#14750 - Breach Of Trust - GDL Equity and Trusts

Topic 13 – Breach of Trust (Fiduciary Duties, Investment and Breach)

• Role of trustee = range of duties and responsibilities. If a trustee does not fulfil the duties may be found to have acted in breach of trust.

• Breach of Fiduciary = (see previous lecture)

• Breach of trust = variety of forms, some (such as absconding with trust funds) more obvious than others.

  • = allow a beneficiary to claimcompensation for losses suffered or in some cases to recover trust funds that may have been misappropriated by the trustee.

  • NB - Breach of Trust – Can occur even though Beneficiary doesn’t suffer any loss, as can make money on trust fund (maybe not as much as should have).

• Actions

  • Personal against the trustee

  • Proprietary against the trust property

Breach of trust by Trustee – Conduct to

• Browne-Wilkinson in Target Holdings Ltd v Redferns = still followed, has real problems, but still referred to often.

  • “Basic right of beneficiary is to have the trust duly administered in accordance with the provisions of the trust instrument”.

  • = one of trustee primary duties is to abide by the terms of the trust i.e. do what they are told by the Settlor. But Brown-W says this only occurs when you have a trust instrument. Not absolutely certain/vital for their to be a trust instrument which will set out trustees duties/powers. Can have statute that governs what trustee can/cant do, and common law.

• [Not prescriptive – just structure to help assess whether there has been a breach, if so whether trustees liable, and if so the extent of their liability]:

• Cause of Action = breach of trust (claim against trustee, strict liability)

  • 1. Duty – sources:

    • Trust Deed (First stop) – most common for trusts to have trust instruments. So instrument will set out instructions for what trustee is/is not able to do. Have they breach those duties, have they acted outside the powers given to them by the trust instrument. IF trust instrument authorises trustee to do something, like self-dealing – to purchase trust property, then not a breach of trust, as trustee not acting ultra vires, not acting outside the powers the trust instrument has given them

    • Statute – May not always have a trust instrument. Where no trust instrument, or does exist but not clear about a particular area, or silent – then look at statute. Trustee Act 2000, but also 1925 Trustee Act. Separate instruments. Sets out statutory trustee duties

    • Common Law – I.e. the duty to be even-handed between Beneficiaries is a common law trustee duty.

  • 2. Breach

    • Has there been a breach of trust – will depend on scenario. Has a trustee violated their duties as laid down by the 3 elements above. IF breach, if trustee has prima facie done something they should not have done then move onto causation:

  • 3. Causation (don’t focus on THIS COURSE) – NO REAL CONTENT

    • Not entirely clear – But lead case HoL authority is Target Holdings Ltd v Redferns

      • Browne-Wilikinson = must be some ‘causal connection between breach of trust and the loss sustained by the beneficiaries’. But for test of causation (used in common law). Criticism is that common law test of causation has NO place in a case on breach of trust, too simplistic. Criticism in academia

      • Case = about fraudulent land deal, Target holdings mortgagee/lender, and Redferns is solicitor. Land misrepresented as worth 2m, but actually worth 0.5m. So they convince Target to lend 1.5m to get land, Redferns stipulates purchase monies not paid for completion until there is a charge laid on land in favour of Target holdings. Target pays money to Redferns, meant to hold in Escrow. Redferns in breach of trust pays money to purchaser before land secured. Subsequently, charge is secured on land. Purchaser goes insolvent so land is possessed and sold. As worth so much less than valuation, so Target only able to recover much less, and sue Redferns for difference.HELD redferns not responsible, as not payment in breach of trust that causes the loss – ‘but for that payment, but for the breach, the loss would have still occurred’ as loss intrinsically tied to the MR, the fraudulent valuation of that land.

      • = Has to be SOME causal connection between the breach and the loss.

    • CF AIB Group plc v Redler

  • 4. Damage – Have the beneficiaries suffered loss as a result of this:

    • Quantification of loss – can be several different things:

      • Loss to trust fund – if trust property not invested property and investments decreased in value

      • If trustee has taken trust property

      • Can cover – investment where trustee invested property, investments not lost money, but they have not done as well as other investments might have done, OR as the reasonable ‘prudent person of business’ might have done. – thus doesn’t necessarily mean the trust fund has diminished. Can also be loss Bs suffer as trust fund hasn’t appreciated as much as it should have done.

  • 5. (if loss, and breach causes loss) – Remedies

    • Bs claim in order to remedy that breach of trust.

    • Proprietary = interest in property itself, which means, you can follow and trace into substitute assets

    • Personal claim = breach of trust, a personal claim. Entitle you to compensation but NOT a proprietary claim in the property itself (SO cannot trace)

      • Case = Westdeutsche Landesbank Girozentrale v Islington LBC – refers to this

    • Equitable compensation = whether equitable compensation awarded, depends on facts on scenario. Not focus on course, Wallersteiner Moir(No 2)

Measuring Liability for Breach of Trust - Liability for Trustees Imposed/Calculated

• Breach of trust means trustees are ‘Joint and Several liability’ for what happens =

  • Trustees are jointly liable e.g. 1 caused breach of trust, but both trustees are liable together.

  • HOWEVER also severally liable i.e. if you’re a beneficiary, and your trust breached and want to sue trustees for what they did. Either sue together (jointly) but if you want to, you can sue them individually (severally).

  • Case = Bahin v Hughes

    • Also indicates – Sleeping Trustee = 1 who doesn’t do their job, never a defence to argue you never knew what was happening

    • Rationale in case = courts like to encourage trustees to be responsible for their own actions but also the actions of other trustees. Onerous to be a trustee – responsible for your own actions, but also co-trustees as well.

    • Active trustee duties, belief is you’ll be more responsible and less likely trust will be breached.

• Multiple Trustees – courts have extensive powers to attribute liability

  • Civil Liability (Contribution) Act 1978 – S6(1) applies to trustees.

  • S2 – trustees responsible jointly for breach of trust, courts have the power to apportion liability based on specific evidence (i.e. 1 clearly breaching trust, whilst other is passive) – not a defence per se you didn’t know what was happening, it can still reduce your liability.

  • Broad discretion

    • Contribution ‘such amount as may be just and equitable’ S2(1)

    • Includes complete indemnity S2(2) – can say yes both trustees technically responsible, because of specific facts of case, 1 be 100% liable but other not liable at all. Not common but still possible.

  • = Trustees no longer equal.

  • Indemnity (for co-trustee):

  • Fraud – Re Smith = if 1 trustees acted fraudulently and breached trust by deceiving co-trustee, or breached trust in fraudulent manner not easily identifiably by other trustee – can amount to total indemnity. Examples include (they lie to you, or embezzle and conceal trust property) then you haven’t done anything wrong, you check up and have no reason not to believe what they’re telling you. Then itsunlikely you’ll be responsible.

  • Special Qualifications (solicitors, could work for financial professionals for investments)

    • = Deference from 1 party to another as they had superior knowledge and expertise

    • Re Partington = 2 trustees, 1 lay and 1 solicitor. She defers to his opinion but also solicitor is also bullying to her and stops her from being able to do anything, duress and locks her out of the building where trust business is conducted. Ratio – if you can show you are stopped from performing your functions as a trustee, it is unlikely you’ll have anywhere close to full liability of other trustee, in effect total indemnity. Extreme example

    • Head v Gould = deference to greater knowledge/skill of solicitor, also total indemnity given.

    • - Decide on on specific facts of the scenario. Is it reasonable to defer to someone based on what they know or claim to know.

  • Situation between trustees-beneficiary

    • Chillingworth v Chambers = Breach of trust by trustee, and beneficiary consented to breach as breach of trust would materially benefit the beneficiary. Court decided that B was equally responsible for what happened, so liability apportioned between trustee and beneficiary.

    • Re Mulligan = Estate widow with life interest, who convinces trustees to invest in fixed-rate bond generating a high amount of income but suffer depreciation in capital. Even though trustee argued B convinced them to invest in those income-producing shares as in her benefit to do so, to detriment of remaindermen, trustee still had responsibility. Liability shared out with widow though.

Possible Defences for Trustees against Breach of Trust

• A. Statutory Section 61 TA 1925 = rarely successful in practice, worth a discussion.

  • i.e. if trustee acted honestly/reasonably in ALL the circumstances in order to be ‘ought to be fairly excused’ from what they did., courts have ability to excuse them from liability.

  • = general defence to breach of trust

  • Case = Perrins v Bellamy = breach of trust. Trustee wrongly believed...