EQUITY AND TRUSTS 2.5 REMEDIES FOR BREACH OF TRUST
REMEDIES FOR THE BREACH OF TRUST
A breach occurs where the trustee does what he ought not to do or fails to do what he ought to do with regard to the administration of the trust. E.g. making unauthorized profit, unauthorized investments, wrong distribution, and so on.
- Injunction: To restrain breach-Fox V Fox it was applied to restrain inconsistent distribution of trust property.
- Personal remedy against the guilty trustee: Generally, the trustee’s liability is personal rather than vicarious… as has been noted in Section 24 TA and 21TL “unless the same happens through his own wilful default” as was seen in the case of booth V booth where the trustee stood by watching the other trustee commit a breach. A new trustee cannot be liable for breach of his predecessors (provided he takes action against the guilty trustee compelling him to make good the loss) nor would a trustee be guilty of future breach by his successors except he retired to enable the commission of the breach Head V Gould. If the trustee that committed the breach is also a beneficiary, his beneficial interest may be impounded until breaches are made good.
The following defences may be open to the trustee:
* Where the settlor had inserted a clause which protected the trustee from being sued by beneficiaries. In Armitage V Nurse, this was done in clause 15 of the Trust instrument
* lapse of time: Section 31 of the Limitation Decree provides 6 years limitation except fraud is involved or the claim is to recover trust property or the proceeds thereof.
* Relief by the court: where trsutee has acted honestly, and reasonably, the court can excuse him from liability in deserving instances… wholly or partly-Re Turner. The courts are more reluctant in relieving a paid trustee.
* Acquiescence by the beneficiaries: Where sue juris beneficiaries/a beneficiary with knowledge of the facts consented in the breach. The non-consenting beneficiary could still complain. Section 45 of the Trustees law and Act provides that the consenting beneficiary’s interest can be impounded to set off trustee’s liability.
* Release by Beneficiary: A sui juris beneficiary with full knowledge of the facts may nevertheless release the trustee as was seen in Ghost V Waller.
Note contribution and indemnity.
- Tracing: (shall be discussed later in this work) Tracing is another remedy which is a right in rem. Seee Lord Atkin’s dictum in Banque Belge V Hambrouck. There can be no tracing where the trust property has been dissipated-Re Diplock– like spending the trust money on dinner or repayment of loans. No tracing right against bona-fide purchaser, no right where dissipated, no right where there is no fiduciary relationship, no tracing where it would be inequitable.
- Personal remedy against the recipient.
- There could also be Criminal Liability: e.g. theft, fraudulent conversion (Section 434 Criminal Code) etc.
Where the beneficiary (or a person entitled) decides to track down or pursue the trust property. Especially where the trustee has misappropriated it. e.g. the trust directs Mr Ade (the trustee) to give a Mercedes Benz 2017 G-Wagon HC-5 to Tony (the beneficiary). Instead of doing this, Mr Ade gives the Car to his girlfriend (Titi). Tony can be entitled to trace the car to Titi and collect it.
At common law, it is called following although at common law;
– It is only available to a person with legal title in the goods. Consequently, only the trustee could follow.
- The tracer must prove that his title is better than that of the third party purchaser.
- Chattels could not be traced. Rather sue in trespass. Although the Common law procedure Act later included certain types of assets and provided the remedy of detinue. In the case of money, the trustee can sue for money had and received.
- Where the trust property has taken a new identity, he can still follow provided the property is identifiable-Lord Ellenborough in Taylor V Plummer. Where the part of the E22,000 was used to purchase gold bullion. Held still traceable.
- Trust funds can be traced to a bank account provided it is the only fund therein. In equity, there can still be tracing even though the fund is mixed-Taylor V Plummer, AGIP V Jackson.
Tracing at equity.
- There must be a fiduciary relationship between the beneficiary and the trustee or third party with the property-Re Diplock. In Re Hallet’s Estate, fiduciary relationship was construed where it was her solicitor that also managed her estate.
- The beneficiary should show that he has proprietary interest in the property. No need to prove legal ownership in equity.
- The power is usually exercised by alleging constructive trust or making a declaration of charge in respect of the property notwithstanding that it has been mixed-Foskett V McKeown.
- A bona fide third party purchaser for value without notice can defeat a tracing claim-Re Diplock. This is why people question the validity of calling it a right in rem.
- Equitable tracing covers equitable interest in property. One with legal interest should “follow” (i.e. he should follow at common law).
- Tracing terminates if the trust property has been dissipated. i.e. where neither the property cannot be found nor can the converted form be found. E.g. the trustee sold the Mercedes G-Wagon and spent the money on parties, dinner, prostitutes, and so on. It would have been a different case if the trustee sold the G-Wagon for 17 million Naira and deposited it into his account. The beneficiary can trace the money into the trustee’s account but where there is nothing to show (e.g. spent on prostitutes, etc) then there would be no tracing. He should sue in conversion or attempt other remedies. In Bishopsgate Investment Management V Homan, the account was overdrawn and no investment accruing from the money could be found.
- Note also that equitable tracing would not be ordered if it would bring unjust results.
What happens (where in the Mr Ade scenario above) Ade sold the G-Wagon for 17 million and deposited the money into his account at UBA which presently has 2 million. Ade then takes 11million from another Trust (the 11 million belongs to Kunle) he is also administering and puts into the same account making his total account balance to be 30million. Ade then withdraws 20 million from his account and uses same to invest in Dangote Plc Shares. If the beneficiaries from the two trusts should sue Mr Ade and they want to trace how would they get their money?
There are some principles that the court may apply:
The first withdrawal principle: looks at the money that was first withdrawn as that of the Trustee/account holder then the balance in the account is for the trust. In Re Hallett’s Estate, Hallett paid E770 from one trust into his account. Paid 1804 from another trust into his account. His account was buoyant and was able to satisfy both claimants. The court noted that assuming Hallett had withdrawn some money, the first withdrawn is deemed to be his own and the rest for the trust.
First in, First Out principle in Clayton’s Case: where more than 2 trusts try to claim on insufficient account, it is presumed that the first trust that was paid in is the first that was withdrawn then what is left in the account is that of the trust that was paid in second or later.
Date of payment principle in Oatway’s Case, the court applied this principle and held that the first to be paid into account would take priority. Then the rest of the fund can be traced to the various investment(s) if they can be found.
Lowest intermediate balance principle/rule: if the sum in the bank account falls below that taken from the trust fund, the balance should be traced to its new destination-Roscoe V Winder. From the example; shares in Dangote Plc.
In Quistclose V Barclays Bank, the court held that the person tracing has priority over creditors in the event of liquidation.
In Jones V Jones, the court held that where the trust fund was fraudulently invested and made profits, the beneficiaries are entitled to recover the fund including the profit. However, in Re Tilley’s Will Trust, the court held that the beneficiaries were entitled to have only what was taken from the trust property returned. In Foskett V McKeown where the trustee used E24,440 from the turst money to pay for 2 out of his 5 life insurance instalment which paid out E1million. The court held that the beneficiaries were entitled to 2/5 of the 1million being a proportionate share.
In conclusion, tracing is a powerful means of locating and recovering property even where it has changed hands.
Thompson V Mecham-donatio mortis causa not for fear having plane crash.
Leave a Reply