Breach of Trust and Fiduciary Duties

Breach of Trust: Liability for breach of trust is compensatory, personal, joint and several (trustees are jointly liable) and may be held after retirement (Head v Gould: trustees must appoint new trustees with reasonable care) Breach of trust may be deliberate or inadvertent  Breaching Trust: Trustee fails to carry out duty Trustee acts outside of his power:Knott v Cottee: Stocks invested were foreign but the rust document only allowed investment in British stocks.  Trustee acts without reasonable care:S1(1) Trustee Act 2000: Whenever the duty under this subsection applies to a trustee, he must exercise such care and skill as is reasonable in the circumstances, having regard in particular—(a) to any special knowledge or experience that he has or holds himself out as having, and (b) if he acts as trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession. Liability:Compensation for Loss:Re Dawson: trustee is liable to place the rust in the same position it would have been if the trust had not been committedBristol and West Building Society v Mothew: Mothew was acting as both lender and borrower, he failed to inform the bank of this until it became evident to him. Equitable compensation for breach resembles common law damages (fusion?).Causation:Target Holdings: Redferns released inflated price mortgage money without Target's authority. A trustee who as in breach of trust by dispensing trust money causing immediate loss is under an immediate duty to make restitution, there must be a causal link between the breach and loss; but-for the breach the loss would not have occurred. However, in a commercial trust a minor loss is not usually compensated.Swindle v Harrison: Claimant wanted to run a restaurant and borrowed money from solicitors, they failed to advise her appropriately and later asked for her money back. Although the solicitors were in breach, she would have accepted the money without their advice, therefore there was no causation. Remoteness:The Wagon Mound: One is reliable only for a reasonably foreseeable breachTarget Holdings: Causation in equity is different to common law; one may be liable even if there is a break in the chain of causation eg. if the trustees hand the money to the stranger there is still a loss and causal connection found.Assessment of Damages:Target Holdings: The cause of action is pinpointed when the breach occurs, however there may be many damages subsequent to the breach and so loss is quantified at the date of judgement with the full benefit of hindsight. This rule is strict and acts harshly where there has been a depreciation in the value of the asset acquired, for example, where there is a dramatic fall in the property market.Offsetting Losses and Gains (the right to combine actions to determine losses and gains):Dimes v Scott: One investment succeeded and another failed. If there are two unauthorised investments, the trustees are liable only for the loss. There is no right to offset the losses. Bartlett v Barclays Bank Trust: Two developments were set up, the Guildford development made money and the old Bailey did not. However, this was one single trust and one single investment therefore they have the right to set off.Interest:Wallersteiner v Moir: Claimant acted in breach to the company he was suing. He was held to be liable not only for the loss but also the interest. AIB Group Plc v Mark Redler and co: AIB bank was lending to a family to re-mortgage their home. Mark Redler and Co acted on behalf of the family and accidentally underpaid AIB in existing borrowings which meant the family defaulted on their payments. Held, the solicitors had released the money upon completion and so had gotten the required documents and bank's undertaking. This meant AIB was only entitled to the equivalent offset as a result of their underpayment and could not sue for interest. Defences:Limitation of Actions:S21(3) Limitation Act 1980: ...an action by a beneficiary to recover trust property or in respect of any breach of trust... shall not be brought after the expiration of six years from the date on which the right of action accrued.Exceptions to Limitations: Trustee was party to fraudS21(1)(a) Limitation Act 1980: No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privyArmitage v Nurse: an exemption clause stated that trustees would not be liable for loss or damage unless it was caused by the trustee's fraud. Fraud, in this sense, effectively means dishonesty i.e. either knowing something to have been wrong, or showing a reckless disregard as to whether it was wrong under S21(1) Limitation Act 1980, only a clause which purported to exclude liability for fraud would be considered contrary to public policy. Thus the exclusion clause in favour of the trustee was allowed.Williams v Central Bank of Nigeria: Williams claimed he was being scammed by Nigerian Security and bought a claim years later, however, it was held that S21(1)(a) can only be invoked by a beneficiary against a trustee.   Trustee retained the trust propertyS21(1)(b) Limitation Act 1980: No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action to recover from the trustee trust property in the possession of the trusteeJames v Williams: the plaintiff's mother died intestate and the family home was to be held on statutory trusts for the plaintiff and her brother whom died. He left the property to his sister. On her death the property was left to the defendant who argued that the plaintiff's claim was time-barred under the Limitation Act 1980. The court held that the deceased brother held the property on constructive trust. Consequently, the plaintiff's claim was not time-barred.Martin v Myers: If the trustee retains the trust property there must be a trust. In this case a constructive trust was not found ass the husband and wife were not married therefore the wife could not hold property on trust in her will.   ConcealmentS32(1)(b) Limitation Act 1980: if any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant, the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it. Thorne v Heard: Heard did not know about Thorne's mortgage during their purchase of a property and so was not liable to pay for the money owed by Thorne Actions to accountS23 Limitation Act 1980: An action for an account shall not be brought after the expiration of any time limit under this Act which is applicable to the claim which is the basis of the duty to account.  Laches (unreasonable delay pursuing a right or claim in a way that prejudices the opposing party):Lindsay Petroleum v Hurd: Defendant tricked purchasers into buying land, he claimed that the claimant took too long to raise their claim.  Laches applies where it is practically unjust to give a remedy where the plaintiff has effectively waived their rights or by their conduct and neglect, the plaintiff has put the defendant in what would be a difficult position if the remedy were now to be granted. Nelson v Rye: The claimant, a solo musician appointed the defendant to be his manager collecting the fees and royalties due to him and paying his expenses. When the relationship came to an end the plaintiff claimed an account, and the question was whether the account should be limited to the six years before the issue of the writ or whether it should extend over the whole period of the relationship. Held, unless the defendant was a trustee the claim for an account was barred after six years. The fact that the defendant was a fiduciary did not make him liable to pay equitable compensation. His liability to account arose from his receipt of money in circumstances which made him an accounting party. It did not arise from any breach of duty.Consent:Re Pauling's Settlement Trusts: A family was in need for financial support. The Bank breached trust by paying out an advancement. However, because the claimant had consented this could be bought as a defence to the beneficiary's claim despite the breach. Conest must be given freely and informed from a beneficiary of age and mental capacity. Condonation of Breach:Walker v Symonds: One cannot sue for a breach of trust if they have condoned or acquiesced (joined in with) to. The trustee will have a defence if the beneficiary actively assisted in carrying out the breach of trust, or requested, consented to, or concurred in, the breach.Relief:Contribution:S2(1) Civil Liability Act 1978: in any proceedings for contribution the amount of the contribution recoverable from any person shall be such as may be found by the court to be just and equitable having regard to the extent of that person’s responsibility for the damage in question.Indemnity:Re Smith: A co-trustee acted fraudulently. Contribution can be claimed from the claimant from the defendant on behalf of their co-trustee.Chillingworth v Chambers: Co-trustee benefited from breach and so contribution could be claimed.Head v Gould: A trustee has committed a breach of trust relying on the professional advice of a fellow solicitor trustee. Held, being a professional is not enough to impose liability or indemnity therefore the trustee cannot claim for indemnity.S62(1) Trustee Act 1925: Where a trustee commits a breach of trust at the request or with the consent in writing of a beneficiary the court may impound all or any part of the interest of the beneficiary in the trust estate by way of indemnity to the trustee.S61 Trustee Act 1925: If it appears to the court that a trustee is or may be personally liable for any breach of trust but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust then the court may relieve him either wholly or partly from personal liability.Re Evans: Beneficiary was missing and so the trustee claimed a missing beneficiary policy, when the beneficiary re-appeared she claimed a breach of trust. Held, the insurance policy had been a reasonable and proper means of dealing with the administrative issue and so the defendant was not liable. Perrins v Bellamy: Trustees thought they had the power of sale by mistake. As they did not act dishonestly it was held that they ought to be excused for the breach of trust.Lloyds TSB v Markandan & Uddin: Markadan & Uddin were a firm of solicitors which had parted with money lent to them without receiving the required documents. They were liable for the mortgagee's loss as they had failed to carry out reasonable checks upon the vendor's solicitors and so fell short of their standard of care. 

Breach of Fiduciary Duty:Bristol and West Building Society v Mothew: Someone who had undertaken to act for or on behalf of another in  a particular matter which gives rise to a relationship of trust and confidence owes a duty of single-minded loyalty.  LAC Minerals: defendants minded resources in light of confidential information they were provided. There are three Fiduciary Relationships:  Trustee and Beneficiary Guardian and Ward Agent and Principal Within this case there was no fiduciary, however, there are fiduciary duties due to the relationship of trust and confidence. Note: not every breach of duty is a breach of fiduciary duty.Henderson v Merrett Syndicates: not all duties owed by fiduciaries are fiduciary duties. In different circumstances one fiduciary will owe different duties to another (eg. the duties of a trustee compared to that of an agent)Remuneration (money charged for services):Dale v IRC: there is a fiduciary duty to not take secret or financial benefits, all profits must be authorised. S29(1) Trustee Act 200:(a) a trustee who is a trust corporation, but(b)is not a trustee of a charitable trust,is entitled to receive reasonable remuneration out of the trust funds for any services that the trust corporation provides to or on behalf of the trust.(2) trustee who—(a)acts in a professional capacity, but(b)is not a trust corporation, a trustee of a charitable trust or a sole trustee,is entitled to receive reasonable remuneration out of the trust funds for any services that he provides to or on behalf of the trust if each other trustee has agreed in writing that he may be remunerated for the services.S31 Trustee Act 2000:(1)A trustee(a)is entitled to be reimbursed from the trust funds, or(b)may pay out of the trust funds,Cradock v Piper: If appointed as a trustee, a solicitor may remunerate their services, this is in violation of a strict and general principle that trustees had to act without remuneration.Re Duke of Norfolk's Settlement Trusts: The Court can decide as to whether remuneration should be allowed depending upon the skill and expertise of the trustee and the nature of the trust. The permission for remuneration must be specifically asked for.Purchase of Trust Property by Trustees:Tito v Waddell (no2): Fair Dealing rule= when a trustee sells trust property to himself the beneficiary can void the transaction. Self Dealing rule = when a trustee purchases a beneficiary's interest, this can only be set aside if the beneficiary can show the trustee has taken advantage of his positionHolder v Holder: The transaction of a self-deal was not set aside as the beneficiaries were aware of the transaction and had inadvertently consented. Re Thompson's Settlement: A trustee had taken advantage of a situation by paying off a potential beneficiary with less that what they should have received. The trustee must not be acting for oneself in a self-deal, this is an extension of the rule of protection. If the transaction is not authorised it is assumed that the trustee has taken advantage of the situation. This also applies to the fair-dealing rule although less stringently as the beneficiary has participated in the transaction Thomas v Eastwood: The burden lies upon the trustee to prove he has not taken advantage of his situation Unauthorised Profits:Bray v Ford: Trustee failed to sue beneficiary as he had acted in breach of his fiduciary duty. A fiduciary is not entitled to make an unauthorised profit.  Keech v Sandford: trustee held trust for infant beneficiary. He leased property for himself as landlord and refused to let it for the infant. Held, he had make a profit by leasing the property to himself and he should not have taken the property for himself. Protheroe v Protheroe: husband bought freehold for himself which was originally held on trust for both him and his wife. This meant he could not buy the freehold for just him alone.Re Gee: Trust shares in company was used to remunerate the trustee himself. Held, trustee cannot act in their own profitable interest. Re Thompson: Yacht business run by executors of will was decided to be moved to a different location. A lease was taken out on the previous location by the trustee for his own business. Held, a fiduciary cannot put themselves in a situation in which their personal interests conflict. Regal Hastings v Gulliver: Director's bought subsidiary company from parent company. These directors only managed this as they were directors. i.e. because of their position they managed to make a profit. Liability arises from the mere fact of profit despite the honesty of the director's intentions.  Cooley: Cannot use position to take advantage of opportunities which his personal interests conflict with his fiduciary duty. Spycatcher: Former member of MI5 wrote a book on English Government. Held, "a duty of trust and confidence arises when confidential information comes into knowledge"AG v Blake: If information is no longer confidential, the duty to respect confidence is time limited and only applies as long as the information is confidential. Peter Pan Manufacturing Corporation: Defendant company made a product which was identical to that of the plaintiffs whom had showed them their product designs. The company had taken advantage of the plaintiff's confidential designs. Lister v Stubbs: Employer took bribes from clients for contracts. Held, the company could bring a personal claim for unauthorised profits. However, a proprietary claim cannot be brought forwards for a breach of fiduciary duty.Standard of Liability:Regal Hastings v Gulliver: Liability arises from the mere fact that profit is being made.Boardman v Phipps: A solicitor to a trust containing shares in company took over company in order to save the shares by personally buying shares resulting in a personal profit. Held, the solicitor still had a personal interest and so the slightest possibility of conflicting interests activates the rule of strict liability.  Murad v Al-Saraj: trustee made a profit out of a hotel purchase for the trustee, the court discussed that levels of harshness could be developed in cases where there in no intentional profit unlike this case. The counterfactual that the defendant could have gotten authorisation does not excuse the unauthorised intent and the liability. Relief and Defences:Boardman v Phipps: beneficiaries cannot claim for all money as defendant was acting in their best interest and worked at a high level of work and skill.  An allowance for work and skill is allowed, the amount the solicitor was liable for was therefore reduced. Counterfactuals would not affect the fact that the defendant would still have benefited. If the company had been public the fiduciaries would not have been accountable. If there was established consent from all the beneficiaries there would be no breach of duty.O'Sullivan: manager had profited from O'Sullivan's career however, as he had contributed to O'Sullivan's success an allowance to the amount liable was allowed. Guinness v Saunders: trustee profited from a take-over deal which did not particularly benefit the company he was working for. Held, the allowance of work and skill must be applied carefully as to not undermine the strict liability of the unauthorised rule. Note: There is no limitation period for a breach of fiduciary duty. Remedies:Tang Man Sit v Capacious Investments: if there are alternative remedies the plaintiff can only elect one. Boardman v Phipps: These are personal claims therefore in the context of insolvency, there will be different remedies available. Attorney General for Hong Kong v Reid: Solicitor took bribes from mafia in Hong Kong instead of investigating them, he bought land in New Zealand with the money. Held, there can be a proprietary claim as the liability is so strict where a profit in land is involved. Sinclair Investments: Sinclair Investments gave money to director who permitted the money to be transferred to Versailles where he held shares. Versailles carried out fraud increasing their share price. Held, Lister v Stubbs had not actually been overturned in England and so remained binding . Therefore no proprietary interest in the shares could be found.  FHR Ventures: Agent received secret commission upon purchase of property. This was taking advantage of the opportunity which was originally the principle's. This gives rise to a constructive trust with fiduciary duties therefore a proprietary claim could be made. 

Notes