Liability chambers notes.docx

7/30/2019 Liability chambers notes.docx

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Liability robert chambers 2002

Point of it:

- Discusses what trustees are liable for unexcused breach of trust- Essay looks at goals of

1. Direct enforcement of duty2. Compensation for loss3. Restitution of gain

Intro

- Trusts law organisation and language make it difficult to compare obligations that arise and solutionsto other areas of law

Direct enforcement

-

Sometimes good to not have it because cost of monitoring and cost of performance outweighbenefits

- Direct performance bigger impacy on Ds liberty than payin g money- C may not want performance because D already shown cant do it properly or something

Why are trust duties directly enforceable?

- Fact that trust has direct enforcement has some historical reason trust used to be usually for land- When trustees are ordered to pay compensations, usually paid in form of buying trust assets instead

of just money for B because

1. Replacing trustee is only one most connected to a breach of trust but kaw in replacuingtrustees mean compensation may become more common

2. Paying money to B can defeat point of trust because settlor created trust instead of justgiving money to B on purpose. Also wouldnt be appropriate in discretionary or purpose

trusts

3. Sometimes those who are able to enforce it (eg in charitable trusts or certain purpose trusts)are not the ones the trust isaimed at benefitting so them taking the money is not a proper

subsitite

Primary and secondary duty

- Replacement of trustees and assets to perform original duty not direct enforcement because orginaltrustees aren t doing it same for court enforcement or appointment of a receiver

Methods of enforcing trust duties

Trustees compelled to do somethings:

1. Account- Common account=direct enforcement goal- Account on the basis of wilful deceit = compensation goal- Account of profits = restitution- But 3 accounts all sometimes do goals of the others- All 3 used to enforce 2 important trust duties

1. Duty to inform T to inform B Cant be removed by settlor


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Must keep accurate records Must provide relevant info to B when asked Or when in interests of B to do that B cant have docs of how trustees between themselves exercised discretionay

power

Fauilre to keep adequate records usual presumption against wrongdoer Dont always need documentary evidence (eg theft case oath) May need to account for profits not made with trust money if possible conflict

of duty - - but secondary duty on breach of loyalty

2. Duty to pay Pay B or trust account because accounts shown for trusts are short

2. direction

- Trusts enforced withour regard of whetere damages more appropriate (unlike contract)

3. injunction

- Direct enforcement to not do certain things eg wrongful transfers- Available regardless of adequacy of other remedies

4. declaration

- Order to do or not do something- Less direct than specific performance- Cowan v scargill an example

Compensation

- Courts may be willing to make presumptions to help B determine ampunt of loss when B proves of balanace of probabilities that loss has been caused

- Sometime difficult to see how a better investment strategy would have worked out

Trusts law v Common law

- Compensation differs:1. Usually paid not to B but into trust2. Loss calculated as of date of judgement, not date of breach (because in omost cases usued

to aquire trust assests and permit proper performance of the trust)

Trusts doesnt limit as much as common law. Uses but for causation ignores remotenessand foreseeability to harm

3. Different methods of achieving compensation (accont v damages)

Compensation vs restitution

- Confusion between terms restitution and damages

Methods of compensation

- Compensation for breach of trust =1. Account

i. Common account Most common form of account


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Available without any allegation of wrongdoing to get info from T Account for wilful deceit wrong first needs to be pleased proved

ii. Wilful default Effect of casting a much more substantial burden of proof on the

accounting party than applies in the case of common accounts

To obtain account need to plead and prove at least one instance of wilfuldecfault

2. equitable compensation only when account not appropriate

o paying directly to Bo useful when trust comes to an end

3. interesto Courts free to choose an interest rate and method of calculationo Takes into account that trust has been deprived of assets

Restitution

- Here used to mean obluagtion to give up an asset or its value in money- Idea that shouldnt profit from wrong, even where no lsos

Restitution for wrongs v restitution for unjust enrichment

- Duty to make restitution on unjust renchement is a primary duty arising on receipt of unjustenrichment because it is not an authorised receipt

- So innocent recipients liable- Exception clause could nullify right of restitution for the wronf of breach oftrust but not for restitution

of unjust enrichment

- T could be unjustly enriched by receipt of trust assets without breaching trust

Methods of restitution

a) Account- T can be complelled to account for profits earned by misusing trust assets or any activities that

conflict with Ts duty of loyal service to tr ust

- If profits earned by misusing trust assets are spent and no traceable proceeds restitution will beeffected through an account of profits or award of interest

- Trustees not required to give up all their profits, only those from breach because then it would beforfeityre and therefore be punishment rather than restitution

-

If diffiucly to figure out how much their effort was might be good to repay sum taken plus interestat rate to reflect value trustees got from trust

- If whole business was taken on breach of trust, court could ask for all profits bar an allowance foreffort

- Courts dont look favourable on Bs who dont bring claim immediately cos maybe waiting to see Tsprofits and try and take them

b) Trust- Trustees may aquire assets in breach of trust my misusing trust assets to aquire other asstes or

without misusing trust assets, aqurie assets for thesmelevs in manner that places their personal

interests or other duties in conflict with loyalty to trust

- Improper investmen of ttrist assets is the traceable proceeds of those assets and will be held on trust

as soon as they are acquired by adopiing investments, B merely asserting their beneficial


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owenership of those proceeds. If reject investment, B will have a lien over the investement to secire

the trustees obligation to pay compensation for loss

- If trustees unable to make investment on vbehalf of trust, not able to take the investment forthemselves because if knew could take investmenst then wouldnt seek to get most profitable ones

for themselves conflict of interest

- Held on trust from moment of receipt- Could call a trust that arises on misuse of assets an express trist because depends on adoption by the

beneficiairies since if they dont, T has to pay compensation instead problem though that trust

arises as soon as improper investment acquired- before B approve

- ^doesnt explain why trust attached to innocent donees.- When trustees misues trust assets to acquires other assets for themesleves, 2 explaination for the

trust of the wronglu acquired assets:

1. T guilty of breach of trust and a constructive trust arises to ensure that they dont benefit fromown wrongdoing professor scotts view

2. T has unjustly enrichemed hismelve at expens of trust and a resulting or constructive trustarises to effect resitition of unjust enrichment

c) Lien- If trustees invest trust assets improperly, B can claim either a trust of or al ien over that investment

foskett v mckoewn

- Lien is not restitutionary lien arises when B reject the improper investment and secure the trusteesobligation to pay compensation for the loss to the trust

- 2main reasons for confusion that lien looks restitutionary1. Courts often use restitution to mean compensation 2. Lien attached to the traceable proceeds of trust assets

- Means people think lien secure an obligation to make restitution or that its effect is the restitution of value wrongly taken from the trust

- Lien does not give B right to take the assets from T unless T fail to pay debt secured by lien- Limited property right- T are beneficial owns of the assest subject to beneficiaries security interest - On payment in full, B sinterest in asset ceases to exist- As a security interest, main purpose of lien is to make it more likely that a debt will be paid- Not allowed to ask for both profits and lien on interest not allowed because by taking the

investment they takeon the risk of both loss and gain

d) Rescission- Another possible response to an improper disposition of trust assets.- Transactions can be rescinded, resroting title to the trustees- 2 differences between recisssion and misues of assets trust

1. Proprietary effect With misuse of assets trust in most cases proceeds are purchased from an incoent

sellar and therefore the yrisy pf the orginal assets is defeated by the bona fide rule Recission operates to undo improper disposition B have an equiatbleproperty right to recoverabletrust assets but not full beneficial

owenershi[ Transfer is not void but voidable and they hae onlya lesser equitable property right

(which can be defeated by an innocent buyer of a competing equitable interest) untilt

he right to rescind is exericed

2. Ground on which available

Available even though trustees are not guilty of breach of trust or are fully exemot fromliability for the breach


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Avaialvbe where Bs consent to transaction induced by mistake or undue influence anddoes not depend on proof of loss to trust or wrongful gain by T

- Shows that it operate as restitution of unjust enrichment in absence of wrongdoinf e) Interest- 3 permitted bases for charging trustees with interest

1. Interst trustees did in fact receive simply restitution through an account of profits2. Interest T should have receieved compensation for loss3. Interest t presumed to have received = restitution but through an award of interest rather

than an account of profits

Punishment

- Generally accepted that punishment s not a possible consequence of breach of equitable duty- Can be relevant to breach though because

1. Breach of trust might also be a crime eg forgert2. Need to be careful o ensure liabilities dont hide punish,emst

- Although liability to pay compensation or make restitution may be triggered by a certain level of moral culpability, liability itself is not proprotionl to the degree of culpability but equal to the lsos or

gain caused by the breach

- Risk of concealed punishment increase by uncertaint in the law or its application- Discretion to vary responses may be affect by moral culpability of wrong doer. 2 aspects of trusts used

that way

1. Awards of interest Courts have still set interst with reference to T moral quality of conduct

2. Presumptions against wrongdoers Places onus of prood on D if destroy evidence If wrongly mix assets go against them But cant be used to presume a fact in face of proof of the contraray

Other goals

- Replace trustee because of incapacity- Trustee in breach of duty may be liable to pay for C legal costs- Replace trustee because breached and likely to do it again- Having bits left over is not a failiyre identification fo goals not being pursued is a success.

Documents

Liability chambers notes.docx