Personal and proprietary claims

• What are proprietary claims in the context of trust property?

  Claims made when trust property or proceeds are in the hands of the trustee.
• Why are proprietary claims advantageous if the trustee is insolvent?

  Beneficiaries can claim the trust property ahead of other creditors.
• What happens if the value of trust property or proceeds increases?

  Beneficiaries can claim the increase in value.
• What can beneficiaries do if trust property is in the hands of the trustee?

  They can claim the trust property back.
• What can beneficiaries claim if the trustee has substituted trust property for another asset?

  Beneficiaries may claim that asset or a charge over it up to their loss amount.
• What happens if a trustee combines trust funds with their own to purchase an asset?

  Beneficiaries can claim a proportionate part of the asset or a charge over it.
• What can beneficiaries claim if a trustee places funds into a bank account with their own funds?

  Beneficiaries can claim a charge over the account.
• What is the basic rule when a trustee draws funds from a mixed account?

  The trustee withdraws their own money first.
• What can beneficiaries claim if money withdrawn from a mixed account is used to purchase an asset?

  Beneficiaries may claim a share of the asset or claim it back.
• What is the limit of a beneficiary's claim if trust money is dissipated?

  The limit is the lowest intermediate balance before the next payment in.
• How are assets purchased from mixed funds of two trusts shared?

  Beneficiaries of the two trusts share the asset proportionally.
• What happens when a trustee mixes funds from two or more trusts in their personal bank account?

  The court applies the 'first in first out' rule for current accounts.
• How does the court divide money in a savings account that contains mixed trust funds?

  The court divides the money proportionately between beneficiaries of the trusts.
• What can beneficiaries do if a third party is involved in a breach of trust?

  They may bring personal or proprietary claims against the third party.
• What constitutes a proprietary claim against a third party?

  A claim made if the third party knows or had notice that trust property was received.
• What is a personal claim against a third party in the context of a breach of trust?

  A claim based on the third party's conscience being at fault.
• What happens if a third party acquires legal title to trust property for value and without notice of the trust?

  The third party takes the property free of equitable interests of beneficiaries.
• What can a third party do if they did not pay value for the property but had no knowledge of the breach?

  Beneficiaries can make a proprietary claim using equitable tracing if the property is identifiable.
• What happens if an innocent third party uses funds to discharge a secured debt?

  The beneficiary can trace and resurrect it by subordination.
• What is the implication of knowing receipt for a third party?

  The third party is treated as if they were a trustee and must account for the full value of the property.
• What must beneficiaries show for a third party to be treated as a constructive trustee?

  That it would be unconscionable for the third party to retain the property.
• What is the liability of a third party who facilitated a breach of trust?

  They are liable and must account for any profit made.
• What are the nature and conditions of equitable remedies?

  • Available when there is no adequate remedy at law
  • Used when damages will not suffice
  • Discretionary and imposed if enforcement is feasible
  • Court balances hardship between defendant and claimant
  • Claimant must come to equity with clean hands
• What are examples of equitable remedies?


  • Equitable estoppel
  • Restitution for unjust enrichment
  • Injunction
  • Specific performance
  • Account for profits
  • Rescission
  • Rectification
• What is the limitation period for beneficiaries to bring a claim against a trustee for breach of trust?


  6 years. However

  • no limitation for fraud
  • No limitation period for claims to recover trust property or proceeds from trustee
  • Limitation period starts from benenficiaries contingent interest i.e turning age 18
• Is beneficial consent a defence for breach of trust?

  yes, only if

  • 18+
  • Full capacity
  • Not subject to undue influence
  • All beneficiaries give informed consent
• What is a lache?

  an equitable defence to breach of trust. Will on apply if

  • C delay prejudices the trustees position
  • Delay must be such that it would be unfair for court to allow the claim
  • Party asserting the laches must prove it
• Can the defence of laches be used even if limitation period has notnexpired?


  Yes but only use of this defence is fact sensitive and court will only apply if claimants claim would be unconscionable
• If a trust instrument has an exemption clause for breach - would the trustees be held liable for breach of trust?


  no
• What power does s.61 of the Trustee Act 1925 give the court?

  power to relieve a trustee from personal liability for breach of trust if:

  • trustee acted honestly and reasonably
  • Ought fairly to be excused for breach of trust
  • Ought fairly to be excused for not obtaining the courts directions
• Under s.61 Trustees Act 1925 - will the court relieve a trustee for breach of trust if they are a professional who was paid?


  Unlikely - even if acted honestly and reasonbly
• Can the court relieve a trustee for breach of trust?


  Yes - partly and wholly ( they may partly be liable)