Equitable Remedies Against Trustees

Identifying the breach

• Fact dependent, must look at the exact duty (of which there are many) that has not been complied with

• Also includes unlawful self-benefit and unauthorised use of power

Liability of trustees

• No vicarious liability for trustees for the breach of another trustee unless they committed a breach that allowed this to happen

• If multiple trustees are liable, this is joint and several

• Retirement does not absolve liability

General rule for liability of trustees

Loss on one breach does not cover the gains of another, will be covered for the same breach (Bartlett v Barclays Bank Trust Co Ltd (No. 2) (1980))

Nestle v National Westminster Bank (1993)

If causation cannot be established, there is no claim

Target Holdings v Redferns (1996)

Claimant can only recover money lost as a result of the breach, not any other outside factors

Knowledge and consent of beneficiary

• Consent must be informed and free, beneficiary must be legally capable

• Re Pauling’s Settlement Trust (1964), only full comprehension counts for acceptance

Other defences

• Impounding the beneficial interest

• Granted if beneficiary consented to/instigated breach

• Statutory jurisdiction under s62 of Trustee Act 1925

Section 61 of the Trustee Act 1925

• Court can absolve honest and fair trustees of breaches

• Trustee must have acted reasonably and in good faith (fact dependent)

• From there, whether it is right to excuse will be considered (Santander UK PLC v RA Legal Solicitors (2014))

• Courts are reluctant to relieve professional or passive trustees, even if advice was taken (National Trustee Co of Australia v General Finance (1905))

Express exemption clause

Armitage v Nurse (1997), all negligence can be covered, but not the core duty of the trustee

s21 of Limitation Act 1980

• s21(1), no limitation for fraudulent breaches by trustees

• s21(3), personal claims expire after 6 years

Doctrine of lashes

s36(2)), reference to unconscionability of success, involves undue delay and the resulting prejudice to defendant (Fisher v Brooker (2009))

Qualifying co-trustees for indemnity

Those who fraudulently obtained a benefit from the breach, received trust property and used it for self benefit (Bahin v Hughes (1896)) or a solicitor exerting undue influence (Head v Gould (1898))

Contribution

Possible under s2 of Civil Liability (Contribution) Act 1979 in absence of indemnity

Clean substitution

• Can easily be exchanged from new asset to trust property, easiest to trace (Lord Millett in Foskett v McKeown (2001))

• Re Hallett’s Estate (1880), equitable lien, beneficiary has choice between new asset and trust property

Mixed substitution

• Happens when personal money and trust fund both used

• Foskett v McKeown (2001), beneficiary can claim a proportionate share of the asset or impose a lien on the misapplied money, choice is context dependent

• Remedy against anyone who benefitted other than bona fide purchaser

Re Hallett’s Estate (1880)

If personal trustee and trust money is mixed and withdrawn, the personal money is deemed to be used first

Re Oatway (1903)

Shares bought with mixed money belonged to trust, unclear if increases in value for property should be paid back, not directly addressed in court

Roscoe v Winder (1915)

Beneficiaries can only trace into a mixed bank account if the misappropriated funds are still there

“Lowest intermediate balance” rule

Beneficiaries cannot claim anything above the lowest balance to which the account sank after the trust money was paid in

Backward tracing

For trust money misused for mortgages now more acceptable in court, but only if clear (Brazil v Durant International (2015))

What if a joint trustee misuses funds?

If a joint trustee misuses funds from one trust to another, both acts of beneficiaries can claim

Purchase of asset with the combined fund

Beneficiaries can share asset in proportion to what was contributed from the trust

Allocation of withdrawals from bank account

• Clayton’s case (1816), what money was first used if first out

• Otherwise, what is left can be divided amongst the beneficiaries

• Woolf LJ in Barlow Clowes International v Vaughan (1992), Clayton will not apply if it is impractical, unjust or contrary to the parties’ intentions

Common law tracing

• Done if the claim is at common law rather than equity

• Can trace purchases, but not money itself (Lord Ellenborough in Taylor v Plumer (1815)), also true for electronic bank transfers (Agip (Africa) v Jackson (1990))

Common law vs equitable tracing

• More desirable for results if fiduciary duty found

• Chase Manhattan Bank v Israel-British Bank (1974), mistaken payment led to fiduciary duty to pay it back

• Westdeutsche Landesbank Girozentrale v Islington Borough Council (1996), the duty arises once the other party learns of the mistake