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Published: Fri, 02 Feb 2018

A trustee will be liable for breach of trust if that breach if breached

Hence, in determining whether Sue has caused any lost to the trust, we must first identify whether the terms of the trust have been breached. And since the trust was created for the benefit of the GLEE club members, it is evident that the trust has not been duly administered in accordance with its provisions as the administration of the trust appears to be entirely in favour of Sue herself. This is exemplified by the purchase of shares in Poly-Sue, of which Sue is an owner, Sue’s life insurance policy, the life size statue of Sue and the bottle of wine. It is questionable whether the shares that were purchased in the soft drinks company was in fact beneficial to the trust, yet it is doubtful that the money which was paid into Vital Adrenalines account and the bet in which Sue placed upon Vital Adrenaline to win was in accordance with the trust provisions.

As such, a breach of trust has undoubtedly occurred because as made clear in the case of Armitage v Nurse [4] , “a breach of trust may be deliberate or inadvertent and may consist of an actual misappropriation or misapplication of the trust property or merely an investment that is outside the trustees powers” [5] . Furthermore, it was also made clear in the case that a breach of trust can in fact occur regardless of whether the breach was beneficial or injurious to the beneficiaries. Therefore, even if the shares which have been purchased or the bet which was placed were beneficial to the beneficiaries a breach will still be capable of occurring. This is because, as provided under section 1 [6] of the Trustee Act 2000 a trustee has a duty to ensure that reasonable care and skill is exercised when managing the trust. Nevertheless, if Sue can demonstrate that she took all of the necessary precautions that an ordinary prudent man would have taken when exercising the trust fund then her breaches will be discharged as shown in Speight v Gaunt [7] .

It is however unlikely than an ordinary person exercising the same skill a Sue would have managed the trust in the way she did, yet as stated under section 3 (1) [8] of the Act, “a trustee will be capable of making any investments which he would have himself made if he was entitled absolutely to the trust assets of the trust” [9] . Therefore, it could be said that Sue would have made the same investments had she been absolutely entitled to the trust assets and so her investments were in fact reasonable. Nevertheless, Sue’s investments are unlikely to satisfy the “standard investment criteria” under section 4 (3) [10] . This is because as shown in the case of Cowan v Scargill [11] , a trustee must ascertain that any investments which are made are wholly beneficial to the beneficiaries and not themselves. Thus, since this is not the case a breach of trust has evidentially arisen.

As for Will, since he is also a trustee under the trust fund, he too will be liable for the breaches of Sue if it can be shown that he was “recklessly careless” [12] . This has been demonstrated in the case of Re Vickery [13] , where it was held that a trustee will be found to be “recklessly careless” [14] if it can be shown that he did not care whether his act or omission is a breach of trust. Consequently, since Will omitted in his duties to take proper care of the trust fund because of the fact that he has issue in his personal life, it could be said that he was “recklessly careless” [15] and therefore, he too may be found to be in breach of his fiduciary duties. It has nonetheless been argued in light of this decision that the circumstances were exceptional since “trustees were rarely liable for the acts of their agent” [16] . Whether the same can be said in the instant situation is arguable but seems likely given that trustees are assumed to have acted unanimously as in Re Mayo [17] 

Furthermore, as has been expressed by Clements and Abass, “it is the duty of a trustee personally to run the trust and part of that duty is to observe what the other trustees are doing and intervene if they are doing something wrong” [18] . As a result, because Will has merely done anything to ensure that Sue was exercising the trust instruments appropriately, a breach of trust will have occurred on his behalf. Hence, as enunciated in Bahin v Hughes [19] , “there are sound reasons for not allowing a trustee to escape liability by blaming the other trustee or trustees for what had gone wrong” [20] . Nevertheless, if Will can show that there was an exemption clause [21] freeing him from liability then he shall not be in breach. It is highly unlikely that an exemption clause was however executed and so Will shall be liable also for the breaches that have occurred.

If the trustees can, nonetheless, show that they believed the investments which they made to be sound investments then liability may be avoided on this basis. This is because, as shown in the case of Re Smith [22] , an investment which has been made will not amount to a breach if it can be shown that the trustee honestly thought the investment was good. Moreover, liability for loss caused will neither be imposed if it can be established that the trustees acted honestly and reasonably, as in Re Evans [23] . This is also identifiable under section 61 [24] of the Trustee Act 1925 which provides that relief may be given by the court where it appears that a trustee is or may be “personally liable for any breach of trust but has acted honestly and reasonably and ought fairly to be excused” [25] . This is unlikely to be ascertained, however, as it is clear that Sue has not acted honestly and reasonably and so will without a doubt be found liable for any loss which has been caused to the beneficiaries.

Because Sue has, nevertheless, mixed part of the trust property with her own personal property by paying £125,000 of the trust property into her own bank account which already consisted of £75,000 difficulties will arise is assessing the loss of the beneficiaries. In Re Diplock [26] , it was held that “the entitlement of the beneficiary to the mixed fund shall rank in equal step” [27] . Therefore, it would appear that the beneficiaries would not be entitled to any profit which was made from the shares in the soft drinks company or Poly-Sue as that would be said to have been purchased with the original £75,000. As a result, the trustees will be merely liable for the subsequent purchases and as put by Stockwell; “the beneficiary has a proprietary remedy, that is the right to the property and its fruits, or the profit made from it, since a trustee may not profit from the trust” [28] . In addition, as Ramjohn noted, “a proprietary remedy may subsist even though the defendant is insolvent” [29] .

Overall, it is likely that both Will and Sue will be liable for any losses that have incurred to the trust fund as a result of the breaches by Sue.

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