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EQUITY (Fiduciary Obligations (Duties (Good Faith/Loyalty principal is…

- - - - Lister v Stubbs [1890] (CA)
        Facts
        Lister hired Stubbs as purchaser. Stubbs took bribes (in breach of FO) to purchase from specific vendor. Stubbs invested bribes (which would be disgorged for principal as profit) in property. Does the principal get the property (as a trust) or just bribes?
        Held
        Stubbs was only liable for personal account and was disgorged of the value of his bribes. There was no proprietary nexus between property and principal, and so only the personal account was required.
      - AG v Reid [1994] (PC)
        Facts
        Reid took bribes to prosecute certain criminals. Invested the bribe money in property. Does principal get property?
        Held
        Lister was decided incorrectly and the principal would get the property on trust too. Templeman also said this was due to bribes being 'evil' and shouldn't be relied upon.
      - Sinclair Investments v Versailles [2011] (CA)
        Facts
        investors in a company had their money pumped into the fiduciaries other companies to raise their share prices. Fiduciary then sold shares for profit and used this to loan a home. Scam uncovered, home sold, and investors (now principals) want a constructive trust over property to prioritise their claim. Lister or Reid?
        Held
        CA was bound by Lister as Reid was PC also, equitable compensation was a suitable deterrent and so constructive trusts needn't be expanded any further. Lastly, no proprietary nexus between investors and home.
      - FHR v Mankarious [2014] (SC)
        Facts
        fiduciary makes a secret profit on commission of a sale of a multimillion euro hotel. Following Sinclair money would have to have been taken from FHR for trust to arise. Argued that they lost the commission price as could have got a cheaper price on the hotel.
        Held
        Move away from Sinclair (which is odd as same judge presiding on both), toward Reid where all profits are disgorged. Partial reason being an honest fiduciary lost profit in Boardman so why should a dishonest one not.
- - - - Ethics of Investment
        under Cowan v Scargill [1985] only financial considerations are to be taken into account. Charities can invest in areas that promote the charitable purpose, and can reject investments that may stop the charitable purpose from being completed (Harries v CC for England [1993]) - as long as financial integrity of the trust is maintained.
  - - - Types
        
        Injunction - given by the court to get the trustee to or not to do something
        
        Personal - account/equitable remedy
        
        Account - more of a process than a remedy
        Falsification
        if money is transferred out without permission then beneficiary can falsify the account. This means the trust will act as if the transaction never occurred and the trustee is under an immediate obligation to restore the trust to its previous state.
        Surcharge
        if a trustee fails to obtain money for the trust that they should have (due to a duty) then the beneficiary can surcharge the account. This means the trust will act as if the transaction had occurred and the trustee is under an immediate obligation to pay into the trust the amount that it should have present.
  - - - AIB [2014]
        Facts
        solicitors again breach trust obligations and cause AIB to lose substantial money. Difference to Target was that AIB didn't get what they had bargained for whereas Target had.
        Held
        it is foolish to 'falsify/surcharge' trusts as it creates 'fairy tales'. Upheld Target and causation stance, also suggested other common law doctrines (reasonableness/foreseeability) should be applied, but does not confirm this (leaves the door open).
      - Target Holdings [1995]
        Facts
        Solicitors told not to release mortgage funds until completion, however, they released them too early. Transpired that house was overvalued so was not sufficient security for mortgage. Are solicitors (who were trustees of the mortgage fund) liable ?
        Held
        CA - Causation rules do not apply. If funds are distributed in breach (which they were) then they should be reconstituted.
        HL - the breach had to have caused the breach (same 'but for' as causation). Also a difference between traditional/commercial trusts.
        Impact
        this was an unnecessary extension of the rule, Millet in his dissent said that the orthodox equity rules would have sufficed so extending the rules was unnecessary. Creates two types of trust law for two types of trust.
    - - Barriers for Beneficiaries
        Nestle v National Westminster [1993] - hard to prove failure in investment (as fund growth is unpredictable)
        Armitage v Nurse [1998] - cannot exclude actual fraud, BUT anything up to it (e.g. gross negligence). Confirmed (with two dissenting judgments which is rare) by PC in Spread [2011].
        Walker v Stones [2000] - the test for actual fraud/dishonesty is an objective one.
      - Causation
        Bristol v Mothew [1998] - causation for breach DoC/S is the same as in common law. Although this is criticised as equity/common law have different moral aims.
    - - Santander v RA [2014]
        CA held that causation should not effect relief of liability and that a holistic approach should be taken to decide on 2 statutory factors.
      - Under s.61 Trustee Act '25 a court has the discretion to relieve any trustee of personal liability as long as they have; (1) acted honestly/reasonably and (2) ought fairly to be excused of liability
      - Daniel v Tee [2016]
        appears that trustees have a lot of protection in equity and even if they haven't met their expectations can avoid liability. Raises questions of general accountability for trustees.
- - - - Facts-
        Landlord enticed tenant with lower rent during wartime. After war, the landlord sought to recoup 'full' rent for wartime years.
      - Held -
        Per Lord Denning: "A promise intended to be binding, intended to be acted on and in fact acted on, is binding so far as its terms properly apply.
      - Impact -
        Immediately cut back in Combs v Combs where it was held to be a 'shield' not a 'sword' so could only be used to stay legal rights, not create them.
- - - - Public Policy
        
        presumptions required to regulate relationships where consent may be easily overborne or a vulnerable party could be taken advantage of (usually in a trusting relationship).
      - Established if:
        
        trust and confidence is place in the respondent, and
        
        the transaction calls for some form of explanation, then
        
        burden of proof is shifted onto the respondent to prove consent was freely given
        
        Trust and Confidence
        
        Status-Based
        
        trustee/beneficiary
        
        parent/child (Bainbrigge v Browne [1888])
        
        guardian/ward
        
        spiritual advisers (Nottidge; Allcard v Skinner [1887] - based on public policy to avoid 'spiritual tyranny')
        
        legal and medical advisers/advisees
        
        Facts-Based
        (1) marriage (National Westminster v Morgan [1985] and RBS v Etridge [2001] - which attempts to clarify not categorise UI)
        (2) cohabitants
        (3) bank manager/client (Lloyd's Bank v Bundy [1975])
        (4) employer/employee (Credit Lyonnais [1997])
  - - - Aylesford v Morris [1873]
        Facts
        man with gambling and alcohol problems ties his debt to his incoming inheritence.
        Held
        set aside transaction as he was at a disadvantage (having these problems) and transactors took advantage of this.
        Impact
        helps to protect aristocratic family wealth
      - Fry v Lane [1888] -
        the poor and less educated can be seen to be at a disadvantage to those whom may not be and so should be protected.
  - - - Agency
        
        husband is the banks 'agent' and so the bank is bound by the misrepresentation (Turnbull v Duval [1902])
        
        This was quickly rejected for public policy reasons
      - Special Equity
        
        a 'wives equity' where bank is under an obligation to ensure wife's consent is valid (or they are bound by husband)
        
        Implemented in Yerkey v Jones [1939], and accepted in Australia in Garcia v National Aus. Bank [1998].
        
        Rejected in the UK for constructive notice.
      - Constructive Notice
        
        when dealing with non-commerical dealings, bank is put 'on inquiry' and take 'reasonable steps' to ensure wife's consent.
        
        Implemented in Barclay's Bank v O'Brien [1994] and is a lower threshold than special equity. Etridge [1998] implemented 'reasonable steps' test.
- - - - Charities Act 2011
        
        the new statutory provisions governing charities.
        s.1(1) - charities are institutions which are:
        
        established for charitable purposes only
        s.2(1) - a charitable purpose is:
        
        one under s.3, and
        
        for public benefit
        s.3(1)
        
        extensive list of 13 purposes (expanding Pemsel), including,
        
        any other purpose that a court decides is within the spirit of the act
        
        Cy-Pres
        
        governed under Part 6 CA '11
        
        when a charitable trust fails, the Charity Commission can redistribute the property to other charities 'as near as possible' to the failed purpose.
        
        Buckley v Barlow [2016] - court will look at the purposes of the trust not the actions to decide if it is a charity and so if cy-pres is available (if a trust is held as not being a charity the funds go to whichever decedents can be found).
      - Public Benefit: Two Tests:
        
        Qualitative - must actually benefit the public
        
        Quantitative - must be a public benefit
        
        Quantitative
        
        A trust for employees children is too narrow (Oppenheim [1951]) unless it is to relieve poverty (Scarisbrick [1951])
        
        Personal nexus is allowed if relating to poverty (AG v Charity Commission [2012]).
        
        Set up to allow public prayer is sufficient (Hetherington [1990])
        
        Paying for access to trust does not sufficiently narrow it (Resch's Will Trust [1969])
        
        As long as fees don't unreasonably exclude the poor, then a fee-paying school can be a charity (R v Charity Commission [2011]).
        
        Qualitative
        
        Charities cannot be set up for political purposes (Bowman v Secular Society [1917]).
        
        Even anti-vivisection can be seen as a political cause and invalidate a charitable trust (NAVS v IRC [1948])
        
        McGovern v AG [1982] - charities cannot be set up to try and reverse Government policy either. These groups can be set up, but won't be allowed charitable exemptions. Affirmed by High Court in Bishop v Charity Commission [2016].
        
        Australia do allow 'political charities' as in a democratic society there should be debate about policies etc (Aid/Watch v Commissioners for Taxation [2010])
- - - - Hill v Turner [1737] - equity could not overrule the judgment of a court of law BUT could injunct it's ruling being executed.
        
        "an injunction...admits the jurisdiction of the common law...[but holds] they are making use of their jurisdiction contrary to equity" - Lord Hardwick (in Hill)
      - Anti-suit Injunction - effectively an injunction to prevent a course of action being taken abroad. Again, it is preventing the person from doing this, not the foreign court.
      - Turner v Grovit 2002 - injunctions are addressed to a person, and attached to a person, it is effectively a 'fault based remedial concept' (Lord Hobhouse)
  - - - Interlocutory - interim injunctions enforced during proceedings to prevent any further wrongs occurring whilst case is being heard.
        
        Questions of balance need to be considered, to decide whether these are necessary or not. Extremely difficult to get an interlocutory mandatory injunction (requires a strong prima facie case).
        
        American Cyanamid [1975]
        
        Facts:
        Rival company wanted an injunction to prevent another from entering the market (as there was a patent dispute). Previous rule for interlocutory injunctions was that claimant had to prove they would likely be successful in full trial. This caused pre-trial trials that expended a lot of resources. Should this rule be changed?
        
        Held:
        Yes. Now claimant only had to prove there was a serious question to be tried at hearing, however, if damages were an adequate remedy then injunction would not be imposed. Further, if damages were suitable compensation to defendant for injunction if they then won, injunction could be granted. If damages unsuitable 'balance of convenience' and maintaining the status quo has to be considered.
        
        Pitt v Hubbard
        
        Court allowed injunction to prevent protesters onto claimants land to 'maintain status quo' without consideration for merits of protest etc, showing this is an objective rule.
      - Final - perpetual injunctions that are enforced at the end of a trial as a remedy to the successful party.
      - Both interim and final injunctions can be mandatory or prohibitory but mandatory injunctions require more proof as they are more onerous.
      - Specific Injunctions
        
        Quia Timet - an injunction on actions that are feared/imminent but have not yet occured
        
        Ex Parte - injunction imposed without notice to repsondent
        
        Manerva (freezing) - freezes specific assets to prevent respondent removing them before they lose a case.
        
        Piller (searching) - requires respondent to consent to a search of the premises by the claimant. Used to prevent evidence being destroyed but can be misused when ex parte to simply disrupt competition (Lock Int. v Bezzit).
  - - - Fourie v Le Roux [2007] - altered this and stated that injunctions jurisdiction was not statutory but derived from Chancery and so as long as there was jurisdiction over the person, an injunction could be made (regardless of a course of action).
      - Senior Courts Act 1981 reiterated JA '73, and then Anti-Social Behaviour, Crime and Policing Act 2014 allowed injunctions for 'threatened anti-social behaviour', and set out who could apply for these injunctions.
      - Still completely discretionary, equitable, remedy (South Bucks DC v Porter [2003])
- - - - Awarding Equitable Damages - traditionally only a last resort and injunctions preferred (Shelfer 1895) but recently has been given more scope in Lawrence v Fen Tigers 2014:
        Damages awarded in lieu of injunction if:
        
        Only small infringement of rights has occurred.
        
        Infringement can be translated into money.
        
        The compensating payment is small.
        
        It would be oppressive to impose an injunction.
- - - - Mixing with Trust Funds
        (1) 'first-in-first-out' rule (re: Clayton [1816]) means that whatever went in first, has priority (e.g. £200 of personal money on day one, £200 of trust money on day two, day three you spend £300 - first in/first out principle means that sale is comprised of £200 of personal and £100 of trust).
        (2) can only trace to the lowest intermediate balance (Roscoe v Winder [1915]), so if trust fund is spent, then topped up with personal cash, only whatever was left of trust fund can be traced.
        (3) cannot trace into an overdraft (Bishopgate v Homan [1995])
      - Mixing with Personal Funds
        (1) equity assumes the fiduciary is working for the trust, and so if they go bankrupt any money left is for the trust (re:Hallet's Estate [1880]). If there is no bankruptcy then equity assumes property is bought out of personal funds and so there is money left to remedy breach (re:Oatway [1903])
- - - - Requires
        (1) an unauthorised trust transaction
        (2) beneficial recipet by respondent (not simply holding title)
        (3) traceable assets
        (4) knowledge by respondent that assets were misappropriated
      - Knowledge
        Previously
        Baden [1983] - an objective test of what the recipient should have known as opposed to what they did know.
        Modern Day
        BCCI v Akindele [2000] - the respondent's state of knowledge need only be to a level that makes it unconscionable for them to retain the asset (discretionary).
      - Remedies
        (1) remedies are to account as if a trustee so a personal claim against recipient to remedy the trust fund (Williams v Bank of Nigeria [2014]).
        (2) Potential proprietary remedy if recipient holds traceable assets.
        (3) Fault, not strict-based liability.
    - - Requires
        (1) breach of trust or fiduciary obligations
        (2) assistance from third party
        (3) assistance was dishonest
      - Dishonesty - a changing area
        Royal Brunei v Tan [1995] (PC) - dishonesty is objective (standards observed by an honest person in those circumstances), and does not require dishonesty from breaching party.
        Twinsectra v Yardley [2002] (HL) - mixed test, where you go against objective standard but knew you were doing that. Policy reasons to protect professionals reputations.
        Barlow Clowes v Eurotrust [2005] (PC) - return to objective approach. So PC is objective, and HL is mixed.
        Starglad v Nash [2010] (CA) - adopted PC objective approach.
      - Remedies
        (1) liable as if a trustee to personally account the trust fund.
        (2) no proprietary remedy as no actual possession of property.
        (3) common law causation principles apply (Novoship [2014])