REMEDIES FOR BREACH OF TRUST they will be liable for any loss which is
incurred when the investment is realised
Introduction
Remedies are available to guard against
breach of trust.
These can be divided to two:
i) Personal remedies against trustee
ii) Proprietary remedies available to the
beneficiaries.
Personal Remedies against trustee
It can be divided to three;
i) Measure of liability
ii) Investments
iii) Interest
Measure of liability
When there is a breach of trust, directly or
indirectly, there will be interest.
If there is unauthorised profit: trustee will
have to account for profit.
Trustee will be liable only for loses arising
form the breach of trust.
They are not insurer to the trust property
Dimes v Scott (1928) 4 Russ 195
They are not allowed to set off profit made in
one transaction against loss in another.
Such profits belonged to beneficiaries
Trustee cannot claim the profit just to lessen
their own liability for loss caused by a breach.
These will not apply if profit and loss can be
seen to be part of the same transaction
Investment
1. If trustee make unauthorised investment,
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2. Where unauthorised investment are
improperly retained, the measure of liability is
the difference between the present value of
investment and the price
3. If trustee are directed by trust instrument
to make a specific investment but they either:
i) Make no investment or
ii) invest somewhere.
They will be liable to supply the amount of the
specific investment – had they invested at
proper time.
4) A trustee used trust money for his own
business – liable to hold for profit
Interest
Replace a loss with an interest
Traditional rate 4 %
May be liable for higher rate at the discretion
of the court
PROPRIETARY REMEDIES
A kind of remedy where the plaintiff can claim
that property in the hands of the defendant is
to be treated as that of plaintiff.
It is not the same as ‘real remedy.’
It entitles to the plaintiff to treat any
property, usually money, in the hands of the
defendant as being the plaintiff to the extent
that he can claim repayment in full, regardless
of the defendant’s insolvency.
Advantages Proprietary Remedy compared
to Personal Remedy:
1) Satisfaction of the plaintiff’s demand does
not depends on the solvency of the defendant
2)The plaintiff will be able to take advantages
of the increase in value of the said property
It concerns an income producing assets
whereby interest will be calculated from the
date on which the property came to the
defendant’s hand.
This is a kind of remedy which entitles a
claimant to treat specific property as his own
Two types:
A) Tracing at Common Law
B) Tracing at Equity
a) Tracing at Common Law
The owner of property can claim for the
return of such property or its value
If the property had been converted to other
property and can be identifiable on its
physical sense, the beneficiary still can claim
against the trust property
However, if the property has changed either
in cash/other form/mixed with other money,
the tracing under common law is no longer
possible.
So long as the property is identifiable, it can
be recovered.
Once mixed, it is not traceable
Taylor v Plumer (1815) 3 M & S 562. Lord
Ellenborough:
“ It makes no difference in reason or law into
what other form, different from the original,
the change may have been made, whether
into that of promissory notes for the security
of the money which was produced by the sale
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of goods if the principal . . . for the product of
or substitute for the original thing still fills the
mature of the ting it self, as long as it can be
ascertainable to be such and the right only
ceases when the means of ascertainment fail,
which is the case when the subject is turned
into money and mixed and co-founded in a
general mass of the same direction.
b) Tracing Under Equity
The concept is more wider and flexible
It applies not only when the property is in the
hands of trustees or other fiduciaries, but also
in a commercial context.
c) Who can trace
It is not confined to claims between trustee
and beneficiary but also between fiduciaries.
This concept can be seen in few cases.
Re Hallet (1880) 13 Ch 696
A solicitor had deposited part of his client’s
money into his account which also comprised
money from his marriage settlement. He
made various payment from and into the
account and also incurred debts. At his death
the account was sufficient to meet claims of
the trustees in the marriage settlement and
the client but not his personal debts.
Held : Both the trustee and the client were
entitled to charge the money in the account
and they had priority over the general
creditors. Mr. Hallet , the solicitor, stood in a
fiduciary position towards the client.
Sinclair v Brougham (1914) AC 398
The need to determine the right of depositor
to trace into the general assets of the Society
which had been subject to winding up.
HOL : There was a fiduciary relation between
the depositors and the directors; the directors
had mixed the funds and the depositors had
the right to trace them into the hands of the
Society recognising an equal claim if the
shareholders with whom they shared pari
passu
Re Diplock (1948) Ch 465
Next of kin were held entitled to trace the
money in equity into charities hands because
executors clearly stood in a fiduciary
relationship to the estate.
d) Tracing of Unmixed Fund
If the trustee has sold the trust property,
rightly or wrongly, the beneficiary may take
the proceeds if he can identify them
If the proceeds of sale have been used to
purchase other property, the beneficiary may:
1) follow them and may elect either to take
the property purchased or hold it as security
for the amount of trust laid out in the
purchase
2) he is entitled at election either to take the
property
3) to have a charge on the property for the
amount of trust property.
The position can be seen in the case of Re
Hallet’s Estate (1880) 13 Ch 696
It shall never be valid against a bona fide
purchaser for value.
e) Tracing of Mixed Fund
A complicated situation
This is when the trustee has mixed the trust
funds with other money or other property.
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The position on this unmixed fund depends on
different situations, eg whether the
ownership of the mixed fund must be
apportioned between two trust or a trust and
an innocent volunteer.
i) When the whole blended property is liable
The beneficiaries will have the first charge
over the mixed fund or any property
purchased with it unless of the trustee can
prove that the part of the mixed fund is his
own.
The burden is on the wrongdoer to show that
the asset or balance represents his own
money.
If the presumption in Re Hallet worked
unjustice, it should not be applied.
Re Oatway [1903] 2 Ch 356.
“It is, in my opinionj, equally clear that when
any of the money drawn out has been
invested and that investment remains in the
name or under the control of the trustee … he
cannot maintain that the investment which
remains represent his own money alone..”
ii) Position when funds of two trusts are
mixed or that of trust and third party
This applies to the situation where the trustee
has mixed the funds of two trusts, whether or
not with his, or he has transferred the funds
to an innocent volunteer, who has mixed
them with his own.
The rule here is that the two trusts or trust
and the volunteer, share pari pasu, i.e.
rateably in the mixed funds or any property
purchased out of term
Sinclair v Brougham (1914) A.C 398
Claim between shareholders and depositors in
respect of assets distributable by liquidator in
the winding up of a building society.
Held: The two classes shared rateably
iii) Mixing of money in the bank account
In the course where there was a mixed in a
banking account, special rules will apply
There is however necessary to distinguish the
position between trustee and beneficiaries
and as between two trust and an innocent
volunteer
i) Mixing in a bank account consisting of the
trust property and the trustee’s own property
The principles as between beneficiary and
trustee is that the trustee is presumed to
spend his money first.
Re Hallet’s Estate
One of the question; how to allocate the
payments from the fund as between Hallet
and the client.
Held: The trustee must be presumed to have
spent his own money first and to have
preserved the trust money.
ii) Mixing in a bank account consisting of the
trust property and property of an innocent
volunteer
Applied the rule in Clayton’s case.
Clayton’s case presumes that money is paid
out of a current account in the same order in
which it had been paid.
In other words the first money to be spent
from the account represents the first money
that was paid.
The rule is known as ‘first in’ and ‘first out,’
This rough rule is originally developed in the
banker and client context.
The presumption is not absolute and it will
not be applicable if the result would be
unjust.
f) Increase in value
A beneficiary would be able to claim the
original money taken with interest and in
priority to the creditors and that the trustee
would keep all the profits.
If the trust increased in value, it would be in
his interest to do so and if the fund decrease
in value, it would be in his interest to have a
charge.
g) Loss of right to trace
1) If property reaches the hands of bona fide
purchaser for value without notice
2) If the claimant’s property disappears or the
property ceases to be identifiable. eg when
the trust fund or the proceeds of this sale of
the trust have been dissipated.
3) Where tracing would be inequitable
4) Payment of debt. : A trustee who used trust
property to discharge a debt and nothing
would be left that could be said to represent
the trust property.
A debt is a choose in action and once it has
been paid it ceases to exist.