Deck 21: Fiduciary Duties; Remedies Against the Trustee for Breach of Trust

Question 1

Which of the following relationships would not normally be considered to be fiduciary relationships per se (ie without the proof of special circumstances).

A) Sales assistant and customer.
B) Solicitor and client.
C) Trustee and beneficiary.
D) Company director and company.

Answer 1

A

Question 2

In which two of the following circumstances might an employee be treated as owing fiduciary duties to the employer?

A) Where the cleaning supervisor at a bank is given the key to the bank vault containing safety deposit boxes.
B) Where a car mechanic is given special training in repairing batteries in electric cars, and shortly after the training is complete, leaves to set up her own business.
C) Where an employee has been hired to help to develop safety guards for cricketers, and without the agreement of his employers markets his own safety guards on e-bay.
D) Where an employee uses his employer's telephone number to select National Lottery tickets and wins £14million.

Answer 2

A , C

Question 3

Which of the following is not a situation where the trustee is likely to have to account for any incidental profits?

A) Bela received confidential information through his position as trustee that a company was about to make a substantial profit through a merger. He decided to purchase shares in the company in his personal capacity. The day before he bought the shares, the information about the merger was leaked in the national newspapers.
B) Melanie is trustee of a trust, whose property includes a majority shareholding in Gadgets R Us Ltd. Melanie appointed herself a director of Gadgets R Us Ltd, and has been collecting a monthly fee for her services as director. There is no clause in the trust dealing with this situation.
C) Lionel is trustee of the Morgan Property Trust, which included a lease of a market garden. The lease recently ended, and the landlord would not renew the lease for the trust. Instead, Lionel took the lease himself.
D) Charlie is a trustee of a trust that included a pleasure boating business on the River Thames as part of its assets. Charlie won some money last year, and has set up a rival business offering pleasure boating in the same location at lower prices.

Answer 3

A

Question 4

Archie has been hired as the procurement director of a building trade company. His job is to procure building materials for the company.
Which of the following statements is the most accurate in the circumstances described?

A) Archie will be in breach of contract if he receives an undisclosed commission from suppliers to the company, but there are no other consequences for him.
B) Archie will be personally liable to refund the company for any loss which it has suffered as a consequence of him receiving an undisclosed commission from suppliers to the company, but there are no other consequences for him.
C) Archie will be personally liable for account to the company for the amount of any undisclosed commission he may have received from suppliers to the company. He is also in breach of contract and may lose his job.
D) Archie will be in breach of contract if he receives undisclosed commission from suppliers to the company. He will also be a constructive trustee of any such commission he receives.

Question 5

Anne is a millionaire who is seeking to buy a property in London. She hires Dustin who acts as a property search consultant. The terms of the contract provide that Dustin will receive a 'search fee' of 1% of the purchase price of any property which Anne signs a binding contract to purchase.
Dustin selects a number of properties already being marketed by estate agents for Anne to view. Anne chooses to purchase Lofty Towers in Kensington. The estate agent for the sale is Wolfton & Co which pays Dustin one-quarter of the commission which it receives for the sale. Expert evidence shows that this payment had no impact upon the sale price to Anne.
In what circumstances will Anne be prevented from claiming that Dustin is a constructive trustee of the additional commission which he has received from Wolfton & Co?

A) Dustin will not be a constructive trustee of the additional commission if the payment of such a commission is common practice in the sector, even though this was not known to Anne.
B) Dustin will not be a constructive trustee of the additional commission because Anne has suffered no loss.
C) Dustin will not be a constructive trustee if he telephoned Anne prior to the sale contract being signed and told her that he might receive a small additional payment from Wolfton & Co, but did not tell her how much this would be.
D) Dustin will not be a constructive trustee if his contract with Anne specified that he might receive a commission from the seller and the commission did not exceed the limits specified in the contract.

Question 6

Bryan establishes a discretionary trust in favour of a class of beneficiaries comprising his children and their spouses.
One of the children, Mick, marries Jerry in Bali. The trustees accordingly make payments to Jerry. It later transpires that because Mick and Jerry had not been resident in Bali prior to the wedding, they are not, in fact, married.
Which of the following statements is the most accurate?

A) The trustees will have committed a breach of trust only if, at the time they made payments to Jerry, they had reasonable cause to suspect that the marriage was invalid.
B) The trustees will have committed a breach of trust only if, at the time they made the payments to Jerry, they actually knjew that the marriage was invalid.
C) The trustees will have committed a breach of trust only if a court of competent jurisdiction declares annuls what appears on the face to have been a valid marriage.
D) The trustees have committed a breach of trust by paying a person who is not within the class of objects of the trust, regardless of whether they were aware of this or not.

Question 7

Trustees hold £500,000 on trust for Oko for life, and on Oko's death on trust for her four children, one of whom is James. The funds are safely invested and produce an income of £20,000 per year, which is Oko's only source of income apart from the state old age pension. Without making any further enquiries, at the request of James, the trustees invest £400,000 of the trust funds in a property investment company that he has just established.
James' company fails after less than a year, having paid no dividends. The trustees recover just £30,000 of the sum they invested.
Which of the following statements is the most accurate?

A) The trustees have committed no breach of trust because, since the Trustee Act 2000, trustees are allowed to invest in any kind of investment. This is therefore an authorised investment.
B) The trustees have acted in breach of fiduciary duty because they have preferred the interests of one beneficiary to those of another. There is no other basis for asserting a breach of trust.
C) The trustees have exceeded their authority because under the Trustee Act 2000, they are required to consider whether to take professional financial advice before making an asset management decision, and they have failed to do this. They have therefore acted beyond their powers in making this investment. There is no other basis for asserting a breach of trust.
D) The trustees have acted without reasonable care or due prudence because reasonable and prudent trustees would not have made this investment. There is no other basis for asserting a breach of trust.
E)
There is a strong case for arguing that the trustees have acted beyond their powers, without reasonable care or prudence, and in breach of fiduciary duty.

Question 8

Which of the following statements is false in relation to the duties imposed on trustees of a trust?

A) A trustee is free to deal with trust property as owner, but is compelled by equity to use this freedom to benefit the beneficiaries.
B) Any act of a trustee in breach of trust will automatically be void.
C) The exact obligations imposed on trustees derive from the intention of the settlor, general equitable principles and statutory duties.
D) Trustees must carry out the duties under a trust, and can be ordered to do so or replaced by the court.

Question 9

Which of the following most accurately describes the position in relation to trustee exoneration or exemption clauses in England and Wales

A) Trustees can never be exempted from any kind of liability.
B) Trustees can be exempted from liability for fraud, but not from liability for negligence.
C) Trustees can be exempted from liability from negligence, but not from liability for fraud or gross negligence.
D) Trustees can be exempted from liability for negligence or gross negligence, but not from liability for fraud.

Question 10

Which of the following is not a situation where the trustee may have a defence to an action for breach of trust? (Think carefully).

A) Bela wrongly committed a breach of trust six and a half years ago. The beneficiaries Chloe and Emma found out about the breach three months after it was committed.
B) Melanie, in breach of trust, made wrongful investments. She later told the beneficiaries, Emily and Getrude, about this, and they condoned the breach. Emily said she would consent on behalf of Lionel, her sixteen year old son, who was the only other beneficiary under the trust.
C) Chris wrongly purchased trust property seven years ago, in breach of the self-dealing rule. The beneficiaries, Edward and Jack knew about the breach at the time it was committed. Chris has spent over £85,000 improving the property since he purchased it.
D) Charlie advanced money to Anne to help her pay off her debts, rather than the stipulated purpose under the trust. Jane and Brian, the only other beneficiaries of the trust, both consented to the advancement being made.