I scored 87% in Equity and Trusts and received a Distinction (74%) overall in the GDL at the University of Law using these notes.
These notes are written in the form of step-by-step exam plans. Compared to standard notes, this will save you lots of time. Most people will make notes during worksh...
Equity & Trusts - Remedies (Personal and Proprietary Claims) & Actions Against
Third Parties
Remedies Against Trustees and Fiduciaries
[STEP 1] Identify breaches of trust / Which trustees are liable for a breach?
[INSERT TRUSTEE / THIRD PARTY]
If beneficiaries can show that [INSERT TRUSTEE/FIDUCIARY’S] breach of trust /
fiduciary duties has caused loss to the trust fund / company, they can bring a personal
or proprietary claim against them.
[ONLY IF MULTIPLE TRUSTEES IN BREACH] There is no vicarious liability between
trustees. They can only be sued if they have breached their own duties.
[ONLY IF MULTIPLE TRUSTEES IN BREACH] Co-trustees in breach are jointly and
severally liable, so beneficiaries can sue all of them or one for the entire loss.
Breach of duty / Did a breach of duty cause loss?
X has breached duty Y [FROM LIST BELOW]. / Clearly, X has fraudulently breached
their trust / fiduciary duties by stealing [INSERT AMOUNT STOLEN] from the trust,
causing loss.
Other trustees (IF NON-TRUSTEE, GO TO WS8) may be sued if they breached any of
the following duties:
- Trustees are under a duty to watch over and, if necessary, correct the conduct of
their co-trustees, so could be liable as passive trustees (Styles v Guy).
- There is a duty to keep the trust property in joint control and not allow co-trustees
to control it without enquiry, unless there has been collective delegation (under
s.11-12 TA 2000).
- A duty to ensure the trust property is vested in the names of all trustees.
- A duty to stop a breach if they are aware of it being committed.
- As a general duty of care for day-to-day running of the trust, trustees must
exercise ‘such care as would a prudent person of business’ (Speight v Gaunt).
, - For investment and delegation duties, trustees owe a duty of care (under s.1 and
sch 1 TA 2000), unless excluded/modified by the trust instrument. This amounts
to ‘such care and skill as is reasonable in all the circumstances’. It is not a
common standard, and must account for:
- Any special knowledge or experience they hold themselves as having;
- If they are a professional trustee, the special knowledge or experience
reasonably expected while acting in the course of their business; and
- The size of the trust fund.
- When investing, trustees must consider the ‘standard investment criteria’ (s.4
and 5 TA 2000). These are:
- Suitability;
- Diversification;
- Review;
- Advice (s.5 TA 2000).
Suitability
- Trustees must consider the suitability of the investment in terms of its:
- Nature - whether it is appropriate for the trust to invest in public company
shares.
- Type - they must be satisfied that the particular investment proposed is a
suitable example of its type.
Diversification
- Trustees must consider the need for diversification of investments insofar as is
appropriate to that trust.
Review
- Trustees must from time to time review trust investments and consider whether
they should be varied.
- On such review, the trustees owe the same duties as apply to the selection of
investments (i.e. they should consider the standard investment criteria and seek
advice unless they reasonably conclude that it is unnecessary or inappropriate)
(s.4(2) and 5(2)).
N.B. in an exam, if the facts say an investment has been declining in value over a
period of time, this means the trustees have probably not reviewed the investment
properly.
Advice (s.5 TA 2000)
, - Trustees must obtain and consider proper advice about the way they should
exercise their power of investment having regard to the standard investment
criteria, unless the trustees reasonably conclude that in the circumstances it is
unnecessary or inappropriate to do so (s.5 TA 2000). There is no duty to use the
advice.
[STEP 3] Has the breach of trust caused loss?
Did the breach cause loss?
There must be evidence that the profit from a particular investment was less than what
a reasonable person would have accrued (Nestle v National Westminster Bank).
[IF BREACH CAUSED PROFIT AND LOSS] Generally, beneficiaries cannot set off the
profit made on one breach against the loss incurred on another. Beneficiaries may keep
the profit, and sue for the loss. However, the court will allow the profit to offset the loss if
they arise from the same breach or transaction (Bartlett v Barclays Bank Trust Co Ltd).
[IF BREACH AND LOSS SATISFIED UNDER STEPS 2 AND 3] Personal claim
against X
[INSERT D] can be sued via a personal claim for [INSERT MONEY LOST / STOLEN]. /
[INSERT C] cannot sue [INSERT D] as they have disappeared / are bankrupt…
[PERSONAL CLAIMS ONLY] [STEP 4] Defences available for trustees?
Defences
Trustees had the knowledge and consent of the beneficiaries
Trustees have a defence if all beneficiaries are sui juris (18 or older and of sound mind),
and have given consent with full knowledge of the relevant facts. Beneficiaries must
fully understand what they are concurring in, but do not need to know it is a breach (Re
Pauling’s Settlement Trust).
Express exclusion clause
An express exclusion clause in the trust document (e.g. the will) may relieve trustees of
liability for negligent or innocent breaches, but are void if the breach is fraudulent
(Armitage v Nurse).
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