQUITY & TRUST II(DR. ZURAIDAH)32
  32. 32. ii) Position when funds of two trusts aremixed or that of trust and third party• This applies to the situation where the trusteehas mixed the funds of two trusts, whether ornot with his, or he has transferred the fundsto an innocent volunteer, who has mixedthem with his own.06/14/13EQUITY & TRUST II(DR. ZURAIDAH)33
  33. 33. • The rule here is that the two trusts or trustand the volunteer, share pari passe, i.e.rateably in the mixed funds or any propertypurchased out of term06/14/13EQUITY & TRUST II(DR. ZURAIDAH)34
  34. 34. Sinclair v Brougham (1914) A.C 398• Claim between shareholders and depositors inrespect of assets distributable by liquidator inthe winding up of a building society.• Held: The two classes shared rateably06/14/13EQUITY & TRUST II(DR. ZURAIDAH)35
  35. 35. iii) Mixing of money in the bankaccount• In the course where there was a mixed in abanking account, special rules will apply• There is however necessary to distinguish theposition between trustee and beneficiariesand as between two trust and an innocentvolunteer06/14/13EQUITY & TRUST II(DR. ZURAIDAH)36
  36. 36. i) Mixing in a bank account consisting of thetrust property and the trustee’s own property• The principles as between beneficiary andtrustee is that the trustee is presumed tospend his money first.06/14/13EQUITY & TRUST II(DR. ZURAIDAH)37
  37. 37. Re Hallet’s Estate• One of the question; how to allocate thepayments from the fund as between Halletand the client.• Held: The trustee must be presumed to havespent his own money first and to havepreserved the trust money.06/14/13EQUITY & TRUST II(DR. ZURAIDAH)38
  38. 38. 06/14/13EQUITY & TRUST II(DR. ZURAIDAH)39RE HALLET”S ESTATE• Jessel MR : “ it seems to me perfectly plainthat he cannot be heard to say that he tookaway the trust money when he has a right totake away his own money. His money wasthere, and he had a right to draw it out andwhy should the natural act of simply drawingout the money be attributed to anythingexcept to his ownership of money which wasat the banker06/14/13EQUITY & TRUST II(DR. ZURAIDAH)39
  39. 39. ii) Mixing in a bank account consisting of thetrust property and property of an innocentvolunteer• Applied the rule in Clayton’s case.• Clayton’s case presumes that money is paidout of a current account in the same order inwhich it had been paid.06/14/13EQUITY & TRUST II(DR. ZURAIDAH)40
  40. 40. • In other words the first money to be spentfrom the account represents the firstmoney that was paid.• The rule is known as ‘first in’ and ‘first out,’• This rough rule is originally developed inthe banker and client context.• The presumption is not absolute and it willnot be applicable if the result would beunjust.06/14/13EQUITY & TRUST II(DR. ZURAIDAH)41
  41. 41. f) Increase in value• A beneficiary would be able to claim theoriginal money taken with interest and inpriority to the creditors and that the trusteewould keep all the profits.• If the trust increased in value, it would be inhis interest to do so and if the fund decreasein value, it would be in his interest to have acharge.06/14/13EQUITY & TRUST II(DR. ZURAIDAH)42
  42. 42. f) Loss of right to trace1) If property reaches the hands of bona fidepurchaser for value without notice2) If the claimant’s property disappears or theproperty ceases to be identifiable. eg whenthe trust fund or the proceeds of this sale ofthe trust have been dissipated.06/14/13EQUITY & TRUST II(DR. ZURAIDAH)43
  43. 43. 3) Where tracing would be inequitable4) Payment of debt. : A trustee who used trustproperty to discharge a debt and nothingwould be left that could be said to representthe trust property.• A debt is a choose in action and once it hasbeen paid it ceases to exist.06/14/13EQUITY & TRUST II(DR. ZURAIDAH)44