#10981 - Remedies - Trusts

Remedies

• Beneficiary to elect which remedy at the time of judgment Tang Man Sit

• No double recovery

1. Personal Remedies

• Account (for the trust fund)

  • B can ask the T to render account to him/her at any time

    • Doesn’t necessarily have to be a breach of trust

    • The T must produce accounts showing receipts and disbursements “account in the common form”

    • It is suggested that the order of account suffices as a remedy in many cases where the T’s actions have caused loss. However, in cases where account is no longer practical (e.g. there is no trust asset involves, trust has come to an end) the remedy of EC is used

  • Once the account is made the B can either accept, surcharge, or falsify the account

    • If the B accepts it, they agree the B has acted properly

    • If they “surcharge” the trust, the B indicates dissatisfaction with the T’s management. The T must then account for the trust fund as if it were properly managed

    • The B “falsifies” the account where he or she believes that some of the trust fund has been misapplied. The T must then account for the full amount of the misapplied funds

  • If there is a breach, or potential breach:

    • Court will order account “on basis of wilful default”

      • Trustee must determine the extent the fund has been depleted, ascertain what would have been earned if the trust had been properly administered, and pay the B that amount

• Equitable compensation for breach of trust (only for loss)

  • Sought where a trustee’s breach of trust has resulted in a loss to the trust (you find this out through account of the trust fund)

  • If equitable compensation is awarded, the trustee must restore the trust fund as if the breach had not occurred Re Dawson

    • It is not payable to beneficiaries personally Permanent v Perpetual UNLESS there is no point e.g. trust is wound up Youyang

  • Common sense ‘but for’ test of causation Canson

    • Foreseeability/remoteness questions do not arise as we are simply looking at the figure Re Dawson; Youyang (Have they breached? Yes. Reconstitute)

    • However causation may be more relevant if it is a breach of the conflict rule, as there must be a causal link between breach and loss

  • Damages to be assed at the date of judgment Re Dawson per Street J

    • However, another assessment date may be indicated if the fund would have stood at a higher level prior to judgment

  • Other factors that might/might not apply:

    • Contributory negligence not a defence at equity, particularly as the B’s are often in a very week position and can’t influence the outcome Alexander v Perpetual Trustees

      • BUT, consider Wrongs Act s 23A: Contribution can be recovered ‘whatever the legal basis of liability, whether tort, breach of contract, breach of trust or otherwise”

      • Seems like it is now your duty as T to consider the situation where you might be able to claim money from the B such as in Alexander

    • Exemplary damages not available Harris v Digital Pulse

    • Mitigation unlikely to be relevant as B rarely can actually take sensible steps to mitigate against loss

• Account of profits made in breach of trust

  • Trustee must account to the beneficiary for any profit made from the trust Boardman

  • Doesn’t matter if the trustee made the profit honestly/dishonestly, intentionally/unintentionally, if the trust also benefited, or whether the P was able to make it themselves or not Boardman

    • Sufficient to establish that the illicit profit has been made in the context of a breach of trust. There is no extra causative link required

  • May (discretionary) make allowance for the trustee’s time, skills and effort, expenses. It is a question of NET profit Boardman

  • If the breach results in both a loss and profit. The P must usually elect between an account of profits to strip the loss, or equitable compensation to cover the loss. Tang Man Sit

    • Don’t have to elect this before trial

  • Unlikely to be used for misappropriation of an asset, but perhaps misappropriation of an opportunity

2. Proprietary Remedies

Proprietary remedies are important as they take the asset of the asset pool available to creditors. It also allows the B to claim particular property, especially as you are entitled to trace the property into the hands of others.

• Constructive Trust: A trust is imposed by equity to satisfy the demands of justice and good conscience (regardless of intention) where it would be unconscionable for the legal owner of the property to retain the beneficial interest in the property.

  • Effect:

    • Whilst the trustee holds the legal title to the property, equity will view them as holding the property on trust for the beneficiary

    • The D becomes constructive trustee. Equity suspends the rights until legal title can be transferred to the P

    • P obtains a beneficial interest in the property (changes ownership) and then, via order of the court, legal interest

  • Seek where the asset has increased in value

  • Takes effect at the time of breach

  • Situations where constructive trust over property won't be granted/ limited

    • Third parties would be adversely affected VUT Constructive trust over shares but not invention: third party interests

      • However, a CT is not permitted in a manner injurious to third parties merely because the P has no other useful remedy against a defendant John Alexander

    • CT but liberal allowance for skill and expertise Boardman:

    • Mixture of endeavour and goodwill makes CT difficult Warman

    • When there are other orders capable of doing full justice John Alexander’s Clubs

  • If the property is in the hands of the defaulting T, the new property will be held subject to the express trust. If the property is now held by a third party, it will be held on a CT for the P.

• Equitable Lien: An equitable lien is a right against property, which arises automatically by implication of equity to secure the discharge of an actual or potential indebtedness (per Deane J in Hewett v Court)

  • What are the implications of an equitable lien?

    • Security interest over the asset, but no change in ownership (does not give the P beneficial property rights over the property)

    • Value secured: Only value of judgement debt

    • Can obtain a court order for a judicial sale

      • Right to enforce a sale includes a right to recover the T’s profits Scott v Scott

  • Seek where the asset has decreased in value

    • A proprietary right that gets the beneficiary ahead of unsecured creditors; establishes a charge over the property

    • May be an allowance for skills

  • Use as an alternative to a CT when multiple claimants are involves, or when an asset has been purchased with money from more than one source.

3. Tracing

• Terminology:

  • When the asset has not changed form, you are following.

  • When the asset has changed form, you are tracing

• You must have established that you have a proprietary right to the property (the B of a trust has this)

  • If the P can’t rely on tracing to prove a proprietary base there will be no easy way to obtain a proprietary remedy

• When you can’t trace:

  • If the property is passed into the hands of a BDPFVWN (but can skip over them)

  • If the property has been dissipated.

• Situations:

  • Mixed funds used to improve an existing intangible asset creates proportionate rights in that asset ...