Rights and Remedies
Associate Professor Cameron
Stewart
Appointment, retirement and
removal of trustees
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Only a legal person (a natural person or
corporation) with the capacity to hold and
deal with property can be appointed as a
trustee
If, for whatever reason, a prospective
trustee is unable to take up the office of
trustee, the trust will not fail
Most trusts will contain an express power
of appointment. In the absence of an
express power of appointment, most
jurisdictions have granted powers of
appointment to particular classes of
individuals
Appointment, retirement and
removal of trustees
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Retirement
Removal -If the trust instrument is
silent on the issue of removal, only
the court has the power to remove a
trustee who wishes to remain in
office. The welfare of the
beneficiaries is the dominant
consideration in determining whether
or not it is proper to remove a
trustee
Rights of trustees
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The right to reimbursement and
exoneration
The right of contribution
The right to impound a beneficial
interest
The right to get directions from the
court
Powers of trustees
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Powers of sale
Powers of management
Powers of maintenance and
advancement
Powers of investment
Duties of trustees
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Duty to obey the terms of the trust
Duty to inquire
Duty to keep accounts and give
information to beneficiaries -Re
Londonderry’s Settlement
Duty to correctly pay beneficiaries
Duty not to profit from the trust
Duties of trustees
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Duty to act impartially between
beneficiaries
Duty to sell trust property
Duty to invest
Duty to act personally, unfettered
and unanimously
Duty to consider the exercise of trust
powers
Interests of beneficiaries
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Fixed and discretionary
Exhaustive non exhaustive
Taxation
Family Law
Immigration
Rights of beneficiaries
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The right to compel performance
The right to restrain a breach of trust
The right to possession of trust
property
The right to approach the court
The right to information
The right to extinguish the trust
Right to trace
Personal remedies
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Equitable compensation
Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212
CLR 484 at 500, a unanimous High Court said:
[T]here must be a real question whether the unique
foundation and goals of equity, which has the institution of
the trust at its heart, warrant any assimilation even in this
limited way with the measure of compensatory damages in
tort and contract. It may be thought strange to decide that
the precept that trustees are to be kept by courts of equity
up to their duty has an application limited to the
observance by trustees of some only of their duties to
beneficiaries in dealing with trust funds.
Personal remedies
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Set-off
Account of profits
Just allowance
Personal claims against third parties
Proprietary remedies — tracing
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Tracing is available as a remedy in
common law as well as in equity.
Common law tracing differs from
equitable tracing in that equity recognises that a beneficiary retains his
or her property rights over trust
property in cases where the trust
property is mixed with other
property or converted into a new
type of property
Proprietary remedies — tracing
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Foskett v McKeown [2000] 3 All ER 97:
Tracing is thus neither a claim nor a remedy. It is
merely the process by which a claimant
demonstrates what has happened to his property,
identifies its proceeds and the persons who have
handled or received them, and justifies his claim
that the proceeds can properly be regarded as
representing his property. Tracing is also distinct
from claiming. It identifies the traceable proceeds
of the claimant’s property. It enables the
claimant to substitute the traceable proceeds for
the original asset as the subject matter of his
claim. But it does not affect or establish his claim
Proprietary remedies — tracing
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The existence of a prior fiduciary
relationship is an essential prerequisite to
a claim of tracing in equity
The effect of grounding tracing in the
exclusive jurisdiction is to substantially
limit its availability. Many commentators
have been critical of this view of tracing’s
origins because, in the absence of a prior
fiduciary relationship, any person whose
property is stolen by a thief will be unable
to trace that property in common law or
equity, if the thief mixes the property
Proprietary remedies — tracing
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In addition to the requirement that there be a
pre-existing fiduciary duty between the parties, a
claimant seeking to trace trust property must
also establish that he or she had an equitable
interest in the property prior to the breach of
fiduciary duty and that the property now lies in
the hands of the defendant.
In equity it does not matter, for the purpose of
identification, that the property has become
mixed with other property. Nor does it matter
that trust funds have been used to purchase
other property.
Equity presumes that the trust property
continues to exist in both situations
Tracing property into the hands of
trustees
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If trustees misappropriate trust property and use
it exclusively to purchase other property in their
own name, equity allows the beneficiaries to
trace the funds into the newly acquired property
The beneficiaries can choose to enforce their
beneficial interests in the new property by either
asserting beneficial ownership of it, or by
bringing a personal claim against the trustee for
breach of trust. This claim can be enforced by an
equitable lien or charge over the new property
Mixed property — the rule in Re
Hallett’s Estate
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Equity presumes in such
circumstances that, once funds are
mixed in an account, any following
transactions come from the trustee’s
personal funds first. Any funds
remaining in the account are treated
as trust funds
The lowest intermediate balance
rule
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How do you calculate beneficial
proprietary interests in cases where
deposits and withdrawals are made over
time to accounts of mixed funds?
The lowest intermediate balance rule
states that the beneficiaries’ claim is
limited to the lowest account balance in
the period starting from the date of
mixture to the date of the claim against
the account.
Tracing valuable purchases from a
mixed fund
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An exception to the rule in Re Hallett’s Estate applies when
the fiduciary makes a purchase of valuable property from
the mixed fund and then proceeds to dissipate the rest of
the account. In such circumstances the fiduciary is not
entitled to use the rule in Re Hallett’s Estate to prevent
tracing into the valuable property. In Re Oatway [1903] 2
Ch 356, a trustee misappropriated trust funds by placing
them in his account and then proceeded to use two-thirds
of the money to buy shares. The rest of the account was
then dissipated. The court found that the trust property
should be traced into the shares, overturning the
presumption in Re Hallett’s Estate that transactions come
from the trustee’s personal funds first.
Tracing mixed funds into
appreciating property
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In cases where trustees mix funds
and profitably invest the mixture,
beneficiaries will ordinarily be
entitled to a proportionate share of
any gain made by the investment
Mixed property in the hands of
trustees from more than one trust
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Unfortunately, it is not unusual for
defaulting trustees to mix funds from
more than one trust. In this situation
two rules can be applied to apportion
whatever property remains between
the different beneficial interests
traced into the mixed fund.
Mixed property in the hands of
trustees from more than one trust
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The general approach — pari passu
For example, if $3000 from Trust A
together with $2000 from Trust B
were used to purchase 500 shares of
equal value, 300 shares would be
held in favour of Trust A and 200
shares in favour of Trust B.
Mixed property in the hands of
trustees from more than one trust
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The rule in Clayton’s case
It displaces the pari passu rule and
states that all beneficial interests in a
mixed bank account are subject to a
‘first in, first out’ rule.
Mixed property in the hands of
trustees from more than one trust
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Presume that a trustee mixes $1000 from Trust A
with $2000 from Trust B and $3000 from Trust C,
in successive days, totalling $6000.
On the next day the trustee withdraws $2000
from the account, leaving a balance of $4000.
Under the rule in Clayton’s case the withdrawal is
presumed to come from Trust A’s funds and from
Trust B’s funds.
The remaining funds in the account are therefore
said to be traced to Trust B for an amount of
$1000, and Trust C for an amount of $3000.
Mixed property in the hands of
trustees from more than one trust
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The rule in Clayton’s case is difficult
to apply where the facts concern
large estates with complex bank
accounts. It also works unfairly
against the first victims of a breach
of trust, by practically eliminating
their attempts to trace.
Mixed property in the hands of
trustees from more than one trust
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In Australia it has been found that if there
are large numbers of beneficiaries it is
better to apply the pari passu rule to
prevent injustice: Re Australian Home
Finance Pty Ltd [1956] VLR 1. More
recently, Campbell J overviewed the entire
history of the rule in Clayton’s case and
decided that it should not be applied in
Australia: Re French Caledonia Travel
[2003] NSWSC 1008
Tracing property into the hands of
third parties
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Bona fide purchasers for value
without notice of the breach of trust
are immune from tracing claims
However, if a third party recipient
has actual or constructive knowledge
of the breach of fiduciary duty, or if
the recipient is a volunteer, the
property may be traced into his or
her hands.
Tracing property into the hands of
third parties
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Foskett v McKeown [2000] 3 All ER
97, a trustee misappropriated money
from the trust fund and used it to
pay the last two of five premiums on
a life insurance policy. The policy
was in favour of the trustee’s
children. After the trustee’s suicide,
the children received the policy
money
Tracing property into the hands of
third parties
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The beneficiaries under the trust claimed
that they were entitled to trace their
money through the policy into the sum
paid out by the insurers. They believed
they were entitled to a proportionate
share of the policy money.
The majority of the Court of Appeal upheld
the beneficiaries’ claim but limited it to the
amount of the two premiums together
with interest. The beneficiaries were
denied a proportionate share of the policy
proceeds.
Tracing property into the hands of
third parties
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A majority of the House of Lords upheld an
appeal by the beneficiaries: . Lord BrowneWilkinson said at 102:
Therefore the critical question is whether the
assets now subject to the express trusts of the
purchasers trust deed comprise any part of the
policy moneys, a question which depends on the
rules of tracing. If, as a result of tracing, it can
be said that certain of the policy moneys are
what now represent part of the assets subject to
the trusts of the purchasers trust deed, then as a
matter of English property law the purchasers
have an absolute interest in such moneys. There
is no discretion vested in the court. There is no
room for any consideration whether, in the
circumstances of this particular case, it is in a
moral sense ‘equitable’ for the purchasers to be
Defences
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Consent, acquiescence and release
Laches
Relief from liability
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Indemnity provided in the trust instrument
Indemnity provided by co-trustees
Excusing a breach of trust- acted honestly
and reasonably, and ought fairly to be
excused for the breach of trust and for
omitting to obtain the direction of the
Court in the matter in which the trustee
committed the breach