Equity and Trusts: Breach of Trust

Breach of Trust: Remedies

Personal remedies

Must establish 1) breach occurred, 2) causal link between breach and loss, 3) no defence applies, 4) no applicable exclusion clause

Duty of care – s.1 Trustee Act 2000.

Lay.man trustee – ‘ordinary prudent man’ test under Speight v Gaunt; 

Professional trustee – higher duty of care, see s.1(1) – confirmed by Bartlett v Barclay’s Bank.

Exclusion clause – limits the liability of a trustee. 

Armitage v Nurse – excluded all negligence except fraud; 

Walker v Stones – one judge said a clause could even exclude a trustee who knew himself to be in breach but believed it was in the beneficiary’s best interest – this is highly controversial; 

Re Clapham – area is ripe for reform.

Joint and several liability – Bishopgate Investments v Maxwell

Compensation/restitution – Re Dawson – put the trust back in position it would have been in

Remoteness and foreseeability – Target Holdings v Redferns

Defences:

1) Court discretion where T acted honestly and reasonably, 

2) Beneficiary’s consent/acquiescence, 

3) Impounding a beneficiary’s interest under s.62, 

4) Time limit s.21(3) Limitation Act, 

5) Bankrupt s.128 Insolvency Act

Proprietary remedies: 

Tracing = act of following property and reclaiming it. 

Advantages of tracing: queue jumping past creditors, benefit from any increase in asset value, available when personal remedies are not.

Usually occur in two main circumstances: misappropriation of property into mixed funds, OR overpaid beneficiary/payment to person not entitled.

Three requirements – 1) Initial fiduciary relationship, 2) Property in a traceable form, 3) Not inequitable to trace.

Mixed funds: Re Hallett’s Estate – trustee presumed to spend his own money first.

Rule in Clayton’s case – First in, first out. Although where a volunteer is involved, may take Pari Passu (in proportion to contributions). 

Roscoe v Winder – trustee cannot benefit from the first in first out rule. 

Barlow Clowes v Vaughan – first in first out rule will not be applied where it would lead to unfair results.

Limits to tracing:

1) Bona fide purchaser, 

2) Dissipation of property, Re Diplock, 

3) Unascertainable property, Re London wine co,  

4) Inequitable to trace, Lipkin Gorman.