2017/Q3

Ellen settled £3 million in trust, with her daughters Linda and Maggie as trustees. Under the
terms of the trust:

a) the trustees may distribute the income and capital as they see fit among the settlor’s
children and grandchildren for 50 years and then shall distribute any remainder assets as they
see fit among the children and grandchildren then living;

b) the trustees shall invest the trust assets only within the UK;

c) the trustees shall not be liable for any breach of trust unless it is caused by their own fraud
or gross neglect.

With the UK economy struggling, Linda and Maggie decided to invest £250,000 of trust
money in France and £250,000 of trust money in Germany. The French investments have
risen in value to £300,000, but the German investments have fallen in value to £200,000.
Maggie’s friend Alex owns a UK business that needed money to continue operating. Maggie
convinced Linda that it would be a good investment, so they invested £100,000 of trust
money in Alex’s business. That investment has fallen in value to £80,000.

Ellen asked Linda and Maggie if they could use the trust to help Florence, who is Ellen’s friend
and has always been ‘like a daughter’ to Ellen. Linda and Maggie paid £10,000 from the trust
to Florence.

Vivienne is Ellen’s granddaughter. She is unhappy with the way in which Linda and Maggie
have been performing the trust.

Advise Vivienne.

1.Identify duty

2. See whether there is a breach or not

3. See causation

4. Remedy
5 Possible defence

-exclsusion clause

- s.61 of the trust Act 1925

Introduction

This question requires discussion on the breach of the trust. It appears

that there was a valid trust created and Linda and Magy have been
appointed as the trustee in favour of the children and
grandchildren(beneficiaries) and one of them is Vivenne and it further
appears from the facts that trutees have made certain unauthorized
investments (by making investment in france and Germany) and by
unauthorized distributions(by giving money to Alex and Florence). They
might have also breached their fidiciuary duties. In the answer below
we will be discussing each of the issue related breaches and liabilities of
the same separately.

1st issue investment in france

-Identify duty.

A trustee has certain administrative duties under a trust. The trustees

needs to act in accordance with the terms of the trust and he only
needs to take authorized transactions or investments(Knott v Cottee)
IDENTIFY whether there was breach of that duty

In our case, Trustee has committed the breach of his duty by

investment in France as terms of the trust clearly states that trustee
was allowed to only invest within UK.

Identify Causation.

To Prove causation/liability of the trustee, we need but for test,

according to this there has to be some casual link between loss suffered
by the beneficiary due to the negligence of the trustee, if but for test
can not be proved i.e if the loss would have occurred regardless of the
negligence of trustee then but for test will fail and trustee will not be
liable for breach (Target Holding)(Re Chapman). In our case, we can see
that no loss has been suffered by the trustee as we can see that
investment value in France has increased from 250000 to 300000. So in
that case, beneficiary would have two remedies either he can falsify or
rectify. Under falsify, beneficiaries will see that trustee has invested in
unauthorized way(means beneficiary has not approved for such
transcation) if now if there is any loss then trustee can falsify the
transaction, and trustee will be personal liable and will have to pay to
beneficiary from his own pocket. Under rectification, the beneficiary
can also rectify means he can ask for benefit that trustee got from
investment. In our case it is most likely that trustee will choose rectify
the investment.

2nd issue Investment in Germany. 19 mints

As we have discussed above that there was a duty on trustee to invest

within UK and not outside UK therefore unauthorized investment in the
Germany was a breach. Moreover Trustee must administer the trust
asset and take sufficient care to maintain it and if he fails to take care
then trustee will breach the duty and in this case we can see by
investing the unauthorized investment trustee has breached the duty.

Beneficiary can also argue surcharge according to which beneficiary

can claim that if trustee would have acted legally and properly then
trustees would have made more profits and since they didn’t acted
properly they have breached their duty.

For successful claim breach of trust duties it is necessary requirement

that there should be casual link between breach and the loss suffered
by the beneficiary (Nestle case)(Miller Deed case). To establish this
casual link we can rely on but for test established in case of the (Target
Holdings case) in which Lord Wilkinson states that “The defendant is
only liable for losses due to his legal wrong that has caused losses to
the plaintiff”. To prove the causation we will ask but for trustees’
breach no loss would have occurred. In our case we can clearly see
from facts that there is clear link between breach and the loss i.e
unauthorized investment in Germany led to the loss to the beneficiary,
because if trustee would have fulfilled his duty of the administrating
the trust assets properly then the loss of the investment would not
have occurred. To prove causation for surcharge it should also be
shown that loss occurred due to the breach of the trust duty and not
due to some other reason. In our case, it is not clear from facts
whether trustee had sufficient care by seeking advice about the scope
of the trust investment as we saw in (Nestle v National Westminster
Bank case). Assuming that, trustee didn’t take care then in that
scenario causation will be proven.

Once the causation is satisfied then it is necessary to determine that

what remedy is available for the beneficiary. According to the equitable
compensation the liability on the trustee is to restore the trust assets
(Caffrey v Darby). Once a breach has been committed the trustees
become liable to place trust estate in the same position as it would
have been in if no breach had been committed. Considerations of
causation, foreseeability and remoteness do not readily feature in this
question. “The basic rule is that a trustee in breach of trust must restore
or pay to the trust estate either the assets which have been loss or
compensation for such loss the common law rules of remoteness and
causation do not apply” says Lord Wilkinson in his judgement of Target
Holdings case.

In our case, we can see that beneficiary has suffered loss due to
unauthorized transaction i.e the beneficiary has suffered loss due to the
investment outside UK so in that case beneficiary can falsify the
investment/transaction. Moreover Beneficiary can also argue that if the
trustee had taken sufficient care when they was investing in the
Germany then they might have produced much better capital and on
basis of this argument beneficiary can surcharge the investment;
according to which beneficiary can ask for benefits if investment would
have made in a more proper way. This will lead to the personal and
proprietary liability (A failure by the trustee to perform their duties
properly will mean that a trustee is in breach of trust and will be
required to perform their duties set in the trust) . according to which
trustee will have to put the trust in the position had the breach would
not have caused which means trustee will have to reverse the
transaction, if it is not possible then trustee will have to pay from his
own pocket. In our case we can see that trustee will reverse the
transaction of the 200000 pounds back from German investment which
will also fulfill its proprietary obligation but trustee will also have to pay
50000 from his own pocket (personal liability)(Target Hokding)(Re
Champan) along with this trustee may also be required to pay the
profits which they would have made if they would have taken sufficient
care.

Possible defence/exclusion.

While the trustee have personal liability of paying the 50000 pounds
but personal liability can be excused or excluded in certain
circumstances. A) Where the breach was done with the consent of the
beneficiary who must be of the sound mind and full age (Nail v Punter)
trustees will also be required to prove that trust ws obtained without
any influence from them to the beneficiary (Re Pauling ). B) Exclusion
clause C) Where courts excused the personal liability of the trustee s.61
of Trust Act 1925.

Through exclusion trustee can escape liability for any breach unless it
was done for the fraud/gross neglect. It would be worthy to note here
that exclusion clause will only exclude personal liability of the trustee
and will never protect him from the proprietary liability

Can the trustees’s liability to act honestly and in the best interst of the
beneficiary ever be exlcusded ? Fidicuary duty NO

Fidicuary duties can never be excluded

In our case, there is no fraud/ gross neglect as trustee invested in a

good faith so exclsusion clause seems valid

--Then see Will this exclusion clause will be effective to exclsude

personal liability of the trustee ? see if there is any intentional breach?
As long as there is no fraud or gross neglect exclusion and there is no
intentional breach then clause will exclude personal liability of the
trustee but not his proprietary liability as trustee is bound to act in
good faith, honestly and in the best interest of beneficiary. In our case,
there is a exemption clause in part c which says that trustee can be
excluded from liability as long as he is not acting fraudly or gross
negligently. It can be argued that trustee act negligently but he acted in
good faith because from facts we know that UK’s economy was
struggling so we can argue that it was economically more reasonable to
invest outside UK rather than inside UK as it would have been risky to
invest in UK so it clearly manifests good intent of the trustee hence he
can rely on the exemption clause and on successful claim trustee may
exclude his personal liability of (50000 pounds).

If under a situation court argue that there was intentional breach and
trustee fails to rely on exemption clause then trustee can rely on the
s.61 Trust Act 1925 and request courts to exercise their power to
exclude his personal liability. Under s.61 Trust Act 1925 court can
exclude personal liability of the trustee if trustee proves that he acted
honestly and reasonably. To prove that the trustee had acted honestly,
it should be proven that trustee was not dishonest, rather than
affirming that he was honest as it is a negative test. To prove that
trustee acted reasonableness of the trustee, the test here is objective
test. According to which, it would be asked whether trustee complied
with standard of the care of the reasonable trustee, such conduct is not
requires the trustee to be on the standard of the perfection(TSB Bank v
Markandan)(Nationwide Building Society). Lord Morritt Lj states that
“The section 61 only requires a trustee to act reasonably but that does
not mean that the trustee should comply with practice best”. The
second element that court will see under s.61 is whether trustee ought
fairly to be excused or not and if court is convinced that it would be fair
to exclude the trustee from his personal liability then his liability can be
excluded under s.61. In our case, trustee can argue that his act of
investment in Germany was honest and reasonable action given the
fact that UK’s economy was struggling during the period when he was
investing so it was more reasonable for any businessmen to invest
outside UK rather than inside UK. Furthermore, it would be very
inequitable of the beneficiary that he is asking for losses from trustee
when he has taken benefits from the French investment of the trustee
and yet beneficiary is trying to hold trustee for the personal liability
also , so it would be very inequitable(unfair) for the trustee to pay both
ways when beneficiary has already been placed on its earlier position as
he has gotten 200000 pounds from proprietary liability of the German
Investment and 300000 from investment in France. So on this
argument court may be satisfied that trustee had acted honestly and
reasonably and it would be fair to exclude the personal liability of the
trustee on the basis of exclusion .

3rd Investment in Alex’s Business 36

Maggie’s friend Alex owns a UK business that needed money to

continue operating. Maggie convinced Linda that it would be a good
investment, so they invested £100,000 of trust money in Alex’s
business. That investment has fallen in value to £80,000.

Along with the trust duties the trustee also has the fidicuary duties
which includes the duty to avoid of the interest. Conflict of interest
means a situation where there is a conflict of beneficiaries interest with
that of trustees’ personal interest or if there is possibility of the such
conflict. As fidicuary, trustee is required to avoid situation where his
interests and beneficiaries interests actually or potentially conflicts (IDC
v Cooley)(COOKES V Deekes)42.

Remedy for breach of the fidicuary duty is liability to account in equity.

This liability is a personal liability and is fault based, not loss based. To
prove this breach, no casual link is required to be proven(Target
Holding). In the present case the beneficiary will require trustee to
account for 200000 pounds for breach of the fidicuary duties. Further
the question arises whether Linda and Maggie can rely on the exclusion
clause for the breach of this fidicuary duties( Disscuss and apply
armitage v nurse)47.

4th issue investment in Florence’s business.

Ellen asked Linda and Maggie if they could use the trust to help
Florence, who is Ellen’s friend and has always been ‘like a daughter’ to
Ellen. Linda and Maggie paid £10,000 from the trust to Florence. Here
we can see that trustees have given benefit to the Florence who is not a
beneficiary. Under dispositive duty trustee must give benefit of the
trust to the beneficiaries, if trustee is giving benefit to anyone else
other than beneficiary than he will breach the trust. Trustee has done
an unauthorized transaction therefore has has breached the his trust
duty.

To Prove trustee duties we need but for test, according to this there
has to be some casual link between loss suffered by the beneficiary due
to the negligence of the trustee, if but for test can not be proven i.e the
loss would have occurred regardless of the negligence of trustee then
but for test will fail and trustee will not be liable for breach (Target
Holding)(Re Chapman). In our case, that trustee is being negligent
because the terms of trust are pretty clear and he needs to only give
benefit of the trust to the beneficiary. Once the trust has been set the
consent of the settlor Ellen does not matter, trustee is bound to follow
the terms of the trust but trustee is failed to do so that is why it can be
argued that causation would be proven.

Trustee can falsify the transaction and trustee will be personal liable( It
is personal liability of the beneficiary that he invested in an
unauthorized investment) and hence will be required to bring back the
money from Florence to put the beneficiary in old position by reversing
the transaction or if trustee can not bring the trust assets back to its
original position then trustees’ will have to pay to beneficiary from his
own pocket(10000 pounds).

As long as there is no fraud or gross neglect exclusion clause will

exclude personal liability of the trustee but not his proprietary liability
and trustee is bound to act in good faith, honestly and in the best
interest of beneficiary. In our case, there is a exemption clause in part c
which says that trustee can be excluded from liability as long as he is
not acting fraudly or gross negligently. It can be argued that although
trustee didn’t act gross negligently so he can rely on the exclusion
clause but it is bound to fail because trustee is also required to act in
the best interest of the beneficiary. In our case, by doing an
unauthorized transaction trustee do not seem to act in the interest of
the beneficiary at all so argument of exclusion clause is less likely to
stand.

If under a situation court argue that there was intentional breach and
trustee fails to rely on exemption clause then trustee can rely on the
s.61 Trust Act 1925 and request courts to exercise their power to
exclude his personal liability. Under s.61 Trust Act 1925 court can
exclude personal liability of the trustee if he had acted honestly and
reasonably and if court is convinced that it would fair to exclude the
trustee. We can argue that trustee might have invested honestly but it
was unreasonable to give benefit to the someone who is not part of the
trust so this s.61 is also less likely to exclude personal liability of the
trustee.
Q4
Alvaro, Pradip and Stella are trustees of the £200 million endowment fund of London
University. Alvaro is an accountant, while Pradip and Stella are both corporate lawyers.
The beneficiary of the fund is the University, as represented by its governing council.
Alvaro attends a public lecture given by senior academics from the University’s
Department of Environmental Studies. At that lecture, the academics describe their
research in relation to alternative energy production and observe that their work is
consistent with the University’s pledge for zero carbon emissions by 2030. Alvaro realises
that there is a conflict between the University’s research endeavours and emissions policy,
and the investments in the endowment fund, as these investments include shares in
companies in the oil, gas and mining sectors. Alvaro forms the view that these shares
should be sold and the proceeds used for new investments. At their next meeting, Alvaro
tells Stella and Pradip about the seminar and his proposal to sell the stocks (currently
comprising 20% of the fund’s capital). Stella and Pradip agree to this and say that they are
happy for Alvaro to select the replacement investments, given Alvaro’s expertise.
Alvaro arranges for the shares to be sold, realizing £40 million. He seeks some advice from
Louise, a financial planner, in relation to how best to invest the money. Louise has advised
Alvaro on a previous occasion and is therefore familiar with the trust instrument setting up
the endowment fund, including that it has a prohibition on investing in companies
associated with tobacco and alcohol. However, Louise has a client that runs a popular craft
brewery, and who has – inexplicably, in Louise’s opinion – been having difficulties
attracting investors so that it can expand its operations. Louise advises Alvaro that this
would be an excellent investment opportunity, as the value of the company is likely to
skyrocket in coming years. She does not remind him of the prohibition in the trust
instrument. Alvaro invests £30 million in the brewery. He uses the remaining £10 million to
purchase artworks by up-and-coming British artists. He selects these artists with the
(unpaid) assistance of his husband, Toby, who runs a commercial art gallery in London. A
number of the works are purchased via Toby’s gallery. Although the artists receive the
purchase price in those transactions, Toby (as agent) receives a commission from the artists
for these sales.
The following events occur. The brewery is unable to obtain planning permission for the
proposed expansion, and the value of this investment drops to £20 million – although the
brewery remains hopeful that a revised application will be successful. There is a fire at the
University and a number of the paintings – worth £5 million – are destroyed. Alvaro had
not yet arranged insurance for those paintings, as he was busy with other urgent matters.
Advise the University.
This question requires discussion on the breach of the trust. It appears
that there was a valid trust created and Alvaro, Pradip and Stelle are
appointed as the trustees in favour of the London University
(beneficiary). It further appears from the facts that trustees have made
certain unauthorized investment (by making investment in brewery
company and that investment has suffered the loss and the issue is
determine liability of the A,P and S.

The first issue with the trustees’ liability with respect to trust is
identification of his duty as trustee. There are three types of duties on
the trustees. First is administrative duty (Knott v Cottee) (duty to
administer the trust assets in according with the terms of the terms and
make only authorized transactions) second one is dispositive duties
(duty to give benefit of the trust to the beneficiaries). Whereas third
type of duty is fiduciary duty, which includes a) duty to act in good
faith, loyalty, honesty b) Duty to inform/disclose information, duty to
avoid conflict of interests and duty to disclose interest in transaction.

In our case, trustees has committed the breach of their administrative

duty because they have acted contrary to the terms of the trust which
clearly prohibits them trustee are not allowed to invest in the company
that is associated with tobacco and alcholo, but in our case trustees
have made investment in the brewery company that is associated with
alchol and therefore trustees have committed breach of their
administrative duty.

To Prove causation/liability of the trustees, we need but for test,

according to this there has to be some casual link between loss suffered
by the beneficiary due to the negligence of the trustees, if but for test
cannot be proven i.e if the loss would have occurred regardless of the
negligence of trustee then but for test will fail and trustees will not be
liable for breach (Target Holding)(Re Chapman).
 In our case, we can see that loss has been suffered by the trustee as we
can see that investment value of the 30m pounds decreased in the
value to the 20m pounds. We will apply but for test here according to
which we will ask but for trustees’ breach, loss would have occurred,
we can argue that if trustees’ would have obliged with their
administrative duties of not investing in the company which is
associated with the alcohol then loss may not have occurred.

If there is breach of trust duties, beneficiary would have two remedies

either he can falsify or surcharge the transactions. Under falsification, if
the trustee has undertaken an unauthorized transaction, then breach
will be proven when beneficiary shows that trustee was not authorized
for any of such transaction that he has undertaken which can falsify the
transaction. The beneficiary can also surcharge the transaction which
the trustee has undertaken a transaction negligently i.e the trustee has
failed to take a reasonable care. The breach of surcharge will be proven
if the trustee fell below the standards of a reasonable trustee. Under
the falsification or surcharge trustee will be personally liable (will have
to pay to beneficiary from his own pocket) as well as proprietarily liable
(get the trust assets back).

In our case, we can see that trustees have taken an unauthorized

transaction by investing in brewery company and trustee was not
allowed to invest under the terms of the trust instrument, so clearly he
has breached his duty. For this breach beneficiary can falsify the
transaction according to which trustees will be proprietarily (Return the
20m pounds) and personally liable (pay 10m from their own pockets)
for the breach. Whereas trustees also seems to be negligent while
investing in the brewery because trustees didn’t inquire where the
money is being invested, here beneficiary can surcharge the transaction
and again trustee will be proprietarily (return 20m pounds) as well as
personally liable (pay 10 m from their own pockets).

According to the equitable compensation the liability on the trustee is

to restore the trust assets (Caffrey v Darby). Once a breach has been
committed the trustees become liable to place trust estate in the same
position as it would have been in if no breach had been committed. “The
basic rule is that a trustee in breach of trust must restore or pay to the
trust estate either the assets which have been loss or compensation for
such loss the common law rules of remoteness and causation do not
apply” says Lord Wilkinson in his judgement of Target Holdings case.

according to which trustee will have to put the trust in the position had
the breach would not have caused which means trustee will have to
reverse the transaction, if it is not possible then trustees will have to
pay from his own pocket. In our case we can see that trustee can
reverse the transaction as he has not lost all the investment both in
investment of the Brewery company while trustees have lost 10m
pounds which the trustee will also have to pay all from their own
pockets (personal liability)(Target Hokding)(Re Champan) along with
this trustee may also be required to pay the profits which they would
have made if they would have taken sufficient care.

As there are more than one trustees, trustees are under duty to act
jointly so if the breach has occurred each trustee is equally liable for the
breach. If a successful claim is brought against one trustees then he has
right of the contribution against his co-trustees. The trustees will may
equal amount but under s.2 Civil Liability Act 1978 the court has the
discretion to decide individual liability upon every trustee. In our case
the trustees are most likely to be held equally liable since the fact that
Pradip and Stella agreed to the investment proposal by Alvaro, but
court has the discretion to decide otherwise. Moreover given the fact
that P and S are coporate lawyers so the situation seems very similar to
the (Re Partington) as Alvaro must have relied on their advice due to
the their professional background so it is likely that court may use its
discretion to inflict more liability Pradip and Stella.

While the trustee have proprietarily liability of paying the trust assets
back but personal liability can be excused or excluded in certain
circumstances. A) Where the breach was done with the consent of the
beneficiary (Nail v Punter) (Re Pauling ). B) Exclusion clause C) Where
courts excused the personal liability of the trustee s.61 of Trust Act
1925.

In our case there is no evidence of the consent of the beneficiary or

exclusion clause with respect to the investment so trustees can rely on
the s.61 Trust Act 1925 and request courts to exercise their power to
exclude their personal liability. Under s.61 Trust Act 1925 court can
exclude personal liability of the trustees if trustees proves that they
acted honestly and reasonably. According to which, it would be asked
whether trustee complied with standard of the care of the reasonable
trustee, such conduct is not requires the trustee to be on the standard
of the perfection (TSB Bank v Markandan)(Nationwide Building
Society). Lord Morritt Lj states that “The section 61 only requires a
trustee to act reasonably but that does not mean that the trustee
should comply with practice best”. The second element that court will
see under s.61 is whether trustee ought fairly to be excused. In our
case, Pradip and Stella’s conduct don’t seems reasonable given their
professional background they should have known the prohibition in the
trust instrument and informed Alvora regarding this but they didn’t so
it won’t be fair to exclude them but when it comes to Alvaro he was
honest enought as he wanted to increase the turnout of the
investment, his investment was reasonable enough as he relied upon
consent shown by co-trustees who were corporate lawyers and advice
of the financial expert so we can argue that it will be fair enough to
exclude his personal liability.

Louise liability

Louise is neither a trustee nor a recipient in our case but rather a third
party,.

we can argue on the personal liability of the Louise on the basis of the
dishonest assistance. Dishonesty is seen as objectively(if reasonable
person consider Louise’s act as dishonesty then it is a dishonesty)
(Royal Brunei v Tan), in our case Louise seems reasonably dishonest
while giving advice regarding investment in the Brewere company,
because he knew about the prohibition in the trust deed and risk
attached to the investment. “In (Twinsectra V. Yardley) Lord Hutton states that the test
for dishonesty is subjective not only the D must have asked in a way that a reasonable person would
We can also argue that Louise was financial planner
regard it as dishonest”

and yet he deliberately dishonestly assisted the Alvaro so most likely

Louise can be held personally liable.
Q2

2011/ 6
Harry was the sole trustee of a trust for Sally. The trust deed
provided that the trust rights could not be invested in any company
that made or sold genetically modified organisms or foods. It further
provided that the trustees would not be liable for any breach of trust
unless they were guilty of ‘gross neglect or dishonesty’.

Harry relied heavily on the investment advice of John, who has been
his friend since college and has become a successful investment
broker. His advice has been good and the trust investments have
performed well as a result. Those investments include 10,000 shares
in Mondiablo, a company specialising in genetically modified food
crops. Harry did not know what Mondiablo did and John did not
know about the prohibition in the trust deed. Harry bought the
shares five years ago for £100,000. They were worth £200,000 two
years ago, but Mondiablo is now insolvent and the shares are
worthless.

Last year, John advised Harry to invest in New Age Dance Studios,
a company owned by John’s mistress, Marie. Harry did not know
about John’s relationship with Marie. Harry used £250,000 of trust
money to purchase shares in the company from Marie for the trust.
John knew it was a risky investment, but had promised Marie he
would find investors for her business. The company is now insolvent
and the shares are worthless.

Advise Sally of any claims she may have against Harry, John, and
Marie.
This question requires discussion on the breach of the trust. It appears
that there was a valid trust created and Harry was appointed as the sole
trustee in favour of the Sally (beneficiary). It further appears from the
facts that trustee has made certain unauthorized investments (by
making investment in Mondiabalo, a company that makes genetically
modified food crops on the advice of the John. That investment has
become drowned and the issue is determine liability of the Harry. Harry
has also made some investments again on the advice of the John in a
Dance Studios company owned by Marry but that investment has also
gone into vain and we need to see whether Harry has breached his duty
or not. We will also see liability of the breach of the trust of the John
and Marie.

Harry’s Liability.

-Identify duty. 1.9

The first issue with the Harry’s liability with respect to trust is
identification of his duty as trustee. There are two types of duties on
the trustees. First is administrative duty (Knott v Cottee) (duty to
administer the trust assets in according with the terms of the terms and
make only authorized transactions) and dispositive duties (duty to give
benefit of the trust to the beneficiaries). Whereas Second type of duty
is fiduciary duty, which includes a) duty to act in good faith, loyalty,
honesty b) Duty to inform/disclose information, duty to avoid conflict
of interests and duty to disclose interest in transaction.

-IDENTIFY whether there was breach of that duty

In our case, Harry has committed the breach of his administrative duty
because he has acted contrary to the terms of the trust which clearly
states that trustee is not allowed to invest in the company that made
genetically modified foods, but in our case Harry has made investment
in the Mondiabalo company that makes genetically modified food crops
and therefore Harry can be held for breach of his administrative duty.

Identify Causation. (Casual linkbut for test is not required for fiduciary
duties)

To Prove causation/liability of the trustee, we need but for test,

according to this there has to be some casual link between loss suffered
by the beneficiary due to the negligence of the trustee, if but for test
can not be proved i.e if the loss would have occurred regardless of the
negligence of trustee then but for test will fail and trustee will not be
liable for breach (Target Holding)(Re Chapman).
 In our case, we can see that loss has been suffered by the trustee as we
can see that investment value in the Mandiolo completely gone into
vain as company became insolvent. If we will apply but for test
according to which we will ask but for trustee’s breach, loss would have
occurred. Therefore, we can argue that if Harry would have obliged
with his administrative duties of not investing in the company which is
involved in the manufacturing of the genetically modified food.

Remedies

If there is breach of trust duties, beneficiary would have two remedies

either he can falsify or surcharge the transactions. Under falsification, if
the trustee has undertaken an unauthorized transaction (means
beneficiary has not approved for such transaction) then breach will be
proven if trustee shows that trustee was not authorized for any of such
transaction that he has undertaken which can falsify the transaction.
The trustee can surcharge the transaction when the trustee has
undertaken a transaction negligently i.e the trustee has failed to take a
reasonable care. The breach of surcharge will be proven if the trustee
fell below the standards of a reasonable trustee. Under the falsification
or surcharge trustee will be personally liable (will have to pay to
beneficiary from his own pocket) as well as proprietarily liable (get the
trust assets back). Under rectification, the beneficiary can also rectify
means he can ask for benefit that trustee got from investment. In our
case it is most likely that trustee will choose rectify the investment.
In our case, we can see that Harry has taken an unauthorized
transaction by investing in Madiobalo company which was involved in
the manufacturing of the genetically modified food items and trustee
was not allowed to invest under the terms of the trust instrument, so
clealy he has breached his duty while investing in Mandiolo company.
For this unauthorized transcation trustee can falsify the transcation
according to which trustee will be proprietarily(Return the 10000
shares) and personally liable (pay from his own pockets) for the breach.
Whereas trustee also seems to be under breach of his duty when
trustee has been negligently invested in the New age Dance studios
because he didn’t inquire where the money is being invested, here
trustee can surcharge the transaction and again trustee will be
proprietarily (250000 pounds) as well as personally liable (pay from his
own pockets).

According to the equitable compensation the liability on the trustee is

to restore the trust assets (Caffrey v Darby). Once a breach has been
committed the trustees become liable to place trust estate in the same
position as it would have been in if no breach had been committed.
Considerations of causation, foreseeability and remoteness do not
readily feature in this question. “The basic rule is that a trustee in
breach of trust must restore or pay to the trust estate either the assets
which have been loss or compensation for such loss the common law
rules of remoteness and causation do not apply” says Lord Wilkinson in
his judgement of Target Holdings case.

In our case, we can see that beneficiary has suffered loss due to
unauthorized transaction i.e the beneficiary has suffered loss due to the
investment in a company which was producing genetically modified
food so in that case beneficiary can falsify the investment/transaction.
Moreover Beneficiary can also argue that if the trustee had taken
sufficient care when they was investing in the Germany then they might
have produced much better capital and on basis of this argument
beneficiary can surcharge the investment; according to which
beneficiary can ask for benefits if investment would have made in a
more proper way. This will lead to the personal and proprietary liability
(A failure by the trustee to perform their duties properly will mean that
a trustee is in breach of trust and will be required to perform their
duties set in the trust). according to which trustee will have to put the
trust in the position had the breach would not have caused which
means trustee will have to reverse the transaction, if it is not possible
then trustee will have to pay from his own pocket. In our case we can
see that trustee can not reverse the transaction as he has lost all the
investment both in investment of the Mandiobolo and New Age Dance
studio so the trustee will also have to pay all from his own pocket
(personal liability)(Target Hokding)(Re Champan) along with this
trustee may also be required to pay the profits which they would have
made if they would have taken sufficient care.

While the trustee have proprietarily liability of paying the trust assets
back but personal liability can be excused or excluded in certain
circumstances. A) Where the breach was done with the consent of the
beneficiary who must be of the sound mind and full age (Nail v Punter)
trustees will also be required to prove that trust was obtained without
any influence from them to the beneficiary (Re Pauling ). B) Exclusion
clause C) Where courts excused the personal liability of the trustee s.61
of Trust Act 1925.

As long as there is no fraud or gross neglect exclusion and there is no

intentional breach then clause will exclude personal liability of the
trustee but not his proprietary liability as trustee is bound to act in
good faith, honestly and in the best interest of beneficiary. In our case,
there is an exemption clause which says that trustee can be excluded
from liability as long as he is not acting gross negligently or dishonestly.
It can be argued that trustee act negligently while investing in
Mandiabolo and New Age Co because from facts we know that trustee
didn’t confirm about risk related to companies and he just blindly
obliged the offer given by his friend, but when it comes to investment
in the shares of the Mandiabolo and New age STUDIOS we can counter
argue that Harry relied on the advice of the John because John had
been a successful broker so we can argue that it was economically
reasonable to invest in Mandibalo and NAS Co on the advice of the John
who has been involved in the commercial activity. Though while
investing in the NAS Harry didn’t go for risk assessment attached to the
business so we can say John was negligent but it was not a gross
negligence or dishonesty because Harry relied on the advice of the John
who had experience in the commercial businesses, it clearly manifests
good intent of the trustee hence Harry can rely on the exemption
clause and on successful claim trustee may exclude his personal
liability.

If under a situation court argue that there was intentional breach and
trustee fails to rely on exemption clause then trustee can rely on the
s.61 Trust Act 1925 and request courts to exercise their power to
exclude his personal liability. Under s.61 Trust Act 1925 court can
exclude personal liability of the trustee if trustee proves that he acted
honestly and reasonably. To prove that the trustee had acted honestly,
it should be proven that trustee was not dishonest, rather than
affirming that he was honest as it is a negative test. To prove that
trustee acted reasonableness of the trustee, the test here is objective
test. According to which, it would be asked whether trustee complied
with standard of the care of the reasonable trustee, such conduct is not
requires the trustee to be on the standard of the perfection (TSB Bank
v Markandan)(Nationwide Building Society). Lord Morritt Lj states that
“The section 61 only requires a trustee to act reasonably but that does
not mean that the trustee should comply with practice best”. The
second element that court will see under s.61 is whether trustee ought
fairly to be excused or not and if court is convinced that it would be fair
to exclude the trustee from his personal liability then his liability can be
excluded under s.61. In our case, trustee can argue that his act of
investment in Germany was honest and reasonable action given the
fact that John had a successful broker so it was more reasonable for any
businessmen to rely on his expert advice.. So on this argument court
may be satisfied that trustee had acted honestly and reasonably and it
would be fair to exclude the personal liability of the trustee on the basis
of exclusion.

John’s liability

John is neither a trustee(No breach of trust-part 1) nor a

recipient(Means we cant trace or follow PART-2), in our case but rather
a third party, since john is not trustee not recieved any trusts assets
there will be no breach of trust duty and properitarily liability on him.

But we can argue on the personal liability(Breach of trust part3) of the

John on the basis of the dishonest assistance. Dishonesty is seen as
objectively(if reasonable person consider John’s act as dishonesty then
it is a dishonesty) (Royal Brunei v Tan),in our case John don’t seems
reasonably dishonest while investing in the Mandiabolo company,
because he didn’t know about the prohibition in the trust deed, while
he must have given advice on his own successful experience as an
investment broker, because facts clearly states that John was successful
in his business endeavors so most likely John can not be held personally
liable for the investment in the Mandiabolo company.

But in comes to investment in the New Age Studios we can argue that
John knew that the investment was risky and he already had promised
Marrie to arrange investors for her company so we can argue that it
was unreasonable for John to advice Harry for investment in the
Marrie’s company without even telling him risks attached to the
investments. Hence the courts can impose personal liability on the John
and the amount would be determined by the courts.

Marie’s liability

Marie is not trustee (So no BOT). She is recipient but trust assets have
been lostI(NO following or tracing) so she can not be liable for
proprietarily liability. But we can argue on her personal liability on the
basis of the knowing recipient, this happens when a third party knows
that a trustee has breached his duty and yet third party receives the
trust assets so he will be knowing recipient. To determine whether
person is knowing recipient there is unconscionbility test(BCCI v
Akindele) which says that it would be unconcibiousble to deny the
equitable rights to the victim. In our case , we can see that Marie is not
knowing recipient as she does know that trustee has breached his duty
and she has received this money without any knowledge of the assets
being subject to the trust, beneficiary may sue the Marie under
unconsioucbilityy test and but beneficiary is less likely to make a
successful claim because he would fail unconsicousble test as it would
not be unconscibious to deny him rights.

Nixon was a solicitor who, with his sister Pat, was a trustee of the
Bush Family Trust set up by their grandfather. He knew that Pat was
not interested in financial matters and was happy to go along with his
decisions. She was in the habit of signing blank cheques and share
transfer forms to enable him expeditiously to deal with all trust
matters. Nixon was also sole surviving trustee of the Watergate
Family Trust set up by his wife’s grandfather.

Nixon’s mistress was his wife’s sister Mamie, who owned 40 per cent
of the shareholding in White House Co Ltd and was its managing
director. Four years ago, in breach of trust, Nixon gifted to Mamie an
11 per cent shareholding in White House, which formed part of the
Bush Trust, believing that his wife would soon die and that he would
be free to marry Mamie. Mamie suspected that the shares might be
trust rights but chose not to make any inquiries. Six months ago, the
value of her by now 51 per cent shareholding
dropped to zero because of an accounting fraud by the chief
accountant that caused the company to be liquidated.
Two months ago, Nixon added to the £1,000 balance in his current
account, £10,000 from the Bush Trust and later £5,000 from the
Watergate Trust. He then withdrew £12,000 in cash, giving it to his
wife Rosalyn to buy a diamond ring to celebrate their 25th wedding
anniversary. She paid £11,995 to a Hatton Garden Diamond dealer for
a ring and spent the remaining £5 on lottery tickets, one of which won
£3 million. The diamond dealer was surprised to be paid in cash but
asked no questions. On her way home, Nixon’s wife was mugged and
her new ring stolen.
The beneficiaries of the Bush Trust and the Watergate Trust seek your advice.

This question requires discussion on the breach of the trust. It appears

that there was a valid trust created and Nixon was solely appointed as
the sole trustee in favour of the Watergate(beneficiary), whereas the
Nixon and Pat are co trustees in favor of Bush trust. It further appears
from the facts that trustee(Nixon) has made certain unauthorized
investments (by making investment in White house company in his
breach of the trust). That investment has become drowned and the
issue is determine liability of the Nixon. Harry has also made some
investments again on the advice of the John in a Dance Studios
company owned by Marry but that investment has also gone into vain
and we need to see whether Harry has breached his duty or not. We
will also see liability of the breach of the trust of the John and Marie.

Nixon’s Liability.

-Identify duty. 1.9

The first issue with the Nixon and Pat’s liability with respect to trust is
identification of their duty as trustee. There are two types of duties on
the trustees. First is administrative duty (Knott v Cottee) (duty to
administer the trust assets in according with the terms of the terms and
make only authorized transactions) and dispositive duties (duty to give
benefit of the trust to the beneficiaries). Whereas Second type of duty
is fiduciary duty, which includes a) duty to act in good faith, loyalty,
honesty b) Duty to inform/disclose information, duty to avoid conflict
of interests and duty to disclose interest in transaction.

-IDENTIFY whether there was breach of that duty

In our case, Nixon and Pat have committed the breach of their
administrative duty because they have acted contrary to the terms of
the trust as the fact of our question clearly states that trustee was
under breach of the trust when he gifted 11% to Maime therefore
Nixon and Pat can be held for breach of his administrative duty.

Identify Causation. (Casual link but for test is not required for fiduciary
duties)

To Prove causation/liability of the trustee, we need but for test,

according to causation there has to be some casual link between loss
suffered by the beneficiary due to the negligence of the trustee, if but
for test can not be proved i.e if the loss would have occurred regardless
of the negligence of trustee then but for test will fail and trustee will
not be liable for breach (Target Holding)(Re Chapman).

In our case, we can see that loss has been suffered by the trustee as we
can see that investment value in the White House Co gone into vain as
company became insolvent. If we will apply but for test according to
which we will ask but for trustees’ breach, loss would have occurred.
Therefore, we can argue that if Nixon would have obliged with his
administrative duties of not investing in the company which is in breach
to its trust duties and if Pat would have been more careful while signing
the cheque by asking his brother where he is gonna invest this money
then loss of 11% might have averted, since they did contrary to this
they are under breach and causation will be proven

Remedies

If there is breach of trust duties, beneficiary would have two remedies

either he can falsify or surcharge the transactions. Under falsification, if
the trustee has undertaken an unauthorized transaction (means
beneficiary has not approved for such transaction) then breach will be
proven if beneficiary shows that trustee was not authorized for any of
such transaction that he has undertaken which can falsify the
transaction. The beneficiary can surcharge the transaction when the
trustee has undertaken a transaction negligently i.e the trustee has
failed to take a reasonable care. The breach of surcharge will be proven
if the trustee fell below the standards of a reasonable trustee. Under
the falsification or surcharge trustee will be personally liable (will have
to pay to beneficiary from his own pocket) as well as proprietarily liable
(get the trust assets back). Beneficiary can also ask for rectification
under surcharge which means he can ask for benefit that trustee got
from investment.
In our case, we can see that Nixon has taken an unauthorized
transaction by investing in White company and as facts states that
trustee was under breach of trust so clearly he has breached his duty
while gifting the 11% shares to Mamie. For this unauthorized
transaction trustee can falsify the transaction according to which
trustee will be proprietarily(Return the 11% shares) and personally
liable (pay from his own pockets) for the breach. Whereas Pat has also
breached the trust by not taking reasonable care while signing the
check so she also seems to be under breach of his duty, here
beneficiary can surcharge the transaction and again trustee will be
proprietarily (return the 11% shares) as well as personally liable (pay
from his own pockets).

According to the equitable compensation the liability on the trustee is

to restore the trust assets (Caffrey v Darby). Once a breach has been
committed the trustees become liable to place trust estate in the same
position as it would have been in if no breach had been committed.

In our case, we can see that beneficiary has suffered loss due to
unauthorized transaction i.e the beneficiary has suffered loss due to the
investment which was in breach of the trust so in that case beneficiary
can falsify the investment/transaction. Moreover Beneficiary can also
argue that if the Pat had taken sufficient care when Nixon was investing
in the White co then they might have produced much better capital and
on basis of this argument beneficiary can surcharge the investment;
according to which beneficiary can ask for benefits if investment would
have made in a more proper way. This will lead to the personal and
proprietary liability according to which trustee will have to put the trust
in the position had the breach would not have caused which means
trustee will have to reverse the transaction, if it is not possible then
trustee will have to pay from his own pocket. In our case we can see
that trustee can not reverse the transaction as he has lost all the
investment both in investments so the trustees’ will also have to pay all
from their own pockets, and they will be jointly liable. (personal
liability)(Target Hokding)(Re Champan) along with this trustees may
also be required to pay the profits which they would have made if they
would have taken sufficient care.

While the trustee have proprietarily liability of paying the trust assets
back but personal liability can be excused or excluded in certain
circumstances. A) Where the breach was done with the consent of the
beneficiary who must be of the sound mind and full age (Nail v Punter)
trustees will also be required to prove that trust was obtained without
any influence from them to the beneficiary (Re Pauling ). B) Exclusion
clause C) Where courts excused the personal liability of the trustee s.61
of Trust Act 1925.

In our case from facts it seems there was no consent of the

beneficiaries to invest in white co and there is no exclusion clause so
trustee will have on s.61 Trust Act 1925 as their defence. Under s.61
trustee request courts to exercise their power to exclude his personal
liability. Under s.61 Trust Act 1925 court can exclude personal liability
of the trustee if trustee proves that he acted honestly and reasonably.
To prove that the trustee had acted honestly, it should be proven that
trustee was not dishonest, rather than affirming that he was honest as
it is a negative test. To prove that trustee acted reasonableness of the
trustee, the test here is objective test. According to which, it would be
asked whether trustee complied with standard of the care of the
reasonable trustee, such conduct is not requires the trustee to be on
the standard of the perfection (TSB Bank v Markandan)(Nationwide
Building Society). Lord Morritt Lj states that “The section 61 only
requires a trustee to act reasonably but that does not mean that the
trustee should comply with practice best”. The second element that
court will see under s.61 is whether trustee ought fairly to be excused
or not and if court is convinced that it would be fair to exclude the
trustee from his personal liability then his liability can be excluded
under s.61. In our case, trustee can not argue that his act of investment
in white co was honest and reasonable action given the fact that Nixon
was trying to woo the Marie by investing in her company and any
reasonable trustee will not do this, so it will not be fair to exclude
personal liability of the Nixon, and he will be personally liable against
the Bush trust beneficiaries, but as far as the personal liability of the Pat
is concerned given the fact that Nixon and Pat are brothers so it is
reasonable that Pat would have relied on Nixon to manage all affairs, so
it will be not be considered as an unreasonable act to sign a cheque
thus Pat was acting honestly and reasonably. Therefore it will be fairly
to exclude Pat’s personal liability against Push Bush beneficiaries

Mamie’s liability

Marie is not a trustee but a recipient but since 11% of the trust assets
have been lost Bush beneficiariescan not sue her for proprietarily
liability but for personal liability. we can argue on the personal liability
of the Mamie on the basis of the knowing recipient, this happens when
a third party knows that a trustee has breached his duty and yet third
party receives the trust assets so he will be knowing recipient. To
determine whether person is knowing recipient there is
unconscionbility test(BCCI v Akindele) which says that it would be
unconcibiousble to deny the equitable rights to the beneficiary. In our
case , we can see that Mamie is knowing recipient as she does have
suspicious that trustee had breached his duty and yet she had received
the 11% shares so therefore beneficiary may sue the Marie under
unconsioucbilityy test and but beneficiary is likely to make a successful
claim because he may succeed in unconsicousble test as it would be
unconscibious to deny them rights when Marie knowly received the
trust assets.

Chief account’s liability.

Beneficiaries of the bush trust can sue the chief accountant on the basis
of the dishonesty of the third party to hold him personally liable
Dishonesty is seen as objectively (if reasonable person consider chief
accounts act as dishonesty then it is a dishonesty) (Royal Brunei v Tan),
in our case chief account committed a fraud which reasonably and
logically dishonesty. Hence the courts can impose personal liability on
the John and the amount would be determined by the courts.

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