Breach of Trust and Fiduciary Duty

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  • Created on: 22-02-17 22:45
Knott v Cottee (1852)
In case of unauthorised investment, liable for loss incurred when it is sold
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Fry v Fry (1859)
Where trustee wrongfully retains an unauthorised investment, he is liable for the difference between the price he obtains when it is sold and the price that would have been obtained had he sold it at the right time
2 of 76
Phillipson v Gatty (1848)
If a trustee improperly realises an authorised investment, he must replace it or pay the difference between the price obtained and the cost of repurchasing the investment
3 of 76
Re Strahan (1856)
However, a trustee is not liable for breaches of trust committed by his predecessors
4 of 76
Re Strahan (1856)
If the trustee takes approp steps on appointment, he is entitled to assume that there has been no pre-existing breach of trust
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Head v Gould (1898)
On retirement, a trustee (or if deceased, his estate) will still remain liable for breaches of trust that occurred during his stewardship
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Townley v Sherbourne (1643)
General rule: trustee is liable for own breaches, but not for breach of duty committed by co-trustee
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Townley v Sherbourne (1643)
A trustee will be liable where they left trust income in hands of a co-trustee for too long without making proper inquiries
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Bahin v Hughes (1886)
general principle: passive trustee cannot escape liability by leaving the management of the trust to a co-trustee who strives unsuccessfully to do his duty
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Boardman v Mossman (1779)
A trustee will be liable where they concealed a breach committed by his fellow trustees
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Booth v Booth (1838)
A trustee will be liable where they stood by while to his knowledge a breach of trust was being committed, or contemplated (Wilkins v Hogg (1861)
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Fletcher v Green (1864)
Basic rule: where two or more trustees are each liable for breach of trust, they are jointly and severally liable; means: any one of the trustees may be sued for the full amount or, if they are all sued, judgement may be executed against any one (or
12 of 76
Chillingworth v Chambers (1896)
Could be both an indemnity to the extent of the beneficial interest and also contribution on top
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Bahin v Hughes (1886)
Former equitable rule= equal liability regardless of fault
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Re Smith (1896)
trustee can claim indemnity from other co-trustee(s) Where one trustee has acted fraudulently or is alone morally culpable
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Head v Gould (1898)
trustee can claim indemnity from other co-trustee(s) Where the breach was committed solely on advice of a solicitor co-trustee
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Re Partington (1887)
trustee can claim indemnity from other co-trustee(s) Where one trustee is a solicitor and has been effectively controlling the trust affairs
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Bahin v Hughes (1886)
trustee can claim indemnity from other co-trustee(s) Where only one trustee has benefitted from the breach
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Chillingworth v Chambers (1896)
trustee can claim indemnity from other co-trustee(s) Where one of the trustees is also a beneficiary
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TA 1925, s 61
Court given discretion to relieve (in whole or in part) a trustee from liability
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Re Evans (1999)
There are no rules when relief will be granted and each case will be judged on its own particular circum’s
21 of 76
Lloyds TSB Bank v Markandan Uddin (2012)
Burden of proof lies on trustee to est that he acted reasonably and honestly and as prudently as he would have done in organising his own affairs; thus, here CA refused to grant solicitor’s firm relief when, as part of a scam conveyancing transaction
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TA 2000, s 1
A paid trustee is expected to exercise higher standard of diligence and knowledge than unpaid trustee
23 of 76
Barraclough v Mell (2005)
HC: would have refused relief to the trustee under s 61; trustee’s conduct was grossly neg and, while she had acted honestly, had not acted reasonably and ought not fairly to be excused for breach of trust
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Santander UK v R.A. Legal Solicitors (2014)
CA: took dim view of R.A. Legal’s numerous departures from best conveyancing practice and concluded: in light of these serious and consequential breaches, it would not be fair to excuse firm form liability in whole or in part
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Re Evans (1999)
held: trustee granted partial relief against brother’s claims; she had acted honestly and reasonably and in reliance upon of legal advice; as lay person, she could not be expected to appreciate problems inherent in administration of estates
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Walker v Symonds (1818)
A beneficiary who has consented to, or participates in, a breach of trust cannot afterwards sue the trustee for breach of trust
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Nail v Punter (1832)
Here, trustees held stock on trust for woman for life, remainder to such person as she would, by will, appoint; husband persuaded her to sell stock in breach of trust; she died and appointed husband as beneficiary; he could not sue trustees as he had
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Re Pauling’s ST (1964)
as result of undue influence exerted by father, children had not been fully aware of nature of their entitlements, had not acted voluntarily and thus could succeed
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Fletcher v Collis (1905)
It is not nec that beneficiary received benefit
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Montford v Cadogan (1816)
If beneficiary merely concurred in breach, it must be shown he received a benefit from it
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TA 1925, s 62
Re cases of written consent: where a trustee commits a breach of trust at the instigation or request or with the consent in writing of a beneficiary, the court may, if it thinks fit make such order as the court seems just, for impounding all or any p
32 of 76
Docker v Soames (1834)
Re unauthorised profit, beneficiary may elect not to falsify account, but to accept or adopt the transaction; hence, if profit arises from unauthorised transaction the beneficiaries can claim it
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Dimes v Scott (1828)
Trustee cannot claim that a profit made in one transaction should be set off against a loss suffered in another transaction
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Fletcher v Green (1864)
However, if the gain and loss are part of the same transaction, then the rule against set-off will not usually apply
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Bartlett v Barclays Bank Trust Co Ltd (1980)
Nonetheless, here, bank able to set off losses on a development project at Old Bailey against profits made on another development at Guildford; both resulted from policy of unauthorised speculative investments
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Target Holdings v Redfearns (1996)
 However, the claimant may only recover for loss caused by the def’s breach or gain generated for the trustee by his wrongdoing (FHR (2014))
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AIB Group (UK) v Mark Redler & Co Solicitors (2014)
Here, def solicitors paid away more than £3million in breach of trust (a remortgage transaction that went wrong), but liability was limited £275,000; this represented actual loss caused by the breach (i.e. cost of putting trust in position it would h
38 of 76
Jones (FC) & Sons v Jones (1996)
Millett LJ saw no merit in having distinct and differing tracing rules at law and equity, “given that tracing is neither a right nor a remedy but merely the process by which the plaintiff establishes what has happened to his property and makes good h
39 of 76
Taylor v Plumer (1815)
Tracing into clean substitutions is permissible at common law; here, def handed money to stockbroker to purchase exchequer bonds; stockbroker purchased American investments instead; on stockbroker’s bankruptcy, def entitled to the investments that re
40 of 76
Lipkin Gorman v Karpnale (1991)
• Taylor v Plumer based on legal title to the money withdrawn from client account
41 of 76
Indian Oil Corporation v Greenstone Shipping S.S. (The Ypatianna) (1988)
Where there is a mixing of similar items in a bulk (oil), theyu are entitled to their respective shares
42 of 76
Agip (Africa) Ltd v Jackson (1991)
Re electronic fund transfer instruction, tracing failed at common law as no physical asset of the claimant’s, e.g. cash or cheque, could be identified in def’s hands; considerably reduces scope of common law’s effectiveness in world of electronic ban
43 of 76
Jones (FC) & Sons v Jones (1996)
CA allowed OR to recover profits made on investment; albeit surprising, CA: common law rules could embrace here not only the property representing the original, but also the profit made by the def’s use of it; because: in all common sense, the wife c
44 of 76
Agip (Africa) v Jackson (1990)
Traditional view: claimant may take adv of equitable tracing rules only if he can demonstrate the existence of fiduciary obligations between claimant and wrongdoer
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Chase Manhattan v Israel-British Bank (1981)
Here, mistaken overpayment made by claimant bank to recipient bank; thus, search for evidence of fiduciary obligations, purely to allow the claimant to trace in equity, led the court to discern a fiduciary duty that arose on the receipt of the paymen
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Foskett v McKeown (2001)
Lord Millett: no logical justification for insistence on a fiduciary relationship as a precondition to tracing in equity
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Sinclair v Brougham (1914)
It may be easy to trace money where it has been invested in shares or channelled into the purchase of property for the wrongdoer; here, beneficiaries can claim either property itself or a charge on the property for the money expended in the purchase
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Re Hallett’s Estate (1880)
Rule: a trustee is presumed to draw on his own money first and is not expected to want to commit a breach of trust; it is only when his own money is exhausted that he is deemed to draw on trust funds
49 of 76
Re Oatway (1903)
here, trustee withdrew money from mixed fund and invested it; later, withdrew rest and dissipated it; held: creditors could not successfully claim that trustee was deemed to spend his own money first; the beneficiaries were entitled to the investmen
50 of 76
James Roscoe (Bolton) Ltd v Winder (1915)
Only the lowest intermediate balance of the account may be traced
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Bishopsgate Investment Management v Homan (1995)
Additional value added to the account at a later stage from a different source, will not usually be deemed to replenish to trust fund
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Federal Republic of Brazil v Durant International Corp (2015)
PC: this rule should give way when there is a series of interconnected transactions; here, the court should not minutely divide the connected steps by which the transactions occurred, but should instead look at the transaction overall
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Shalson v Russo (2005)
Only a positive balance in an account may be claimed because, an overdrawn account does not represent an asset that can be claimed
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Federal Republic of Brazil v Durant International Corp (2015)
Lord Toulson: an account may be used as a conduit for the transfer of funds, whether the account holder is operating the account in credit or within an overdraft facility
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Bishopsgate Investment Management v Homan (1995)
On basis that tracing is a process, not concerned with wrongdoer’s intention, courts have rejected attempts to backwards trace (although PC accepted possibility in FHR)
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Clayton’s Case (1816)
First in, first out rule
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Foskett v McKeown (2001)
proportionality rule
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Barlow Clowes International v Vaughan (1992)
North American rolling charge
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Re Diplock’s Estate (1948)
o Although right to trace is lost when property falls into hands of a bona fide purchaser, the claims of beneficiaries and innocent volunteers rank equally
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 Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd (2011)
tracing may fail because Property has been consumed, dissipated or destroyed
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Shalson v Russo (2003)
tracing may fail because  Money was paid into an overdrawn account and ceased to be identifiable
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Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd (2011)
tracing may fail because No proprietary claim can be pursued against a bona fide purchaser for value without notice of the equity
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Re Diplock’s Estate (1948)
tracing may fail because No tracing will be allowed where it would cause injustice; thus, a “change of position” defence might be accepted if an innocent recipient’s position is so changed that he will suffer an injustice if required to repay or to r
64 of 76
Arthur v A-G of the Turks & Caicos Islands (2012)
If 3rd party received trust property, but has not retained it, a proprietary remedy is innaprop; here, a beneficiary may be able to bring a personal action against the recipient/stranger to the trust if he had received trust property knowing that it
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Williams v Central Bank of Nigeria (2014)
re knowing receipt or dishonest assistance, the action must be brought within 6-yr limitation period
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El Ajou v Dollar Land Holdings (1994), Hoffmann LJ
A disposal of assets in breach of trust or fiduciary duty;the receipt by the def of assets which are traceable as representing the assets of the claimant; Knowledge on part of def that the assets he received are traceable to a breach of fiduciary dut
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Baden v Societe General du Commerce SA (1993), Gibson LJ
Actual knowledge;Wilfully shutting one’s eyes to the obvious;Wilfully and recklessly failing to make reasonable inquiries;Knowledge of circum’s which would indicate the facts to a reasonable man;Knowledge of facts which would put a reasonable man on
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Re Montagu’s Settlement Trusts (1987)
Megarry VC: crucial question=whether recipient’s conscience is suff’y affected to warrant the imposition of a constructive trust; knowledge = includes not only actual knowledge, but also knowledge of types 2 and 3 in Baden
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Bank of Credit and Commerce International v Akindele (2001)
Nourse LJ: doubted use of Baden categories; “All that is nec is that the recipient’s state of knowledge should be such as to make it unconscionable for him to retain the benefit of the receipt”
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Uzinterimpex JSC v Standard Bank (2008)
Moore-Bick LJ believed that it had to be shown (at least) that the recipient had the “clear suspicion” that he was not entitled to receive the property
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Royal Brunei Airlines v Tan (1995)
Dishonesty on part of 3rd party is sufficient basis of liability, i.e. it is not nec to demonstrate that the trustee or fiduciary was also acting dishonestly
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Twinsectra Ltd v Yardley (2002)
test for dishonesty was a hybrid (i.e. combined test) of subj and obj elements; def will be personally liable as an accessory if he acted dishonestly by the standards of honest and reasonable people and that he was aware that by those standards he ac
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Barrow Clowes Interntional Ltd (In Liquidation) v Eurotrust International Ltd (2006)
it is not nec that the def knows of the existence of a trust relationship or fiduciary relationship or that the transfer of money involves a breach of either
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Abou-Rahmah v Abacha (2007)
Here, Arden LJ welcomed guidance in Barlow Clowes, whilst confirming that Twinsectra approach had not been jettisoned
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Starglade Properties Ltd v Nash (2010)
Morritt: there is a single standard of honesty obj’y determined by the court; that standard is applied to specific conduct of a specific ind possessing the knowledge and qualities he actually enjoyed
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Card 2

Front

Where trustee wrongfully retains an unauthorised investment, he is liable for the difference between the price he obtains when it is sold and the price that would have been obtained had he sold it at the right time

Back

Fry v Fry (1859)

Card 3

Front

If a trustee improperly realises an authorised investment, he must replace it or pay the difference between the price obtained and the cost of repurchasing the investment

Back

Preview of the back of card 3

Card 4

Front

However, a trustee is not liable for breaches of trust committed by his predecessors

Back

Preview of the back of card 4

Card 5

Front

If the trustee takes approp steps on appointment, he is entitled to assume that there has been no pre-existing breach of trust

Back

Preview of the back of card 5
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