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Trustees' Powers and Duties (5.1) - Coggle Diagram
Trustees' Powers and Duties (5.1)
Introduction
What happens when trusts go wrong?
When trusts go wrong, the beneficiary has various options to make a claim and to seek a remedy:
(1) Personal claim against trustee
(2) Personal claim against blameworthy 3rd party
(3) Proprietary claim
Claiming and remedies are distinct concepts
Claim - establishing you have a right to something
Remedy - what you seek after establishing you can make a claim
Note there's no double recovery
Personal v proprietary claims
Personal claims
Personal claims are claims specific to a person, and are essentially claims of 'do this'
If a person claim is possible, a beneficiary would seek a personal remedy, usually money, to compensate for any loss caused or to pay back any gain made as a result of the breach of trust
Personal claims against the trustee:
In addition to their fiduciary duties, trustees are subject to various duties and responsibiltiies. When trustees fail to comply iwth these duties, they can be found personally liable for a breach of trust
Personal claims against 3rd parties:
Where a blamworthy 3rd party has assisted a trustee in committing a breach of trust, where a blameworthy 3rd party has received trust property in breach of trust, the beneficiary may be able ot make a personal claim against the 3rd party
Advantages
Allows for a wronged beneficiary to be compensated
Does not rely on the trustee or 3rd party having or retaining any trust property
Disadvantages
Personal claims usually lead to money, and money may not be what the beneficary wants
For claims against 3rd parties, need ot prove fault can be difficult
A personal claim is only useful where the trustee is solvent
Proprietary claims
Proprietary claims are claims to particular bits of property - its a claim that says 'that's mine'
If a proprietary claim is possible, the claimant can seek a personal remedy or a proprietary remedy
Potential of making a property claim for the original property or to any substitute property that represents the value of the original
Advantages
Can reclaim the original property or its substitute
If the person who has the property goes insolvent, beneficiary gets priority on insolvency
If the property has increased in value, the beneficiary may be able to benefit from the increase
Can make claims to property in the hands of 3rd parties without needing to prove fault
Disadvantages
The property must exist - if destroyed or lost its not possible to make a proprietary claim
We cannot make a proprietary claim where the property is in the hands of a bona fide purchaser for value without notice
Trustees' liability for breach: Virgo's formula
Virgo (2023) suggests the following approach to understand the nature of liability for breach of trust/breach of fiduciary duty (see p523):
Does the defendant owe an equitable duty to the claimant?
Has the duty been breached
Has the breach infringed any of the rights of the claimant
Are there any defences to defeat the claim or to reduce the extent of the liability
If the defendant is liable, what remedies might be available to vindicate the claimant's right?
Overview of general duties:
Trustees are subject to a wide range of powers and duties, including administrative duties, dispositive duties and fiduciary duties
According to Lord Toulson in AIB Group (UK) plc v Redler and Co [2014], these duties fall into 3 broad categories:
(1) "...a custodial stewardship duty, that is a duty to preserve the assets of the trust except in so far as the terms of the trust permit the trustee to do otherwise;
(2) a management stewardship duty, that is a duty to manage the trust property without proper care;
(3) a duty of undivided loyalty, which prohibits the trustee from taking any advantage from his position without the fully informed consent of the beneficiary or beneficiaries
The duties of an express trustee are usually more onerous than those of a non-express trustee.
General Duties
Apply to trustees
Liability for breach of general duty is usually strict, though in some cases the trustee can only be liable where they acted unreasonably
Where do I find the general duties?
The sources of the general powers and duties generally include:
(1) The trust instrument
(2) Statute
(3) Case law
Breach of general duties:
A breach of trust can be defined as 'the violation of any duty which the trustee owes as trustee to the beneficiaries (
Tito v Wadell
No.2) [1977])
There are many ways in which a trustee can breach a trust, thoigh we can categorise a breach in 2 ways:
Unauthorised action - i.e.
ultra vires
. Where the trustee does something they are not permitted to do (liability is strict)
Inadequate action - i.e.
intra vires
. Where the trustee does something they are permitted to do, but they perform the duty poorly (liability can depend on whether the breach caused a loss)
The case of multiple trustees:
General points:
Where there are multiple trustees, they will hold the legal title in the trust property as joint tenants
Trustees are usually expected to act unanimously (unless the trust instrument authorises them to act by majority)
Trustees can be amateurs or professionals - which affects the SOC required of them
In terms of breach of trust and the trustees' liability:
A trustee's liability is personal, not vicarious
Where one trustee is responsible for the breach, their liability is personal, and the beneficiary can only sue the trustee who committed the breach
Where more than one trustee is responsible for the breach, liability is joint and several. The beneficiary can choose to sue all trustees (jointly or one trustee (severally)
Exemption clauses:
It may be possible for a trustee's liability to be limited or excluded in some way, such as when the trust instrument contains an exemption/exclusion clause
Leading case: Armitage v Nurse [1998] Millett LJ held that an exemption clause was valid, though cannot exclude liability for breach of fundamental duties, including the duty to perform the trust honestly and in good faith
A trustee's liability may also be excused by statute (S.61 of the Trustee Act 1925) and a trustee will not be liable where a beneficiary consented to the 'breach'
Note, there is a statutory limitation period (S.21(3) Limitation Act 1980)
Remedies following breach:
Following a breach and making a successful claim, there are different remedies available for beneficiaries, including:
Reconstitution of the trust fund - refund the value of an asset to the trust fund
Reparation of the trust fund - compensate the trust fund for lost profits/opportunities
Equitable compensation - compensate for a loss caused by the breach
Account of profits - a means to transfer any profit the trustee made from the breach to the claimant
Fiduciary Duties
Apply to all fiduciaries, including trustees
Liability is strict - no difference if the fiduciary/trustee acted in good faith or reasonably