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WS3 & 4- trustee fiduciary duties and remedies - Coggle Diagram

- - - - Tito v Waddell- trustee purchasing assets from the trust (subject to anything in trust instrument authorising a transaction like this)
      - If a self-dealing transaction is entered into it will be voidable (beneficiaries can rescind) the same will be the case where trustee enters into a transaction with the trust via a wholly owned company
      - where trustee buys from or sells to a company in which trustee holds shares (but not the sole shareholder)- whether this is self-dealing depends on whether the trustee has controlling shareholding. it will clearly still breach no conflict
      - related principle- fair-dealing
        
        Also recognised in Tito v Waddell that trustee buys beneficial interest under the trust (rather than merely trust property). As trustee is in better bargaining position, they must be able to prove the transaction was conducted fairly. transaction will be voidable unless trustee can prove they acted honestly, fairly, made full disclosure to beneficiary and did not take advantage of the beneficiary.
    - - fiduciaries can proceed if transaction which potentially conflicts is authorised by the instrument creating the fiduciary relationship, where conflict is unauthorised, fiduciary must obtain fully informed consent of their principals
    - - if causes a loss- sue fiduciary personally and fiduciary would be liable to compensate
      - breach of self-deal/fair-deal would be a voidable transaction- they can rescind
      - if breach results in profit to the principal, they may wish to end fiduciary relationship, they can recover profit from fiduciary also
  - - - profit which arises from performance of their role e.g. trust fund is invested in company and trustee becomes director of the company after to monitor. Re Macadam shows the money received from directorship must be paid in remuneration to the trust fund if directorship was obtained as a result of being a trustee
        
        subject to their being anything in trust document which allows trustee to retain the remuneration- Re Llewellin's Will Trusts. Alternatively, trustee could seek fully informed consent of beneficiaries
      - fiduciary not entitled to keep a profit made from an opportunity that came to them as a result of their course of performing the fiduciary duty (STRICT) Keech v Sandford. Trustee held as the one person in the whole mankind who could not have the renewed lease as they wouldn't renew for beneficiary as under 18- trustee had to assign lease to beneficiary
    - - They will be stripped of the profits where they do so – AG for Hong Kong v Reid, they will likely also be offence under Bribery Act 2010
      - Also the case for secret commissions in carrying out their role- FHR European Ventures LLP v Cedar Capital Partners LLC
      - Hopcraft v Close Brothers- car dealers were not held to owe a fiduciary duty when selling a car in respect of commission from the lender
    - - FHR v Cedar Capital- beneficiary may elect from following remedies where there is breach of no profit rule
        
        An account of profits- personal claim where trustee pays principal equivalent amount to profit they made
        
        A constructive trust- principal may argue the profit made by the fiduciary is held on constructive trust for the principal, which gives rise to a proprietary claim. Two reasons they may want a proprietary claim instead: (proprietary)
        
        i. provides protection against insolvency of the fiduciary. Principal able to identify an asset over which they have rights which rank above other creditors
        
        ii. allows principal to trace into any assets acquired from the profit (AG for Hong Kong v Reid)
- - - - claim can be made under s1(1) Civil Liability Contribution Act 1978 where two or more parties liable for same breach- court has discretion to require one party to make just and equitable contribution to another S2(1). apportionment will rely on culpability for loss
      - Courts can award a contribution amounting to a full indemnity s2(2) which is only likely in cases where: particular trustee is morally culpable for breach, trustee is also beneficiary, trustee acts as solicitor to the trust and breach is committed on reliance of their advice (Re Partington if solicitor lead role, Head v Gould if solicitor did not have controlling influence)
      - Can also seek contribution from third parties uninvolved in trust like professional advisors or third parties involved in the breach like knowing recipients
  - - - A trustee will continue to be liable for any breaches committed during the time they acted as trustee, even after they have retired the role in the below two circumstances: trustee retired to facilitate the breach or trustee parts with the trust property in retiring without due regard to loss suffered when property transferred to new trusteed- Head v Gould
- - - - Loss assessed at the date of trial, not date of breach, and takes into account ‘expected value’ of the trust fund. They will compensate for the difference
      - before Target Holdings v Redferns there were different process for misapplication of funds breach (eg unauthorised investment), and any different kind of breach (eg S1 TA 2000 duty of care for investment)
        
        past was to 'falsify' accounts meaning to return the account to position as if the misapplication had not occurred
        
        following Target Holdings case, the courts have used surcharging more flexibly instead
        
        Target Holdings was applied by supreme court in AIB Group plc v Redler and co, this involved loss where trust asset misapplied- so all should use surcharging now even if misapplication of funds
        
        surcharging assesses expected value of trust fund if breach ahd not occurred. what would the beneficiary's position be, but for the the breach of trust. assessed in reference to what prudent trustees would have done.
        
        Trustees cannot take off any gains they made in other transactions against the loss on another: unless they arise from the same breach- Bartlett v Barclays Bank Trust Co Limited
  - - - Not liable if they received fully informed consent of all beneficiaries. If only some beneficiaries consented it’s only a partial defence against those specific beneficiaries.
      - Beneficiaries can also subsequently affirm the action of the trustees, they may then have defence of acquiescence against beneficiaries who indicated by words or action that they consent to the action taken.
      - There will also be defence against beneficiaries who instigate/request the breach- again only partial. In this case they can also impound beneficiary's interest i.e. use the instigating beneficiary's interest in trust money to indemnify trustees against a claim by the other beneficiaries. They can also impound beneficial interest for beneficiary consent if provided consent in writing (S62 TA 1925), or in common law for beneficiary consent only if they benefitted from the breach
    - - S21(3) Limitation Act 1980- limitation period is six years from the breach, but this only applies to beneficiaries with interests vested in possession. For future interests, limitation period only starts to run when their interest vests in possession.
      - Limitation period does not apply to fraudulent breaches or proprietary claims (claims to recover trust property or traceable proceeds)
      - If a trustee is also a beneficiary and receives an unfairly large distribution from the trust, only the excess can be recovered after the normal six year period unless trustee acted dishonestly or unreasonably in making the distribution in which case it may be possible to make a claim for full amount of the payment
      - Laches- equitable doctrine which can be relied on where statutory limitation period not yet expired- highly fact specific and requires trusteed to demonstrate beneficiary knew of a breach but has delayed their claim unacceptably, making it un conscionable for the beneficiary to assert their beneficial interest
    - - Court then has wide discretion of considering all circum of case, can be used to excuse individual trustees while other remain liable- defence not used lightly. More likely used for lay-trustees who have sought advice- Re Evans
  - - - Turn down the role, requiring settlor to inc ouster (to remove a certain duty) or exemption clause (duty still exists but removes personal liability in breach- proprietary or personal claim against someone else can still be made but trustees protected) but they cannot exclude/limit liability for fraudulent breaches in the trust instrument, or taking out trustee liability insurance- again they do not cover fraudulent breaches, only negligent
    - - seek a benjamin order
        
        before order awarded trustees must make full attempt to establish true position. the order then allows trustee to distribute the trust on the understanding the missing beneficiary is dead. beneficiaries/creditors can still make claims against other beneficiaries who got their funds
      - publish S27 TA 1925 notice
        
        trustees can publish a notice of their intention to distribute which puts two month notice on the beneficiaries, after which they can distribute to known beneficiaries and owe no personal liability to the unknown. this must be published in the london gazette, a newspaper circulating the area which the land in trust is situated, and any other appropriate newspaper
        
        Beneficiaries coming forward later- trustee will be protected from personal claims if they have done one of the above steps. They will have a proprietary claim or personal claim against recipient of property instead, unless property still not been fully distributed, in which case the beneficiary can claim any undistributed property from the trustee
      - retaining a fund to satisfy the claism of missing/unknown beneficiaries
      - paying moeny to court to satisfy claims of missing beneficiaries
        
        Where trustees establish genuine doubt as to the location of beneficiaries, they can distribute to other beneficiaries and pay remaining funds for lost beneficiary to the court under S63 TA 1925. This allows trustees to retire. It is however not an easy route for trustees and they should only be taken where all realistic options for tracing the beneficiary have failed.
      - taking out insurance for wrongful distribution
        
        If lost beneficiary comes forward after distributing, trustees will be liable to them but can claim on insurance policy. Significantly cheaper than Benjamin order
      - seeking indemnity from beneficiaries to whom they do distribute
        
        Indemnity from beneficiaries who they distribute to for if the missing beneficiary comes forward. Riskier than usual insurance because beneficiaries may not have the money at the time or refuse to pay which causes more litigation fees
- - - - a) there was a trust/fiduciary relationship at the material time
      - b) trustee committed a breach of that trust/duty
      - c) defendant assisted the trustee/fiduciary to commit that breach of trust and
        
        Sufficient to assist the trustee to plan, commit or cover up the breach. Assistance must be more than minimal and must make the breach or concealment of the same easier than it would have otherwise been
        
        It does not matter id the trustee would have committed the breach without the assistance anyway- Ultraframe Ltd v Fielding
        
        It is sufficient for the defendant to procure or instigate the breach- Eaves v Hickson
      - d) defendant's assistance was dishonest
        
        Ivey v Genting Casinos- must look at: subjective state pf individual’s knowledge or belief as to the facts. Then question whether his conduct was dishonest according to the judge by applying objective standard of ordinary decent people
        
        Royal Bruunei Airlines Sdn Bhd v Tan- honest people do not misappropriate/misapply other's property nor do they assist others in doing so
        
        Starglade Properties Ltd v Nash- doesnt matter that they didnt know there was a trust, they still caused the deliberate removal of assets of an insolvent company so to defeat the just claim of a creditor which was not inline with honest commercial behaviour
    - - Liable for loss occasioned by the breach they assisted. C not required to show direct link between the assistance and the loss
      - just be shown the conduct assisted the breach of trust and that but for the breach of trust the loss would not have occurred- Group Seven case
      - Dishonest assistant is also liable for profits they acquire by reason of their participation in the breach if their participation was the real or effective cause of the profits- but for test is necessary but not sufficient on it’s own for this- Novoship Ltd v Mikhaylyuk
        
        Claimant even then does not have auto rights to assistant’s profits- court has discretion to grant or withhold the remedy. Court withholds the remedy where it would be disproportionate in relation to the wrongdoing
      - REVISIT NOVOSHIP
  - - - Misapplication of trust property or property held in another fiduciary capacity (self explanatory)
      - Beneficial receipt by the D of the misapplied property or it’s traceable proceeds
        
        Trustor AB v Smallbone- receipt by D should be in his own right or for his own benefit in the sense of setting up a title of his own to the property received
        
        e.g. receipt of property by an agent on behalf of a principal. The agent does not have beneficial receipt, but the principal does. The agent does not hold it in their own right
        
        Agip Ltd v Jackson- where money paid to a bank to be credited to an account which is in credit, bank does not receive the money beneficially
        
        Where account to be credited is overdrawn, the bank does receive the money beneficially to the extent that the customer’s payment reduces or discharges their indebtedness to the bank- Uzinterimpex JSC v Standard Bank plc
      - Persistence of the claimant’s equitable proprietary interest in the property received by the D
        
        knowing receipt cannot be claimed if the equitable interest has been overreached i.e. sale of land to trustees then purchaser acquires free of those interests- S2 Law of Property Act 1925
        
        equitable interest extinguished in purchase for consideration without notice (equity's darling) Byers v Saudi National Bank
      - Knowledge of circumstances on the part of the D which makes it unconscionable for them to retain the benefit of the receipt
        
        If they dispose of property before they acquire such knowledge, then they do not incur any personal liability- Re Montagus Settlement Trusts
        
        As soon as current recipient acquires the knowledge, they must restore the property to the trust. If they instead disposes of it or dissipate it, they will be subject to a personal claim for loss to the trust.
        
        Bank of Credit and Commerce International Ltd v Akindele- dishonesty is not a requirement and recipient's knowledge must be such as to make it unconscionable for him to retain the benefit of the receipt
        
        Baden scale of knowledge
        
        i. actual knowledge
        
        ii. wilfully shutting one's eye to the obvious
        
        iii. wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make
        
        iv. knowledge of circumstances which would indicate the facts to an honest and reasonable man
        
        v. knowledge of circumstances which would put an honest and reasonable man on enquiry
        
        applying baden scale: Armstrong DLW GmbH v Winnington Networks Ltd- types 1-3 render receipt 'unconscionable'. Not necessary to show D realised it was in breach/fraudulent. Types 4-5 of knowledge also will render receipt unconscionable if, on facts known to the D, a reasonable person would either have apprecoated the transfer was probably in breach of trust, or would have made enquiries or sought advice which would have revealed the possibility of breach of trust