Project description

A fund of investments is held on trust for Howard for life with remainder to his children, Irene, and John in equal shares. The trustees are Leonard (a solicitor) Mary (a stockbroker) and Nancy (a family friend).

For several years the trustees worked very successfully and doubled the capital value of the trust fund from 1million to 2million. However, Mary, who managed the trust’s investments, has absconded and cannot to tracked down. The beneficiaries have discovered that six months ago, on Leonard’s suggestion, the trustees authorised Mary to sell some shares and retain the cash (£120,000) pending decisions on further investment. That cash is missing, save that it has been established that Mary gave £40,000 to her son Orlando, who used it to build a swimming pool at his house.

(a) advise the beneficiaries whether they can sue Leonard and/or Nancy.
(b) how would your advice differ if the trust instrument contained a clause reading: ‘a trustee shall not be liable for any loss save that caused by his own fraud or recklessness’?

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(c) discuss the basis on which the beneficiaries might seek to establish a proprietary claim to Orlando’s property
(d) Nancy is the wealthiest of the trustees and fears she will have to bear the whole loss. She thinks this would be very unfair, especially bearing in mind the appreciation in the value of the trust fund. Advise her.

This problem question is on BREACH OF TRUST. Firstly it must be explained what a breach of trust is, (couple of sentences only). The breach of trust must be identified and then the type of remedy must be applied and an outcome reached.

Below is a few notes I have already made:
*liability for the acts of other trustees – a trustee is not automatically liable for breaches committed by co-trustees. However liability is frequently joint e.g where all the trustees resolve to invest in an unauthorised investment. A relatively innocent trustee may be liable for ‘failing to watch over and if necessary correct the conduct of co-trustees or for breach of the duty to retain trust assets under joint control.

*extent of liability – every trustee who participates in the breach is jointly and severally liable for the whole loss.

*defences – excuse clause – a clause may lawfully exempt a trustee from liability no matter how indolent, imprudent, lacking in diligence, negligent or wilful he may have been. Armitage v Nurse

*although authority is joint, there is no vicarious liability between trustees. Each trustee is liable only for that trustee’s own acts or defaults. Townley v Sherborne

*s.21 limitation act 1980 provides a 6year period for ‘actions by a beneficiary to recover trust property or in respect of any breach of trust’
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Referencing Requirements:
Relevant cases must be used when arguing a point