Date: 23/03/23
E&T. TUTORIAL 7: REMEDIES
AGAINST TRUSTEES
A court order compelling the trustees to carry out a duty might
be appropriate; for example, an order to distribute the trust
fund to the correct beneficiaries in accordance with the terms
of the trust.
In other cases, the beneficiaries may want to restrain a trustee
from breaching a duty and will ask the court for an injunction.
However, where a breach has already happened and there has
been loss to the trust, the beneficiaries may want
compensation from the trustee. Alternatively, the object of any
action may be to recover the lost trust property.
What type of breach? A trustee failing to carry out a duty.
A trustee failing to undertake something that they are
required to do, either by the terms of the trust instrument
or by statute. For instance, failing to invest the trust fund or
a failure to review investments which have been made (and
so not noticing that the value of those investments has been
reducing and so not taking evasive action).
A trustee acting outside their powers: Here the trustee may
have done something which they are not authorized to do.
This is another kind of breach. An example of this would be
if they give capital to a life tenant because life tenants
should only be paid income.
A trustee acting without the required standard of care:
Trustees are also subject to a duty of care and will commit a
breach of trust if they do not exercise a duty or a power to
the required standard of care.
A trustee dishonestly takes trust property for themselves:
Stealing trust property for their own benefit is a prima facie
breach of the duties and obligations owed to the
beneficiaries.
Which type of remedy?
Personal claim for compensation: Where loss has been caused
to the trust by the trustee’s breach of duty, the beneficiaries
can bring a personal claim against the trustee for
compensation. It is called a personal claim because it is against
, the trustee in person. Note that the claim is for compensation,
not damages. The claim effectively requires the trustee to
restore the value of the financial loss suffered by the trust fund.
Where a trustee has dishonestly taken trust property, the
beneficiaries could sue the trustee for compensation equal to
the value of the trust property which was stolen.
Proprietary claim: A proprietary claim is relatively
straightforward if the trustee still holds the trust property in its
original form but what if the trustee sold the painting and used
the proceeds to buy shares in an up-and-coming company? Can
the beneficiaries bring a proprietary claim for the shares? It
may be important for them to get the trust property back. Say
the trustee stole a valuable painting which has been in the
family for generations; the beneficiaries may feel strongly that
they want the painting restored to the trust. In this case, they
would bring a proprietary claim to recover the actual property.
There may be advantages to the beneficiaries getting the
shares rather than monetary compensation. You would need to
use equitable tracing rules to see whether the beneficiaries can
recover the property in its changed form. These equitable
tracing rules would be available to beneficiaries given their
equitable interest in the trust property.
A person can be made bankrupt if they have insufficient money
to pay their debts. The creditors are the people to whom the
bankrupt owes money. On a bankruptcy, there is a pecking
order in which the creditors are paid. Ordinary unsecured
creditors come low down the list. ‘Unsecured’ means that they
have not taken a charge over the bankrupt’s assets. The
ordinary unsecured creditors share what is left after creditors
higher up the list have been paid. Usually, the pool of money
available for unsecured creditors is small; each usually
recovers only a small percentage of what they are owed.
*A proprietary claim is better if the asset has increased in value, or
the defendant trustee is bankrupt.
*A personal claim is better if the defendant trustee does not hold
trust property either because he never held it or has dissipated it.
- Professional trustees are likely to be covered by insurance, but
lay trustees usually must foot the bill themselves. To many, this
seems unfair, especially when most lay trustees are unpaid. A
lawyer advising beneficiaries will need to analyse the case to
assess the prospects of success. Similarly, the lawyer
representing the trustees needs to apply a similar case analysis
2
E&T. TUTORIAL 7: REMEDIES
AGAINST TRUSTEES
A court order compelling the trustees to carry out a duty might
be appropriate; for example, an order to distribute the trust
fund to the correct beneficiaries in accordance with the terms
of the trust.
In other cases, the beneficiaries may want to restrain a trustee
from breaching a duty and will ask the court for an injunction.
However, where a breach has already happened and there has
been loss to the trust, the beneficiaries may want
compensation from the trustee. Alternatively, the object of any
action may be to recover the lost trust property.
What type of breach? A trustee failing to carry out a duty.
A trustee failing to undertake something that they are
required to do, either by the terms of the trust instrument
or by statute. For instance, failing to invest the trust fund or
a failure to review investments which have been made (and
so not noticing that the value of those investments has been
reducing and so not taking evasive action).
A trustee acting outside their powers: Here the trustee may
have done something which they are not authorized to do.
This is another kind of breach. An example of this would be
if they give capital to a life tenant because life tenants
should only be paid income.
A trustee acting without the required standard of care:
Trustees are also subject to a duty of care and will commit a
breach of trust if they do not exercise a duty or a power to
the required standard of care.
A trustee dishonestly takes trust property for themselves:
Stealing trust property for their own benefit is a prima facie
breach of the duties and obligations owed to the
beneficiaries.
Which type of remedy?
Personal claim for compensation: Where loss has been caused
to the trust by the trustee’s breach of duty, the beneficiaries
can bring a personal claim against the trustee for
compensation. It is called a personal claim because it is against
, the trustee in person. Note that the claim is for compensation,
not damages. The claim effectively requires the trustee to
restore the value of the financial loss suffered by the trust fund.
Where a trustee has dishonestly taken trust property, the
beneficiaries could sue the trustee for compensation equal to
the value of the trust property which was stolen.
Proprietary claim: A proprietary claim is relatively
straightforward if the trustee still holds the trust property in its
original form but what if the trustee sold the painting and used
the proceeds to buy shares in an up-and-coming company? Can
the beneficiaries bring a proprietary claim for the shares? It
may be important for them to get the trust property back. Say
the trustee stole a valuable painting which has been in the
family for generations; the beneficiaries may feel strongly that
they want the painting restored to the trust. In this case, they
would bring a proprietary claim to recover the actual property.
There may be advantages to the beneficiaries getting the
shares rather than monetary compensation. You would need to
use equitable tracing rules to see whether the beneficiaries can
recover the property in its changed form. These equitable
tracing rules would be available to beneficiaries given their
equitable interest in the trust property.
A person can be made bankrupt if they have insufficient money
to pay their debts. The creditors are the people to whom the
bankrupt owes money. On a bankruptcy, there is a pecking
order in which the creditors are paid. Ordinary unsecured
creditors come low down the list. ‘Unsecured’ means that they
have not taken a charge over the bankrupt’s assets. The
ordinary unsecured creditors share what is left after creditors
higher up the list have been paid. Usually, the pool of money
available for unsecured creditors is small; each usually
recovers only a small percentage of what they are owed.
*A proprietary claim is better if the asset has increased in value, or
the defendant trustee is bankrupt.
*A personal claim is better if the defendant trustee does not hold
trust property either because he never held it or has dissipated it.
- Professional trustees are likely to be covered by insurance, but
lay trustees usually must foot the bill themselves. To many, this
seems unfair, especially when most lay trustees are unpaid. A
lawyer advising beneficiaries will need to analyse the case to
assess the prospects of success. Similarly, the lawyer
representing the trustees needs to apply a similar case analysis
2
