9.2 Claims as Trustees - Lecture note 9.2 PDF

Preview

Summary

This set of notes addresses the claims as trustees and the requirements to account for a gain made in breach of trust; wilful default and personal action against third party against recipients of trust property....

Description

Topic : Claims as Trustees 1. ACCOUNTING FOR A GAIN MADE IN BREACH OF TRUST     

A trustee must account to the beneficiaries for any profit made from the trust find, whether by breach of trust or in the ordinary course of management of the trust. Beneficiaries will seek an account of profits if they can show that the account will yield more than compensation with interest. Where trust funds are invested profitably in breach of trust, the beneficiaries are entitled to the entire profit. Where the trustee used both money from the trust fund and his own money to realise an unauthorised gain, the beneficiaries are entitled to at least a proportional amount of profits. The trustee is entitled to the return of his own contribution. But there is debate whether the trustee should share in profits.

Paul A Davies (Australia) Pty Ltd v Davies [1983] 1 NSWLR 440 Facts: Trustee used trust fund to pay part of the purchase price of a property. Having thus acquired an equitable interest in the property, the trustee obtained a mortgage on the strength of this interest for the balance of the purchase price. Issue: how much should be accounted to the trust i. The entire profit made ought to be accounted to the trust. Because if allow trustee to retain any of the profit, they would be profiting from the trust fund. ii. Trustee made a contribution so some portion of profit ought to be accounted to trustee? - If the strict approach generates unfairness for the trustees, especially where his skill, time and resources contributed to the profit, it is open to the court to grant the trustee allowance representing the skill, time and resources.

2. LIABILITY FOR CO-TRUSTEE’S BREACH – “WILFUL DEFAULT” Trustee Act (Tas), s 27 27. Implied indemnity of trustees (1) A trustee shall, without prejudice to the provisions of the instrument, if any, creating the trust, be chargeable only for money and securities actually received by him notwithstanding his signing any receipt for the sake of conformity, and shall be answerable and accountable only for his own acts, receipts, neglects, or defaults, and not for those of any other trustee, nor for any banker, broker, or other person with whom any trust moneys or securities may be deposited, nor for the insufficiency or deficiency of any securities, nor for any other loss, unless the same happens through his own wilful

default. (2) A trustee may reimburse himself, or pay or discharge out of the trust estate, all expenses incurred in or about the execution of his trusts or powers.

A trustee is in wilful default only if “he knows that he is committing, and intends to commit, a breach of his duty, or is recklessly careless in the sense of not caring whether his act or omission is or is not a breach of duty” (Re City Equitable Fire Insurance Co Ltd [1925] Ch 407 at 434).

Dalrymple v Melville (1932) 32 SR (NSW) 596 Facts: A trustee is held to be in wilful default for allowing his co-trustee to put himself in a position to misappropriate trust funds even though the trustee did not suspect his co-trustee to be a thief Principles: i.

No assumption that as a trustee you should proceed on the basis of co trustee as a coup.

ii.

On the facts, no actual suspicion co trustee is going to engage in misappropriation of fund.

iii.

Co-trustee is a solicitor- a honourable profession. o

Notwithstanding these 3, in this circumstances, the innocent trustee is nonetheless in wilful default.

iii.

Trustee is subject to ordinary businessman prudence test.

iv.

If both ordinary prudent people, have to keep an eye on joint trustee.

3. PERSONAL ACTION AGAINST THIRD PARTY AGAINST THIRD PARTY AGAINST RECIPIENTS OF TRUST PROPERTY Distribution of trust property to 3rd party by mistake. i. must be a breach of trust ii. distribution must be made to recipient who are volunteers ‘equity will not assist volunteer’ iii. all possible remedies against trustee must be exhausted first * Re Diplock [1948] Ch 465 at 502–504 Facts: disposition of funds of deceased’s estate. 2 executors charged with managing and distributing the estate. Terms of the will provided for the gift to be made for ‘such charitable institution(s) or other charitable or benevolent objects’. Executors distributed 139 charities. This

disposition was struck down as non-charitable because it could allow distribution for purposes that were not solely charitable. The next-of-kin sued executor to recover some of the money and went against the charitable institution wrongly paid for the remainder of the money. Issue what was the liabilities of the trustees? Held: Trustee are primarily liable because made distribution in circumstances they are not entitled to do so. ( a personal action in this case. Would be different for proprietary action)...