Trusts: Rights and Remedies

7/26/2019 Trusts: Rights and Remedies

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Rights and RemediesRights and RemediesAssociate Professor CameronAssociate Professor Cameron

StewartStewart


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Appointment, retirement andAppointment, retirement and

removal of trusteesremoval of trustees Only a legal person (a natural person orOnly a legal person (a natural person or

corporation) with the capacity to hold and dealcorporation) with the capacity to hold and dealwith property can be appointed as a trusteewith property can be appointed as a trustee

If, for whatever reason, a prospective trusteeIf, for whatever reason, a prospective trusteeis unable to tae up the office of trustee, theis unable to tae up the office of trustee, thetrust will not failtrust will not fail

!ost trusts will contain an e"press power of!ost trusts will contain an e"press power ofappointment# In the absence of an e"pressappointment# In the absence of an e"press

power of appointment, most $urisdictions havepower of appointment, most $urisdictions havegranted powers of appointment to particulargranted powers of appointment to particularclasses of individualsclasses of individuals


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Appointment, retirement andAppointment, retirement and

removal of trusteesremoval of trustees %etirement%etirement

%emoval &If the trust instrument is%emoval &If the trust instrument issilent on the issue of removal, only thesilent on the issue of removal, only thecourt has the power to remove acourt has the power to remove atrustee who wishes to remain in office#trustee who wishes to remain in office#'he welfare of the beneficiaries is the'he welfare of the beneficiaries is thedominant consideration in determiningdominant consideration in determiningwhether or not it is proper to remove awhether or not it is proper to remove atrusteetrustee


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Rights of trusteesRights of trustees

'he right to reimbursement and'he right to reimbursement and

e"oneratione"oneration

'he right of contribution'he right of contribution 'he right to impound a beneficial'he right to impound a beneficial

interestinterest

'he right to get directions from the'he right to get directions from thecourtcourt


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Powers of trusteesPowers of trustees

Powers of salePowers of sale

Powers of managementPowers of management

Powers of maintenance andPowers of maintenance andadvancementadvancement

Powers of investmentPowers of investment


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Duties of trusteesDuties of trustees

uty to obey the terms of the trustuty to obey the terms of the trust

uty to inuireuty to inuire

uty to eep accounts and giveuty to eep accounts and giveinformation to beneficiaries &information to beneficiaries &ReRe

Londonderrys SettlementLondonderrys Settlement

uty to correctly pay beneficiariesuty to correctly pay beneficiaries uty not to profit from the trustuty not to profit from the trust


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Duties of trusteesDuties of trustees

uty to act impartially betweenuty to act impartially between

beneficiariesbeneficiaries

uty to sell trust propertyuty to sell trust property

uty to investuty to invest

uty to act personally, unfettereduty to act personally, unfettered

and unanimouslyand unanimously uty to consider the e"ercise of trustuty to consider the e"ercise of trust

powerspowers


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Interests of beneficiariesInterests of beneficiaries

*i"ed and discretionary*i"ed and discretionary

+"haustive non e"haustive+"haustive non e"haustive

'a"ation'a"ation *amily aw*amily aw

ImmigrationImmigration


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Rights of beneficiariesRights of beneficiaries

'he right to compel performance'he right to compel performance 'he right to restrain a breach of trust'he right to restrain a breach of trust

'he right to possession of trust'he right to possession of trustpropertyproperty

'he right to approach the court'he right to approach the court 'he right to information'he right to information 'he right to e"tinguish the trust'he right to e"tinguish the trust %ight to trace%ight to trace


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Personal remediesPersonal remedies

+uitable compensation+uitable compensation Youyang Pty Ltd v Minter Ellison Morris FletcherYouyang Pty Ltd v Minter Ellison Morris Fletcher (-../) -0-(-../) -0-

C% 121 at 3.., a unanimous 4igh Court said5C% 121 at 3.., a unanimous 4igh Court said5 6'7here must be a real uestion whether the uniue6'7here must be a real uestion whether the uniue

foundation and goals of euity, which has the institution offoundation and goals of euity, which has the institution of

the trust at its heart, warrant any assimilation even in thisthe trust at its heart, warrant any assimilation even in thislimited way with the measure of compensatory damages inlimited way with the measure of compensatory damages intort and contract# It may be thought strange to decide thattort and contract# It may be thought strange to decide thatthe precept that trustees are to be ept by courts of euitythe precept that trustees are to be ept by courts of euityup to their duty has an application limited to theup to their duty has an application limited to theobservance by trustees of some only of their duties toobservance by trustees of some only of their duties tobeneficiaries in dealing with trust funds#beneficiaries in dealing with trust funds#


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Personal remediesPersonal remedies

Set&offSet&off

Account of profitsAccount of profits

8ust allowance8ust allowance Personal claims against third partiesPersonal claims against third parties


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Proprietary remedies tracingProprietary remedies tracing

'racing is available as a remedy in'racing is available as a remedy incommon law as well as in euity#common law as well as in euity#Common law tracing differs fromCommon law tracing differs from

euitable tracing in that euity receuitable tracing in that euity recognises that a beneficiary retains hisognises that a beneficiary retains hisor her property rights over trustor her property rights over trustproperty in cases where the trustproperty in cases where the trustproperty is mi"ed with other propertyproperty is mi"ed with other propertyor converted into a new type ofor converted into a new type ofpropertyproperty


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Foskett v McKeownFoskett v McKeown6-...7 / All +% 9:56-...7 / All +% 9:5

'racing is thus neither a claim nor a remedy# It is'racing is thus neither a claim nor a remedy# It ismerely the process by which a claimantmerely the process by which a claimantdemonstrates what has happened to his property,demonstrates what has happened to his property,

identifies its proceeds and the persons who haveidentifies its proceeds and the persons who havehandled or received them, and $ustifies his claimhandled or received them, and $ustifies his claimthat the proceeds can properly be regarded asthat the proceeds can properly be regarded asrepresenting his property# 'racing is also distinctrepresenting his property# 'racing is also distinctfrom claiming# It identifies the traceable proceedsfrom claiming# It identifies the traceable proceeds

of the claimant;s property# It enables the claimantof the claimant;s property# It enables the claimantto substitute the traceable proceeds for theto substitute the traceable proceeds for theoriginal asset as the sub$ect matter of his claim#original asset as the sub$ect matter of his claim#


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'he e"istence of a prior fiduciary'he e"istence of a prior fiduciaryrelationship is an essential prereuisite torelationship is an essential prereuisite toa claim of tracing in euitya claim of tracing in euity

'he effect of grounding tracing in the'he effect of grounding tracing in thee"clusive $urisdiction is to substantiallye"clusive $urisdiction is to substantiallylimit its availability# !any commentatorslimit its availability# !any commentatorshave been critical of this view of tracing;shave been critical of this view of tracing;sorigins because, in the absence of a priororigins because, in the absence of a prior

fiduciary relationship, any person whosefiduciary relationship, any person whoseproperty is stolen by a thief will be unableproperty is stolen by a thief will be unableto trace that property in common law orto trace that property in common law oreuity, if the thief mi"es the propertyeuity, if the thief mi"es the property


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In addition to the reuirement that there be aIn addition to the reuirement that there be apre&e"isting fiduciary duty between the parties, apre&e"isting fiduciary duty between the parties, aclaimant seeing to trace trust property must alsoclaimant seeing to trace trust property must alsoestablish that he or she had an euitable interestestablish that he or she had an euitable interestin the property prior to the breach of fiduciaryin the property prior to the breach of fiduciaryduty and that the property now lies in the handsduty and that the property now lies in the handsof the defendant#of the defendant#

In euity it does not matter, for the purpose ofIn euity it does not matter, for the purpose ofidentification, that the property has becomeidentification, that the property has becomemi"ed with other property# =or does it mattermi"ed with other property# =or does it matter

that trust funds have been used to purchasethat trust funds have been used to purchaseother property#other property#

+uity presumes that the trust property continues+uity presumes that the trust property continuesto e"ist in both situationsto e"ist in both situations


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Tracing property into the hands ofTracing property into the hands of

trusteestrustees If trustees misappropriate trust property and useIf trustees misappropriate trust property and use

it e"clusively to purchase other property in theirit e"clusively to purchase other property in theirown name, euity allows the beneficiaries to traceown name, euity allows the beneficiaries to tracethe funds into the newly acuired propertythe funds into the newly acuired property

'he beneficiaries can choose to enforce their'he beneficiaries can choose to enforce theirbeneficial interests in the new property by eitherbeneficial interests in the new property by eitherasserting beneficial ownership of it, or by bringingasserting beneficial ownership of it, or by bringinga personal claim against the trustee for breach ofa personal claim against the trustee for breach oftrust# 'his claim can be enforced by an euitabletrust# 'his claim can be enforced by an euitable

lien or charge over the new propertylien or charge over the new property


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Mied property the rule inMied property the rule in ReRe

Halletts EstateHalletts Estate

+uity presumes in such+uity presumes in such

circumstances that, once funds arecircumstances that, once funds are

mi"ed in an account, any followingmi"ed in an account, any following

transactions come from the trustee;stransactions come from the trustee;spersonal funds first# Any fundspersonal funds first# Any funds

remaining in the account are treatedremaining in the account are treated

as trust fundsas trust funds


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The lowest intermediate balanceThe lowest intermediate balance

rulerule 4ow do you calculate beneficial proprietary4ow do you calculate beneficial proprietary

interests in cases where deposits andinterests in cases where deposits and

withdrawals are made over time towithdrawals are made over time to

accounts of mi"ed funds>accounts of mi"ed funds> 'he lowest intermediate balance rule'he lowest intermediate balance rule

states that the beneficiaries; claim isstates that the beneficiaries; claim is

limited to the lowest account balance inlimited to the lowest account balance in

the period starting from the date ofthe period starting from the date ofmi"ture to the date of the claim againstmi"ture to the date of the claim against

the account#the account#


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Tracing valuable purchases from aTracing valuable purchases from a

mied fundmied fund An e"ception to the rule inAn e"ception to the rule in Re Halletts EstateRe Halletts Estateapplies whenapplies when

the fiduciary maes a purchase of valuable property fromthe fiduciary maes a purchase of valuable property fromthe mi"ed fund and then proceeds to dissipate the rest ofthe mi"ed fund and then proceeds to dissipate the rest ofthe account# In such circumstances the fiduciary is notthe account# In such circumstances the fiduciary is notentitled to use the rule inentitled to use the rule in Re Halletts EstateRe Halletts Estateto preventto preventtracing into the valuable property# Intracing into the valuable property# In Re atwayRe atway609./7 -609./7 -Ch /3?, a trustee misappropriated trust funds by placingCh /3?, a trustee misappropriated trust funds by placingthem in his account and then proceeded to use two&thirdsthem in his account and then proceeded to use two&thirdsof the money to buy shares# 'he rest of the account wasof the money to buy shares# 'he rest of the account wasthen dissipated# 'he court found that the trust propertythen dissipated# 'he court found that the trust propertyshould be traced into the shares, overturning theshould be traced into the shares, overturning thepresumption inpresumption in Re Halletts EstateRe Halletts Estatethat transactions comethat transactions come

from the trustee;s personal funds first#from the trustee;s personal funds first#


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Tracing mied funds intoTracing mied funds into

appreciating propertyappreciating property In cases where trustees mi" fundsIn cases where trustees mi" funds

and profitably invest the mi"ture,and profitably invest the mi"ture,

beneficiaries will ordinarily bebeneficiaries will ordinarily be

entitled to a proportionate share ofentitled to a proportionate share ofany gain made by the investmentany gain made by the investment


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Mied property in the hands ofMied property in the hands of

trustees from more than one trusttrustees from more than one trust @nfortunately, it is not unusual for@nfortunately, it is not unusual for

defaulting trustees to mi" funds fromdefaulting trustees to mi" funds from

more than one trust# In this situationmore than one trust# In this situation

two rules can be applied to apportiontwo rules can be applied to apportionwhatever property remains betweenwhatever property remains between

the different beneficial intereststhe different beneficial interests

traced into the mi"ed fund#traced into the mi"ed fund#


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trustees from more than one trusttrustees from more than one trust 'he general approach 'he general approach !ari !assu!ari !assu

*or e"ample, if B/... from 'rust A*or e"ample, if B/... from 'rust A

together with B-... from 'rust


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trustees from more than one trusttrustees from more than one trust The rule inThe rule in Claytons caseClaytons case

It displaces theIt displaces the!ari !assu!ari !assurule andrule and

states that all beneficial interests in astates that all beneficial interests in a

mi"ed ban account are sub$ect to ami"ed ban account are sub$ect to a

first in, first out; rule#first in, first out; rule#


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trustees from more than one trusttrustees from more than one trust Presume that a trustee mi"es B0... from 'rust APresume that a trustee mi"es B0... from 'rust A

with B-... from 'rust < and B/... from 'rust C,with B-... from 'rust < and B/... from 'rust C,in successive days, totalling B?...#in successive days, totalling B?...#

On the ne"t day the trustee withdraws B-...On the ne"t day the trustee withdraws B-...

from the account, leaving a balance of B1...#from the account, leaving a balance of B1...#@nder the rule in@nder the rule in "laytons case"laytons casethe withdrawal isthe withdrawal ispresumed to come from 'rust A;s funds and frompresumed to come from 'rust A;s funds and from'rust


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trustees from more than one trusttrustees from more than one trust 'he rule in'he rule in "laytons case"laytons caseis difficultis difficult

to apply where the facts concernto apply where the facts concern

large estates with comple" banlarge estates with comple" ban

accounts# It also wors unfairlyaccounts# It also wors unfairlyagainst the first victims of a breachagainst the first victims of a breach

of trust, by practically eliminatingof trust, by practically eliminating

their attempts to trace#their attempts to trace#


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trustees from more than one trusttrustees from more than one trust In Australia it has been found that if thereIn Australia it has been found that if there

are large numbers of beneficiaries it isare large numbers of beneficiaries it is

better to apply thebetter to apply the!ari !assu!ari !assurule torule to

prevent in$ustice5prevent in$ustice5 Re #ustralian HomeRe #ustralian HomeFinance Pty LtdFinance Pty Ltd6093?7 D% 0#6093?7 D% 0#!ore!ore

recently, Campbell 8 overviewed the entirerecently, Campbell 8 overviewed the entire

history of the rule inhistory of the rule in "laytons case"laytons caseandand

decided that it should not be applied indecided that it should not be applied inAustralia5Australia5 Re French "aledonia $ravelRe French "aledonia $ravel

6-../7 =SESC 0..26-../7 =SESC 0..2


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third partiesthird parties


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third partiesthird parties Foskett v McKeownFoskett v McKeown6-...7 / All +%6-...7 / All +%

9:, a trustee misappropriated money9:, a trustee misappropriated money

from the trust fund and used it tofrom the trust fund and used it to

pay the last two of five premiums onpay the last two of five premiums ona life insurance policy# 'he policy wasa life insurance policy# 'he policy was

in favour of the trustee;s children#in favour of the trustee;s children#

After the trustee;s suicide, theAfter the trustee;s suicide, thechildren received the policy moneychildren received the policy money


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third partiesthird parties 'he beneficiaries under the trust claimed'he beneficiaries under the trust claimed

that they were entitled to trace theirthat they were entitled to trace theirmoney through the policy into the summoney through the policy into the sumpaid out by the insurers# 'hey believedpaid out by the insurers# 'hey believed

they were entitled to a proportionatethey were entitled to a proportionateshare of the policy money#share of the policy money#

'he ma$ority of the Court of Appeal upheld'he ma$ority of the Court of Appeal upheldthe beneficiaries; claim but limited it to thethe beneficiaries; claim but limited it to the

amount of the two premiums togetheramount of the two premiums togetherwith interest# 'he beneficiaries werewith interest# 'he beneficiaries weredenied a proportionate share of the policydenied a proportionate share of the policyproceeds#proceeds#


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third partiesthird parties A ma$ority of the 4ouse of ords upheld an appeal byA ma$ority of the 4ouse of ords upheld an appeal by

the beneficiaries5the beneficiaries5 # ord


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DefencesDefences

Consent, acuiescence and releaseConsent, acuiescence and release

achesaches


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Relief from liabilityRelief from liability

Indemnity provided in the trust instrumentIndemnity provided in the trust instrument

Indemnity provided by co&trusteesIndemnity provided by co&trustees

+"cusing a breach of trust& acted honestly+"cusing a breach of trust& acted honestly

and reasonably, and ought fairly to beand reasonably, and ought fairly to bee"cused for the breach of trust and fore"cused for the breach of trust and for

omitting to obtain the direction of theomitting to obtain the direction of the

Court in the matter in which the trusteeCourt in the matter in which the trustee

committed the breachcommitted the breach

Documents

Trusts: Rights and Remedies