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equity and trusts. chapter 16. p 184 onwards

self assessment

1. in what circs will trustess be all liable?

when they breach trust or are negligent. even if the individual did nothing wrong

2. in what circs will a T NOT be liable for a breach of trust?

no negligence or breach and ought reasonably be excused.

3. when can a T claim an indemnity from co-trustees?

not for breach

4. what is necessary for a B ‘s consent to a departure from the trust terms to be valid?

5. what does it mean for a B’s interest to be impounded?

He cannot access it or use it

6. to what limits may a trustee exemption clause go to relieve a trustee of liability for breach of trust?

to the extent that it does not allow breach of trust

7. in what circs will the court relieve a T under section 61 of the trustee act 1925?

where it is fair and reasonable and there is no personal breach of trust or negligence.

activity 16.8

watterson s limitation of actions, dishonest assistance and knowing receipt

a. In williams how did the claimant’s arguments attempt to extend the definition of trustees?

Those who were not officially trustees were considered to be trustees.

b. what did the SC reject this argument?

c. how did the claimant’s arguments attempt to extend the definition of constructive trustees?

d. why did the SC reject this argument?

e. which premise of the SC is questioned by watterson?

f. which similarities does watterson highlight between constructive trustees and expressed trustees?

g. How does Arthur v AG Turks and Caicos Islands support Watterson’s analysis?

there was property which had been Crown land. sold to the appellant – Mr. Arthur – on favourable terms

he then sold it on for a big profit- it was claimed with inside knowledge and corrupt intent

He got freehold in Jan 2008 and sold in March.

Did torrens system rule out a claim that a registered owner is a constructive trustee because he knew of breach of trust?

the interpretation and application of the Turks and Caicos Islands Registered Land Ordinance. RLO

example of Australian cases in an interpretative sense.

The Privy Council agree with Court of Appeal that Oz cases are irrelevant.

proprietary and personal remedies are DIFFERENT in knowing receipt.

The torrens system and the RLO did not allow the appellant’s arguments any merit

appeal dismissed and appellant had to pay for it

activity 16.9

AIB group plc v Mark redler

this says that the but for rule applies in equitable compensation.

a. outline the breach and the relief which the bank alleged against the solicitors

the bank said that the solicitors were supposed to find out about the money in 2 accounts. they found out about 1 account and thought this was the total for both.

b. how did the solicitors breach the terms of the council of mortgage lenders’ handbook?

they made a mistake then realised it but did not tell AIB. breach of trust and fiduciary duty

c. identify the numerical difference between the bank’s calculation of liability and the solicitor’s calculation and the important fact which explains the source of the gap.

d. which broad principle of equitable compensation was identified by lord Browne Wilkinson in the target holdings case?

Browne Wilkinson that the defendants had to compensate not just for the loss caused but ALSO for loss that occurred that would have occurred anyway even without wrongdoing by the defendant.

e. identify the two fundamental principles to an award of damages at common law?

compensation is only for damages caused by breach

put the claimant back in the position he would have been but for the breach

f. identify the basic rule to an award for breach of trust in equity.

compensation in equity does not differ with the nature of the trust

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sample exam Q

1. to what extent is a third party defendant ‘s state of knowledge relevant in claims for personal liability to restore the trust?

it is relevant. because if he had knowledge he must disgorge ill gotten lucre. if not he may keep it.

2. Stanley was a solicitor who often advised Tom the chief trust officer of a large trust co. In 2014 he advised him to invest in a large portion of the value of the Adams family trust in investment banned by the trust instrument to enhance the returns on the trust land. Tom agreed with the idea and did. The strategy failed and the trust is only worth half of what it was

in 2015 Stanley negligently prepared a tax saving scheme for the Bryson family trust which Tom implemented and which resulted in an unnecessary 30 K tax liability. In 2016 Tom asked Stanley to prepare docs for transfer of a house from Carling family trust to the widow of the family

Stanley was sceptical about the transfer being allowed by the trust terms but in response to question Tom said It is ok the widow needs the house and we are covered by exemption clause.

Stanley did the transfer. all 3 trust instruments contain exemptions for trustees for any loss except when caused by his own fraud.

advise B in each trust.

B can take action against Tom who breached his fiduciary duty regarding the terms of the trust. Tom must put back the lost money. this is regarding investing money.

About the tax saving scheme both the solicitor and the trustee are liable. The trustee must check it is done properly.

Regarding transferring the properties there is no cause of action because of the exemption clause.

3.

Tamara a trustee breached the Trust she manages by failing to invest the trust property with due care and so the fund is worth less than it should be

selling the title of land held by the trust a transaction banned by trust terms

making an unauthorised payment to Barney one of the B who realises it is a breach but consents

advise Tamara.

She is liable for the injudicious investment.

She is liable for selling the land.

She is liable for giving the money to Barney because the others did not consent.

17.2 boardman v phipps

Boardman solicitor of family trust including 27% of a company. He was worried by the accounts of the co.

He said to protect the trust a majority shareholding is needed. He and beneficiary Phipps went to shareholders’ AGM.

they thought they could turn co around.

they said to a trustee called Fox that it would be good to get majority shareholding. Fox said trustees could not do so.

with knowledge of the trustees boardman and phipps bought the shares themselves – a majority. they did not get the fully informed consent of all B

by capitalizing the assets the co made a distribution of capital without reducing share value/

the trust benefitted by distribution of 47 K. boardman and phipps made 75 K

John Phipps (another Phipps) was a B and he sued for profits saying their was conflict of interest

High Court. Wilberforce J saod thay Boardman had to pay for breach of duty of loyalty by not accounting to the co for that amount of money but he could be paid for his services

Court of Appeal.

Lord Denning, Russell and Pearson said Wilberforce was right and that Boardman and Phipps breached duty of loyalty. they became self appointed agents of the trust and this caused conflict of interest

they were liable for profits earned but they were able to get remuneration for services rendered

Lord Denning – even the plaintiff said that that they should get paid for services

in actions like this there must be restitution. defendant enriched himself unjustly and it is unconscionable that he be allowed to keep the money. the claim for repayment must not go so far as to be unjust.

the court could allow the defendant to be paid something if he had been above board. depends on circs.

this is equitable

the house of lords.

majority in Lords said that there MAY have been conflict of interest – solicitor and B might have come to boardman for advice about buying shares. they owed a fiduciary duty to avoid POSSIBLE conflict of interest

they were negotiating over use of trust s shares.

majority disagreed about the info used by boardman and phipps

lord cohen said the info is not property and it does not follow that because the agent go the info and the opportunity while acting as a fiduciary then he is accountable. his liability turns on the facts

boardman was liable because he got the info through fiduciary relationship

2 other menbers of the majority hodson and guest said that info can be property in certain circs and in the current case it was trust property

boardman was speculating with trust property and was liable.

majority agreed that liability to account for profits made by virtue of a fiduciary relationship is strict. does not depent on fraud of dearth of bona fides.

phipps and boardman did NOT have to account for profits. they were remunerated for their services

Upjohn said that Phipps and Boardman should NOT be liable because a reasonable man would say there was NO conflict of interests. there was no way the trustees could seek boardman s advice to buy the shares at any rate boardman could have declined to act if asked to

it is said a trustee does his duties and mau then do whatever he wants even if it causes conflict of interest.

he said reasonable man would allow phipps and boardman to keep money.

regal hastings v gulliver is different. that was where principals were thinking of buying property. shares are different

upjohn said info is not property.

explain the views of the majority and minority

majority said info is property and there was conflict of loyalty

minority said it is not property and no conflict. what the T did was not to impair B’s interest.

state which view you prefer

minority.

self assessment

1. to which of the following profits does the no profits rule apply?

a. director s fees earned by a trustee elected to represent the trusts share holding

The rule applies

b. a company agent s year end performance bonus

does not apply

c, bribe paid to a solicitor to settle a case on favourable terms

rule applies but this is illegal in the criminal sense too

d. a secret commission paid by a vendor to a purchaser s agent

rule applies. also illegal

17.3

read holder v holder 1967 and explain why the self dealing rule was not applied here

because there was no alternative

17.4

state whether the self dealing rule, fair dealing rule or neither applies

neither applied.

a. a trustee sells her shares in XYZ to the trust

self dealing

v. an agent for an antiques dealer offers to buy the latter s antiques business

neither

c. a trustee pays an income B 10 000 to purchase the B ‘s right to income under the trust for the next 10 years

self dealing

d. a solicitor buys a painting for Jonah for whom he acted in divorce proceedings

fair dealing

e. a director of ABC Ltd enters into a contract on behalf of — for the purchase of raw materials from XYZ ltd a private company she owns.

self dealing

self assessment

1. in a trust who is the fiduciary?

Trustee

2. state the no conflict rule as simply as you can.

the trustee must not engage in anything where there is a conflict of interests – where he may be tempted to do something to his own advantage that might disadvantage the trust

3. what is the no profit rule?

T must not make a profit from the trust apart from trustee fees

4. what was the breach of fiduciary duty in swindle v harrison

Mr. Swindle passed on a bridging loan to Mrs. Harrison wthout telling her that he was profiting from it.

?

5. what duties if any breached if

a Trustee buys a second hand car from the trust.

Self dealing.

b. a trustee buys a second hand car from one of the B of the trust?

None so long as the car is not trust property. There must be fair deling.

sample exam Q.

equity and trusts. Simon Jones

a trust document makes things clear

resulting and constructive trust there is no trust doc or written trust created but is inoperable

a court implies a trust to create R or C trust.

resulting T. court says it imposes a trust ebcause that was REAL intention of parties. No general equitable doctrine.

R trust gives expression to true intention of parties . Beneficiary will be original donor.

Simon wants to go abroad. has land thinks him being abroad will not enable him to manage the land

Simon makes simple convyenace of land to me. 2 possibilities –

idea is that i hold land on trust for simon.

maybe we agreed orgally that I use it for SImon s benefit

but if I am a crook because no formal trust set up expcet formal transfer of land

then I claim it is absolutely mine.

Simon can applies to court to say he never intended to deprive himself of the land beneficially and intended to create a trust

if simon can persuade the court hat he never intended to make a transder then even if I make oppsite argument then the land will make it a resulting trust

land has been transferred to me.

in circs where there was no proper agreement then there is a resulting trust

‘if Simon gives land for free there is no presumption of advancement because I am not a relative.

it was never his intention to deprive himself of beneficial interest

I own land for SImon s benefit

as he is sole beneficiary of full age then he can apply to have land formally re transferred back to him once there is a resulting trust

court gives true effect to the agreement or intentions

leading case- Westdeutschlands bank v LBC Islington. 1996

A makes a voluntary payment to B. A did not intend to make a gift to B.

If there was a joint purchase by A and B there is a rebuttable presumption

A transfers property to B on express trust but trust does not exhaust beneficial interest

trust is incapable of being performed.

held on trust for the donor.

what looks like a gift cannot be a gift. give reality to the expressed intentions.

constructive trust. grey area.

more where the court says that cannot be right. general idea of trusts as equity

funds or property given by mistake. common intention to give property to a party.

it is unfair that a person is claiming legal and beneficial ownership

case that identified partially resulting trust and partially constructive

Re Denshan 1975. dispute about matrimonial home

husband sole legal owner. wife contributed to purchase price. they had agreed joint ownership

court said wife owned half the house through a constructive share. she had 1/9th share as a resulting trust.

constructive trust is not about presumed intention.

family arrangement – parents and children. if parents give it to kids there is presumption of advancement.

burden is on me to prove that the presumption should be overturned.

constructive trust is more flexible

if the woman has made contributions to mortgage direct or indirect then she gets a constructive trust even i f they couple are not married.

matrimonial assets. a spouse does NOT need to prove contributions.

resulting trust is more powerful because in Denshan husband had gone bankrupt. trustee in bankruptcy wanted to seize the house. wife wanted the house .

she was not fighting her husband but against the trustee in bankruptcy. court ruled she has a resulting

trust of 1/9th of the house. that meant she did not have to give it to trustee bankruptcy

her constructive trust over 1/2 the house did NOT prevent the trustee in bankruptcy.

resulting trusts go back to donor.

if a trustee uses property for himself this is wrong.

a trust can be held for child as beneficiary. The donor has given the legal ownership to trustee.

charitable trusts.

purposes. poverty. education.

only by charitable trust that you may create a trust for a purpose. does not need to have an identified human beneficiary.

no political trusts.

a charitable trusts are enforced by charities commission.

charities must benefit the public.

a political party is an incorporated association

unincorporated associations. small clubs

a political party can incorporate companies to own assets.

resulting trust is always beneficial interest goes back to donor

constructive decides that another person is the beneficiary not the donor

trust fund. if you create a trust fund for your child as a tax avoidance mechanism it will fail.

if you create a trust for grandchildren

a donor cannot revoke a trust even if he is the sole trustee

fiduciary – Fee dosh a ree.

law against perpetuities – 99 years

cestui que

he who comes to equity must come with clean hands

equitable remedies – concerning laches meaning delay. you must bring equitable claim asap.