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Equity and Trusts. Easy to understand
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INTRO-Note: T= trustee, B= beneficiary, X= third party
- In advising B, B would want to know whether he can sue T for breach of trust. As B is
beneficiary of the trust, B has the locus standi to sue T.
- B is advised trustee’s liability for breach of trust is strict once the breach is proven, T will
be liable to account for profits made from breach or make good the loss by paying using his
own money, regardless whether T’s breach is negligent, innocent or intentional (Libertarian
Investments v Hall).
-As the aim is to compensate B for his losses, not to punish T. // In any event, the aim is to
compensate B for his losses, not to punish T. However, OTF since there is no chance of
getting compensation from T, liability under breach of trust is established merely for the
purpose of suing for compensation from third parties, which is X OTF.
(1) Falsification
- OTF, T took $100k from the trust funds and invested in a company that was expressly
prohibited in the trust instrument. Thus, this is misfeasance.
- As such, B would want to falsify the trust account because the investment of $100k into
XLtd is an unauthorized transaction // because T has paid $50k to X who is not a beneficiary
under the trust and thus this is an unauthorized transaction. TT will be regarded as using his own
money to make the transaction.
- B is advised he bears the burden of proving, on balance of probabilities, that the loss was
caused by the breach (Re Miller’s Trust Deed). T will not be liable if the trust fund drops in
value merely because the market is generally not doing well (Re Chapman).
- As per Lord Browne-Wikinson in Target Holdings v Redferns, the rule of causations
relevant here is that of ‘but for’ test of causation where it must be shown that the loss suffered
is caused by trustee’s breach of trust. Accordingly, in Target Holdings, it was held that the
solicitor’s breach didn’t cause the loss because the true reason causing the loss is the
fraudulent mortgage scheme and the property slump. In fact, the breach was in a sense
‘corrected’ when the solicitor later secured the mortgage over the property. The reasoning
and approach adopted in Target Holdings was later endorsed and followed in AIB
Group(UK) plc v Mark Redler&Co(2014).
- Although the COA in Main v Giambrone(2017) refused to apply the casual connection in
falsification claims. In fact, COA in Auden McKenzie (Pharma Division) v Patel
acknowledged that decision in Target Holdings and AIB illustrates courts’ willingness to do
whatever necessary for justice and might in some instances depart from trustees’ strict
obligation to restore the fund under their control. Hence, it is submitted that there is still a
need to establish a causal connection between the breach and the loss. OTF, unlike in Target
Holdings, the loss suffered by the trust is clearly caused by T’s investment.
, - Thus, B is entitled to falsify the trust account and T is liable to either reverse the transaction
if possible or to pay money into the trust funds using his own money to restore its value
(Libertarian Investments v Hall).
o IF is wrongful transfer of shares:
Since T is unable to regain the shares that he has wrongfully transferred, T can
either purchase the same number of shares with same value and hold it on trust
for B or pay a sum of money equivalent to the value of the shares into the trust
funds, which is $XXX.
o IF is property such as land or unique item:
Since the land has been sold to a bona fide purchaser for value, T will need to
pay $XXX which represents the value of the land into the trust funds.
o IF is unauthorized investments:
OTF, upon falsifying the account, the investment that T made will be regarded
as being made using T’s own money and T will need to pay back $100k into
the trust funds to restore the trust to its original position.
- IF there is appreciation in value:
o However, the investment in the shares in XLtd has actually been profitable. B is
advised that he can choose to adopt this unauthorized investment which proves
profitable and the profits made by this investment will then form part of the trust fund.
It is submitted that it makes perfect sense for B to be able to adopt the unauthorized
transaction. Otherwise, it will result in an absurd situation where T will be able to
misapply the trust funds by entering into unauthorized transactions and if it turns out
to be profitable, he only has to reimburse the sum he appropriated and is able to keep
the profit himself.
-IF one transaction profit, one transaction loss: [then continue to say this:]
o Nevertheless, the investment in the shares in YLtd has resulted in losses. B is advised
that he can choose to falsify this loss-causing transaction and adopt the profitable
investment in XLtd (Wiles v Gresham) since both the transactions are distinct and
doesn’t form part of a composite transaction (Bartlett v Barclays Bank Trust
distinguished).
o Note: IF both the transactions are part of a composite transaction, then the profits
earned via investment in XLtd can be used to offset the loss made via investment in
YLtd (Fletcher v Green).
(2) Surcharge the Account
- OTF, T has negligently invested $250k in XLtd which resulted in losses to the trust funds
and this is clearly a misfeasance. // OTF, T has failed to insure the trust property resulting in
the trust to suffer severe losses and this is clearly a nonfeasance.
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