Trustee liability, protection and defences

What is the basic obligation of trustees concerning their powers and duties?

Trustees must act within their powers and comply with their trustee duties.

What are the two key questions when identifying a breach of trust?

Did the trustees act within their powers, and, if they did, did they comply with their trustee duties?

What is an example of a trustee acting outside their powers?

Misapplying trust funds through a wrongful distribution or an unauthorised investment.

What is misappropriation of trust property?

Using trust property for the trustee’s own purposes.

What is an example of acting within a power but breaching a duty?

Making an authorised investment without considering the standard investment criteria or obtaining proper advice.

What distribution failure may constitute a breach of trust?

Failing to distribute trust property when the trust requires distribution.

What investment failures may constitute breaches of trust?

Failing to consider the standard investment criteria, take proper advice or monitor investments.

Can making a decision contrary to beneficiaries’ best interests be a breach of trust?

Trustees may breach trust by exercising their powers in a manner that is not in the beneficiaries’ best interests.

Can an inactive trustee be liable for breach of trust?

Failure to take an active role in administering and monitoring the trust may constitute a breach.

When may a trustee breach the statutory duty of care?

When exercising an investment or other relevant administrative power without the required care and skill.

Are trustees generally liable for breaches committed by other trustees?

Trustees are generally liable for their own breaches, although co-trustees must act together and monitor one another.

How can two co-trustees commit different breaches in relation to the same loss?

One may misapply the property while another breaches trust by failing to supervise or monitor that conduct.

How are co-trustees liable where both have committed a breach?

They are jointly and severally liable.

Can a trustee be liable for a breach committed before their appointment?

Re Strahan confirms that a trustee is not liable for a breach occurring before appointment.

What should a newly appointed trustee do after discovering an earlier breach?

Take appropriate proceedings or steps to recover the loss from the former trustee.

Can a new trustee become liable by ignoring an earlier breach?

Failure to pursue recovery after discovering the breach may itself amount to a breach.

Does retirement release a trustee from liability for breaches committed while in office?

A trustee remains liable for breaches committed during their trusteeship after retirement.

When can a retired trustee be liable for a breach occurring after retirement?

Where the trustee retired to facilitate the breach or transferred trust property without due regard, causing later loss.

What did Head v Gould establish about retiring trustees?

Head v Gould held that liability may arise where a trustee parts with trust property on retirement without proper care and loss follows after transfer to the new trustees.

Is breach of fiduciary duty the same cause of action as breach of trust?

Breach of fiduciary duty is a separate cause of action with different consequences.

Can a trustee breach fiduciary duty despite complying with ordinary trustee duties?

Compliance with administrative trustee duties does not prevent liability for breach of the no-conflict or no-profit rules.

What conduct may constitute a breach of fiduciary duty?

Breach of the no-conflict or no-profit rule, including self-dealing.

Are co-trustees automatically liable for another trustee’s fiduciary breach?

A fiduciary commonly acts alone, so co-trustees are less likely to be liable unless their own conduct also constitutes a breach.

Can a fiduciary breach also cause a separate breach of trust?

Where the fiduciary conduct causes loss to the fund, additional trustee breaches may also be present.

Can people who are not trustees be liable in connection with a breach?

Strangers to the trust may be liable for dishonest assistance or knowing receipt.

What question determines the financial consequence of a breach of trust?

Whether the breach caused a loss to the trust fund.

What may count as loss to a trust fund?

The fund may have less income or capital growth than it would have had if the trustees had complied with their duties.

What questions arise following a breach of fiduciary duty?

Whether the breach caused loss and whether the fiduciary made an unauthorised profit.

What remedy may be available where trust property has been misapplied or misappropriated?

Beneficiaries may seek recovery of the property itself or its traceable proceeds.

What remedy may be available if misapplied property cannot be recovered?

Equitable compensation may be claimed for the loss caused to the fund.

Why is a proprietary claim generally preferable to a personal claim?

It can give rights over an identified asset and priority if the defendant is insolvent.

What personal claims may a beneficiary bring against a trustee?

A claim for equitable compensation for loss or an account of unauthorised profits.

What proprietary claim may a beneficiary bring following breach?

A claim over an asset held by the trustee or a third party that represents trust property or its traceable proceeds.

Where is compensation for breach of trust normally paid?

It usually restores the trust fund rather than being paid directly to an individual beneficiary.

When might compensation be paid directly to a beneficiary?

Where the breach concerns income or capital that should already have been distributed to that beneficiary.

What transaction-based remedy may be available following breach?

Rescission may sometimes be used to set aside the transaction.

What options exist where a trustee commits a technical breach causing neither loss nor profit?

Beneficiaries may do nothing, seek removal or replacement of the trustee, or terminate the trust under Saunders v Vautier.

Are trustees liable merely because trust investments lose value?

Trustees are not liable for market losses if they acted within their powers and complied with their duties.

When may trustees become liable for retaining a poorly performing investment?

Liability may arise if they continue to retain it without proper monitoring or review.

At what date is loss for breach of trust assessed?

Loss is assessed at the time of trial rather than at the date of the breach.

What does it mean for the court to take an account?

The court determines the value the fund should have had and compares it with its actual value.

Can trustees normally offset profits made on one transaction against losses caused by another breach?

Trustees are not assessed on average performance, so unrelated profits cannot ordinarily be set off against breach-related losses.

When may profits be offset against losses?

Set-off may be allowed where the profit and loss arise from the same transaction or course of dealing.

What did Bartlett v Barclays Bank Trust Co Ltd establish about set-off?

Bartlett v Barclays Bank Trust Co Ltd allowed a profit from one property investment to offset a loss from another because both resulted from the same failure to supervise a company.

What were the facts of Bartlett v Barclays Bank Trust Co Ltd?

Trustees holding a majority shareholding failed to supervise the company, which made one profitable property investment and one loss-making investment.

What two categories of breach were distinguished in Target Holdings v Redferns?

Misapplication of trust funds and other breaches, such as negligent breach of the duty of care.

What is falsification of a trust account?

Reconstituting the fund by treating an unauthorised payment as never properly debited from the trust account.

What must trustees ordinarily do following falsification?

Restore the fund to the position it would have occupied had the misapplication not occurred.

What form may restoration take following a misapplication?

Restoration of the same type of property or compensation in lieu if restoration is impossible.

What option may beneficiaries have if a misapplication has produced a profit?

They may affirm the transaction and claim the resulting profit.

What is surcharging a trust account?

Assessing what the trust fund would have been worth if a negligent or other breach had not occurred.

What remedy follows from surcharging?

Equitable compensation for loss caused on a “but for” basis.

Against what standard is loss from negligent trust administration assessed?

The hypothetical conduct and performance of a prudent body of trustees.

How did Target Holdings v Redferns affect the distinction between falsification and surcharge?

Target Holdings v Redferns adopted a less rigid approach focused on whether the breach actually caused the claimed loss.

Which later case endorsed the approach in Target Holdings?

AIB Group (UK) plc v Redler and Co.

What were the essential facts of Target Holdings v Redferns?

Solicitors released mortgage funds early in breach of trust, but the borrower ultimately received the funds and the lender obtained the intended security.

Why did the lender suffer loss in Target Holdings?

The borrower had fraudulently overstated the property’s value and later became insolvent, leaving the security insufficient.

Why were the solicitors not liable for the lender’s full shortfall in Target Holdings?

The early release did not cause the loss because the lender ultimately received the intended security.

What distinction did Target Holdings draw between traditional and commercial trusts?

Traditional trusts retain the stricter restorative approach, while bare commercial trusts are assessed by reference to the outcome of the underlying transaction.

Why may a bare commercial trust receive different treatment from a traditional trust?

It exists only during the commercial transaction and falls away once the transaction is completed.

What causation approach applies to loss under a bare commercial trust?

A “but for” causation approach focused on whether the breach caused the ultimate transactional loss.

Can a beneficiary recover the same loss more than once?

A beneficiary cannot obtain double recovery for the same loss.

What does joint and several liability allow a beneficiary to do?

Sue all liable defendants together or pursue one defendant for the full loss.

What can a trustee do after paying the entire loss where co-trustees are also liable?

Seek contribution or indemnity from the co-trustees in a separate action.

Which statute governs contribution between trustees liable for the same damage?

The Civil Liability (Contribution) Act 1978.

What does section 1(1) of the Civil Liability (Contribution) Act 1978 provide?

A contribution claim may arise where two or more parties are liable for the same damage.

What power does section 2(1) give the court?

The court may order a just and equitable contribution between liable parties.

What starting point may apply when apportioning liability between co-trustees?

Equal responsibility may be presumed but can be displaced by the facts.

What factors may justify unequal contributions between trustees?

Different levels of culpability, expertise or professional skill.

When may a trustee obtain a full indemnity from a co-trustee?

Where the other trustee was morally culpable, was also a beneficiary, or acted as solicitor and the breach occurred in reliance on their advice.

What did Re Partington establish about indemnity between trustees?

Re Partington granted a full indemnity where a solicitor trustee took sole responsibility for administration and the lay trustee reasonably relied on that expertise.

Why was a full indemnity refused in Head v Gould?

Head v Gould refused indemnity where the lay trustee actively participated and the solicitor trustee did not exercise controlling influence.

Can contribution be sought from third parties?

Trustees may seek contribution from negligent advisers, participants in the breach or knowing recipients.

Can a third party seek contribution from a trustee?

A third party held liable to beneficiaries may bring a contribution claim against the trustee under the 1978 Act.

Why might beneficiaries pursue strangers to a trust?

The trustee or fiduciary may be insolvent or otherwise unable to provide full recovery.

Who are commonly pursued as strangers to a trust?

Professional advisers or other third parties involved in the trustee’s or fiduciary’s wrongdoing.

What is accessory liability for dishonest assistance?

Secondary personal liability imposed on a third party who dishonestly assists a trustee or fiduciary breach.

What forms can assistance take?

Helping plan, carry out, encourage, cause or conceal the breach.

Must a dishonest assistant personally benefit from the breach?

Liability for the resulting loss can arise even where the assistant received no benefit.

Is dishonest assistance fault-based?

Liability depends on the defendant having acted dishonestly.

Can dishonest assistance apply to breach of fiduciary duty as well as breach of trust?

It applies to both forms of breach.

Is dishonest assistance limited to trusts and trustees?

It extends to assistance in breaches committed by other fiduciaries.

What are the elements of dishonest assistance under Group Seven Ltd v Nasir?

A trust or fiduciary duty, a breach, assistance by the defendant and dishonesty in providing that assistance.

What did Ultraframe (UK) Ltd v Fielding establish about assistance?

Ultraframe (UK) Ltd v Fielding recognised that assistance includes helping to plan, execute or conceal the breach.

How significant must the assistance be?

It must be more than minimal and must make the breach easier to commit.

Can a defendant avoid liability by showing that the breach would have occurred without their help?

Assistance can attract liability even if the breach might otherwise have happened.

What did Eaves v Hickson establish about assistance?

Eaves v Hickson confirms that encouraging or causing a breach may constitute assistance without physical participation.

What is the overall standard for dishonesty in dishonest-assistance claims?

The standard is objective, applied after determining the defendant’s actual knowledge or belief about the facts.

How did Royal Brunei Airlines v Tan define dishonesty?

Royal Brunei Airlines v Tan described it as failing to act as an honest person would in the circumstances.

What two-step test for dishonesty was stated in Ivey v Genting Casinos?

First determine the defendant’s actual knowledge or belief about the facts, then ask whether ordinary decent people would regard the conduct as dishonest.

Is the defendant’s personal moral standard relevant to the objective dishonesty test?

The defendant’s own view of whether the conduct was honest is irrelevant.

What principle did Royal Brunei Airlines v Tan state about misapplying property?

Honest people do not misapply the property of others or assist another person in doing so.

What were the facts of Royal Brunei Airlines v Tan?

An airline appointed a company to sell tickets, the proceeds were held on trust and the managing director caused the insolvent company to misuse them.

What was the outcome in Royal Brunei Airlines v Tan?

The managing director was personally liable for dishonest assistance.

Must a dishonest assistant know that a formal trust exists?

Starglade Properties Ltd v Nash confirms that liability may arise without knowledge of the trust if the conduct is objectively dishonest.

What were the facts of Starglade Properties Ltd v Nash?

A director transferred trust money to unsecured creditors intending to frustrate the claimant, despite not knowing that the money was held on trust.

What remedy is available against a dishonest assistant for loss?

Personal compensation for the loss caused by the breach.

What causation did Group Seven Ltd v Nasir require for compensation?

The defendant’s conduct must have assisted the breach and the loss must not have occurred but for the breach.

Must the claimant prove a direct causal link between the assistant’s particular act and the loss?

The claimant need not prove that the particular assistance directly caused the loss, provided the breach caused it.

Can a dishonest assistant be required to surrender profits?

Profit disgorgement may be available, but it is exceptional and discretionary.