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Equity & Trusts - Breach of Trust

There are essentially two types of remedy available in this area: *in personam (against the person for breach of a duty of care etc.) *in rem (against the property, normally when you are trying to get it back) There also happen to be two types of breach: *where the trustee has done something they are not allowed to *where the trustee does something they are allowed to but does so in a negligent manner In the first type of breach it is possible to get a remedy by considering this a falsifying of the account. In other words the money taken by the trustee is considered to be their own money and they then have to reimburse the trust (Nocton v Lord Ashburton [1914]) Where the breach is one of negligence it is more appropriate to think about the idea of surcharging the account. This is where the trustee makes up the difference that has been caused by their negligence as seen in Target Holdings v Redferns [1996] If a trustee has made a profit from their office then this can create a personal remedy but is more likely to be considered by the court as establishing a constructive trust in relation to the profits (Keech v Sandford (1726); Boardman v Phipps [1967]) If a third party receives trust property that they should not have got then they must return it if: *they received it as a gift (equity will not assist a volunteer) *they had knowledge which makes it unconscionable for them to retain the benefit; Nourse LJ in Bank of Credit and Commerce International (Overseas) Ltd v Akindele [2001]; (suspicion is not enough – Abou-Rahmah v Abacha [2006]) A person who assists a breach may be liable to account for any profits They can also be liable in equity if they are dishonest The test for dishonesty traditionally comes from Twinsectra Ltd v Yardley [2002]: D was dishonest by reasonable standards and realised that by those standards the conduct was dishonest However Barlow Clowes Intl Ltd v Eurotrust Intl Ltd [2006] suggests a more objective standard: The test is an objective one but can take into account subjective factors such as the experience and intelligence of the defendant Injunctions can be used in certain circumstances such as where a breach is anticipated When it comes to tracing you follow the property and the person who ends up with it is considered to be a constructive trustee However this is not automatic and in fact the right is rather limited in its scope E.g. If funds are mixed and the person goes bankrupt then they are lost There are four preliminary requirements for tracing: *Existence of a fiduciary relationship *Existence of an equitable proprietary interest *Tracing itself would not be inequitable; Re Diplock (1948) *The property must be in a form in which it can be traced; Bishopsgate Investment Management v Homan [1995] The first rule is that when money is withdrawn from an account, the trustee is presumed to be spending her own money first; Re Hallett’s Estate (1880) Beyond that amount the money is presumed to be from the trust itself Later repayments to the account are not repayments to the trust unless that is explicitly stated; Roscoe v Winder [1915] If a mixed fund is used to purchase property then the beneficiaries have first charge over this property; Re Oatway (1903) If the property increases in value they can take their portion If the property decreases in value they can take the original sum that was invested Foskett v McKeown [2001] Finally where money is mixed into an account from two trusts then tracing operates on a principle of ‘first in, first out’ (Clayton's Case (1816); Barlow Clowes Intl v Vaughan [1992]) Other points to consider when dealing with breaches of trust include: A trustee may be able to avoid liability; Armitage v Nurse [1997] If a beneficiary contributes to a breach of trust then their interest may be held back by the court to compensate other beneficiaries A beneficiary who consents to a breach cannot then sue after the fact