Jurisdiction of court to relieve trustee of breach of trust

Jurisdiction of court to relieve trustee of breach of trust

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  Applied in Fales
  

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  Both the corporate trustee and the widow trustee breached their duties to sell the shares
  
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    Power coupled with duty, ancillary power, must be exercised eventually
    
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      When would it be reasonable to delay the power of the sale
      
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      They let the storm clouds gather
      
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  Statutory defence is discretionary and applies where trustee acts honestly and reasonably
  
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    Widow left in the dark, made inquiries that were not answered
    
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  Recognizes that the standards of conduct for a trustee in equity can be harsh and inflexible
  
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    Standard of conduct in equity is unreasonable in modern context, need to be able to relax standard at the discretion of the court (via the statute)
    
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  Requires consideration of all the circumstances: whether the trustee was paid, expertise of trustee, whether breach was minor or technical, whether decline caused by general economic conditions, whether conduct was reasonable
  
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    No distinction between professional trustee and civilian trustee in normal duty conduct, but defence does take this into account, higher standard
    
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    Corporate trustee didn’t make the cut, actions not reasonable, got reports telling them to sell and ignored it. Their actions destroyed the trust.
    
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    Widow: held liable for her own bad actions, wasn’t trained, wasn’t being paid, did everything she could have done in the circumstances
    

Trustees do have an inherent duty to act honestly and in good faith, but there are no duties of skill, care, prudence and diligence as a general core set of obligations

Was the presumption displaced?

Analysis: The presumption was displaced here as John had told his parents that he would look after his sister when they were gone, and the transferring of the land was done to accomplish this goal (instead of explicitly doing it to screw his wife out of any compensation). The sister even admitted that she didn’t want it and that he told her he was explicitly doing it to screw the wife and that even after the transfer he worked the land himself. Here, another, key issue was that the presumption applies to a stranger, not necessarily to a family member (lewin on trusts). As this was his sister, they construed as an effected inter vivos gift. John was also informed that the wife didn’t have claim, so his actions weren’t entirely fraudulent. Ultimately, based on the “resulting use” of the land, it was clear the gift was supposed to take effect upon his death, thereby creating a resulting trust.

Do the express terms of the agreement rebut the presumption

Does the evidence support an inter vivos gift through the bank account

Analysis: Unlike in Niles v Lake where the court was clear that the document did not evidence the intentions of the parties, the court does point out here that it is possible for a document used by the banks to devolve both the legal and equitable interest in property (and that they theoretically might be incentivized to do this to avoid litigation). Fortunately, there was far more evidence of the settlors intention here due to his relationship with his daughter and the correspondence that they had with one another. Here, the presumption of advancement was not appropriate due to her advanced age, but the presumption of a resulting trust was applicable due to a large gratuitous inter vivos transfer as well as the joint bank account. He clearly wanted to gift the cash in order to avoid estate taxes and did so, as well as letting the bank know about the reasons for the creation of the account (for tax avoidance purposes).

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  Husband must use fraudulent information to rebut presumption of advancement
  
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    No harm was caused as creditor was paid
    
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  3 out of 4 judges held the fraudulent intent could not be used to rebut the presumption of advancement (wife took property absolutely)
  

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  Husband transferred a farm to his wife to avoid potential creditors, who never materialized
  
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  Evidence of avoiding creditors was admitted and husband rebutted presumption
  
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  BC has not abolished the presumption of advancement
  

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  Absolute gift instead of a trust
  
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    Any sums of money are given to her to pay for housekeeping
    
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    On death, far greater than what was needed with housekeeping purposes
    
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      Should remainder revert to estate?
      
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  Certain funds provided in a will to the daughter exceeded what was needed for her immediate current expenses
  
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  Court held that it was an absolute gift that was not limited by the purpose of a gift
  
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    Court of appeal reversed decision – it was not limited by purpose or object of gift, these were mere precatory words for housekeeping, not actually part of constitution
    

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  If a gift is followed by a failed trust, court may separate the two
  
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  Will left life interest with remainder to someone else
  
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    Remainder interest was invalid as it violated Rule against Perpetuities
    
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      Life income still valid
      
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  Court – if we void the whole trust, life interest gets nothing (Even though its not her fault)
  
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    Court uses severance – life interest is an absolute gift, remainder is a separate resulting trust
    

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  When will severance occur?
  
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    Court must determine whether there is an initial absolute gift that can be separated from the invalid trusts
    
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      If the gift is coupled to a series of limitations that form one system of trusts, it cannot be separated
      
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      Multiple contingencies built into one, hard to knock the portion off
      
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    Separation of valid trusts should be attempted by placing them in a separate clause or sentence or adding contrasting words
    
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      Modifying it to save valid parts of trust before striking out element out
      
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    Look to other reference to the gift in the trust instrument to see if they treat the gift as absolute
    
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      Preamble or other information might show appropriate intention
      
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      Get into the mind of the settlor, multiple gifts or one?
      
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    If the settlor tried to make an exhaustive system of trusts to provide for every eventuality, it will be more difficult to separate the offending trusts
    

5. 
   Defendant must have had an equitable obligation in relation to the activities giving rise to the asset in his hands
   
6. 
   Assets in the hands of the defendant must have been shown to result from deemed or actual agency activities of the defendant in breach of his equitable obligation to the plaintiff
   
7. 
   Plaintiff must show a legitimate reason for obtaining the property can be personal or related to the need to ensure others like the defendants remain faithful to their duties
   
   1. 
      May be related to personal conditions
      
   2. 
      May be worth it to punish the wrong doer
      
8. 
   Must be no factors that render the imposition of a constructive trust unjust in all the circumstances
   
   1. 
      Look at third parties, will it be unfair to them?
      
      1. 
         Creditors, BFPV, etc.
         

Analysis: It was obvious that K used his knowledge in an inappropriate way and in breach of his equitable obligations as the fiduciary of Solous. It is important to impart a constructive trust here in order to dissuade further breaches in this fashion. Additionally, Soulos offered to cover the costs back to the original price, so it is clear that it isn’t unjust and is in fact better for K than what he deserves. There is no element of UE here due to the price going down, but the court also maintains the flexibility of CT’s as both a remedy as well as a form of trust.

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  Relationship will attract fiduciary obligations when:
  
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    Fiduciary has the scope for the exercise of some discretion or power;
    
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    Fiduciary can unilaterally exercise the discretion or power to affect the beneficiaries legal or practical interests
    
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    Beneficiary is peculiarly vulnerable or at the mercy of the fiduciary holding the discretion or power
    

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  Trustee could not take lease for himself as it could compromise the duty of loyalty to the beneficiary
  
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    Trustee might not try hard if he wants it for himself
    
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    Might be the only person who cannot take the lease, but its ok because he only learned of the opportunity due to fiduciary position
    
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  Was irrelevant that the infant himself could not renew the lease
  
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  Constructive trust imposed on the lease to effectuate an assignment of the lease from the trustee to the infant
  
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  Accounting of profits since the lease was obtained by the trustee
  
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  Trustee may claim indemnification from the trust for expenses in obtaining the lease
  
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    Not a complete punishment, basically acting like he was supposed to
    

Can a CT beheld over the profits acquired?

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  Position or office held
  
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  Nature of the opportunity
  
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    Super secret or generic
    
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  Ripeness of the opportunity
  
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  How specific the opportunity is
  
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  Director or officers relationship with the opportunity
  
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  Degree of knowledge possessed
  
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    Close involvement give them info?
    
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  Circumstances in which the information was obtained
  
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  Whether the information was private
  
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  Length of time following termination of employment
  
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  Circumstances of termination of employment
  

On the facts, the opportunity, even though precluded from Can Aero, was simply too ripe and too close to the managerial power that these senior managers once had. While they are allowed to take opportunities, there must be at least some reasonable time after (key factor) before doing so.

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  Textile company – some shares held on trust, fox is a trustee, boardman is a solicitor to the trust, became concerned about performance of company, lots of assets but not paying out income, boardman and Tom (beneficiary) thought they could turn the company around.
  
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    Can we as a trust get a controlling interest? Go get a majority
    
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      Fox Demurred
      
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  Tom got elected viz trust shares votes, boardman and tom started buying their own shares, do it with knowledge of trustees, overtime boardman and tom get majority interest
  
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    Boardman eventually became chairman of company, liquidated assets, generated a substantial profit to everyone
    
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    One of the other beneficiaries (brother of tom) sues for breach of fiduciary duty, claimed they obtained profit without consent of beneficiaries
    

Lord Cohen

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  Use of any knowledge or opportunity that comes to the fiduciary in the course of duty does not automatically make him liable to account; depends on the facts of each case
  
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    Shares purchased on open market, not liable – here, was private company
    
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  Here, the information and opportunity to purchase shares came by virtue of their positions as fiduciaries
  
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    They knew it was a good opportunity due to their knowledge of company assets
    
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    Also knew the directors, managers, etc
    
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  The fiduciaries were in a potential conflict of interest in buying shares of the company
  
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    Werent interest at the time in buying, but maybe they would be later
    
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  Fiduciaries are accountable despite no harm being caused and the great work (and profit) they made for the trust
  
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    Even though they were above board for the most part, the conflict of interest was too great
    

Lord Hodson (Stricter approach)

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  Strict liability must be imposed on those in a fiduciary obligation
  
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  It matters not whether the beneficiary could have or wanted to take advantage of the opportunity
  
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    They didn’t have all the consent necessary and they could have gotten it
    

Viscount Dilhorne (Dissenting)

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  No actual conflict of interest as the trustee made it clear that the trust would not be purchasing additional shares
  
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    Gave them implicit authorization
    
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  Information obtained by fiduciaries was not of value to the trust
  
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    Pointed out they weren’t interest
    
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  Breach of trust only where information could have been used by the beneficiary and whether its use prejudiced the trust
  

Lord Denning – would have allowed generous remuneration – would be inequitable to take profits and not pay for the skill that generated the profits

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  What happens when bribe generates additional value, what happens to the profit?
  
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  Reid paid off by criminals via bribes, breached fiduciary obligation to the crown
  
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    HK government didn’t want 2.5M, wanted his NZ investment properties
    
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    PC: Choice of remedy by claimant
    
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  Bribes transfer legal title to the recipient
  
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    Reid has legal title to bribe
    
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    Equity insists they cannot keep bribe via breach
    
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  Equity cannot permit a person to keep a bribe in breach of their fiduciary obligations
  
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    Became a debtor in equity to the crown for 2.5M
    
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  An accepted bribe is a debt in equity but a constructive trust may also be inposed to capture value increase in the property to strip the wrongdoer of any benefit from the bribe
  
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    Hold bribe on constructive trust
    
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      Can sue for damages or constructive trust (Sue for debt in equity or constructive trust)
      
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        If property available, constructive trust
        
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        If property not available, sue for debt
        
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  Effect of bribe-taker’s third party creditors?
  
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    Reid effectively had 0 equity, unsecured creditors are out of luck
    
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    Recent case law - Secured creditors have CT’s over you, can’t give away something you don’t have
    
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      Will have to analyze whether it is fair
      
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      Even if secured creditor seizes, tracing might remove it from their hands
      

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  Corona trying to find new mining sites, find a giant gold mine, attempt to acquire property.
  
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    Lac interested in Corona, thinking of investing or buying Corona
    
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    During negotiations, Corona shared confidential information, wanted to do joint operation to develop site
    
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    Lac bought the property itself, pooched the transaction
    
  • 
    Corona claimed constructive trust – 800M-2B worth property
    
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  Could a breach of confidence give rise to a constructive trust
  
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  Majority of court says no fiduciary relationship
  
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    Breach of confidence not fiduciary but equitable
    
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  Majority says constructive trust imposed
  

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  Breach of Confidence – everyone agreed
  
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    Breached, even though there was no discussion of confidentiality obligations
    
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  Duty of Confidence breached where:
  
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    Information conveyed is confidential;
    
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      Yes – proprietary information, did their own surveys
      
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    Information was conveyed in confidence and;
    
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      Yes – obvious from facts not to be public knowledge, in significant negotiations and possible joint development considerations
      
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    Information was misused by the party to whom it was communicated
    
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      Of course – Lac used info as springboard to purchase property and find opportunity
      
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  Ordinary business relationships will not be fiduciary in nature
  
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    but here the relationship satisfied the Frame v Smith
    
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    Unusual facts, big – small company, at the mercy of the big company, couldn’t do it themselves
    
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  Constructive Trust
  
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    Does not require a special relationship like a fiduciary relationship, a breach of confidence could be sufficient
    
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      Must keep confidential info confidential, can get CT imposed against you
      
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    Does not require a right to property but can create new property rights
    
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      Corona never owned the property but couldn’t
      
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      Allowed to take property viz CT
      
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    Monetary remedies should be awarded unless special circumstances such as sharing in the increasing value
    
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  Remedy – should be CT over the gold field given breach of confidence
  
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    Corona would have acquired the property eventually
    
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    Lac made some expenditures, got some deductions for ones Corona would have made
    

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  CT should only be awarded for a breach of confidence in special circumstances
  
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  Shouldn’t create new property right, no justification for CT, corona had no right to any property and should only get monetary remedies
  

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  Husband murdered wife, inherited her property
  
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  Before he was hanged, he willed everything to his mistress
  
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  Constructive trust imposed on the wife’s property for estate so it could not be given away by the husbands will
  
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    He should never inherit the property as a profit from criminal wrong doing
    
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    Property held in trust for wife’s family
    

Note: Turns out he probably wasn’t guilty.

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  Husband/Wife has life insurance policy, will pay to survivor, should term be enforced after he murders his wife
  
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    Would CT be imposed for benefit of estate
    
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  Constructive trust should not be imposed
  
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    Drafters of the contract never anticipated this absurdity, would go against public policy
    
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    It would require the insurance company to pay the wrongdoer and then have equity impress the money with a constructive trust
    
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      Would be wrong to determine liability under the contract
      
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    CT should not create a proprietary interest
    
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  No unjust enrichment of the wrongdoer as he was not paid
  
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  No breach of contract as the term requiring the insurance company to pay the survive is void for public policy
  
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  Windfall for the insurance company
  

Cory J: Should be CT for benefit of victim estate, not fair to let the house win by pocketing premiums