FAMILY TRUST CASE STUDY

Family Trust Case Study



Family Trust Case Study

Trustees (osborne and Dawson) have fiduciary duties towards beneficiaries which arise by virtue of the trust relationship.

In this case Osborne and Dawson both used the trust for their own personal gains. Thus commiting fiduciary breach of trust.

Remedies for Beneficiaries

Tracing in Equity

The major remedies issue in this fiduciary breach is the Tracing of the equity. The first point to make is that Tracing at common law will not be possible because the trust monies have been mixed with Osbourne's monies in his private account, subject to the possible application of the Rule in Clayton's case which is a rule of banking which has the effect of 'unmixing' mixed funds. Before considering whether equitable Tracing will be possible in the present case we will first dismiss the possibility that the rule in Clayton's case might be applicable. This rule is sometimes seen as part of the equitable Tracing process, but it is more accurate to see it as a peculiar traditional rule of bank accounting which is effective to notionally 'unmix' monies in a mixed bank account. The rule is that where a number of payments are made into and out of a current bank account the first payment in is deemed to be paid out first. Applying the rule in the present case would have the result that Osbourne's monies would be deemed to have been used to purchase the piece of fine art (a result which would also flow, incidentally, from the judgment in Re Hallett's Estate (1880) 13 ChD 696 which presumes that a trustee uses his own monies before using those of the trust when withdrawing monies from a mixed account to make an unauthorised investment), Black Settlement monies would have been used to reduce the mortgage, and White Settlement monies would have been dissipated on the cruise. The result of applying the rule in Clayton's case would, then, be manifestly unfair to the beneficiaries of the White Settlement. In such circumstances the application of the rule would not accord with the presumed intentions of the parties and will not, therefore, be applied (Vaughan v Barlow Clowes [1992] 4 All ER 717). Tracing is a proprietary action which entitles beneficiaries, or those who have the rights of beneficiaries, to claim direct recourse against specific property , a portion thereof or property considered the equivalent of trust property, from the trustee, on the grounds that the subject property remains his property by virtue of the trust. In effect, this enables him to side-step the creditors net, on the basis that he is not a creditor, but an owner. Such a remedy is available to beneficiaries both where there has been a dissipation or alienation of trust property following (or constituting) a breach of trust, and where trust property has been misapplied. 

In addition to the fiduciary relationship between trustee and beneficiary (as between a corporate trustee and investors), Equity recognises the following fiduciary relationships: agent and principal, partner and partner, solicitor and client, and director and ...