Reading: Watt 12.2 and 16.4.1 onwards, and other relevant sections.

1. What are fiduciary duties?

2. If a trustee is found to be in breach of his fiduciary duty towards a beneficiary, how

will equity respond?

3. Problem Question

Noel and Liam are the trustees for a fairly large charity, which runs anger management
programmes. The charity owns shares in two companies: Supersonic Plc and its sister
company Supernova Ltd. In 2002 Noel predicted that Supersonic was going to struggle
unless it modernised. He tried to discuss this matter both with the company’s management
and with Liam, but the management were aggressive and Liam refused to consider either
selling the trust’s shares or buying more. Liam did, however, take an interest in Supernova
Ltd, a property development company, and in his capacity as the trust’s representative he
attended many meetings with the Supernova directors. At one of these meetings, there were
discussions about a new marina that was going to be developed, and about Supernova getting
involved. However, nothing was decided. Liam rushed from the meeting to contact the
current landowner, a farmer, who had no real use for the land, knew nothing about the
marina, and sold it to him very cheaply for £10’000. Meanwhile, Noel had decided that he
needed to take matters into his own hands. He spent £30’000 of his own savings on buying
Supersonic shares. This meant that at the next Annual General Meeting of shareholders, Noel
controlled enough votes to bring about sweeping changes. A year later, the company had
successfully cornered a new, and very profitable, market, and its shares were now worth five
times more. Noel sold the shares and spent the £120,000 profit he made on buying a holiday
home on the Isle of Wight.

Six years’ later the charity is threatening to bring legal action against Noel and Liam. Noel’s
Isle of Wight holiday home is worth £200,000, and Liam has just sold the land for £100’000.
Advise Noel and Liam.
READING: Watt, Chapter 11; 16.4.1, Chapter 14.

1. Problem Question
This question covers some aspects of trustee duties which were not mentioned in the lecture,
but are explained in Watt’s book (as listed above).

The Burstedt family trust has three trustees: Matt, James and Charlie. The trust property
consists of a medium-sized country house, Burstedt Hall, and several acres of farmland. The
trust also owns a substantial minority share holding in Pretty Fine Plc, an underwear
company. The land north of Burstedt Hall is of a poor quality, and when the last tenant
farmer left, it proved impossible to find anyone to take over the land. Instead, James bought
the land, very cheaply, for £300,000, to turn it into a haven for underwater wildlife.

Matt noticed that there were problems with the way Pretty Fine Plc was run. He tried to
persuade Charlie and James to use the money from the sale of the land to buy more shares, so
that they would have the most votes on the company board. However, the other two trustees
refused. Charlie said he could no longer be bothered with trust affairs, and that he would
agree to whatever James said. James told Matt that he prioritised diversification of
investment, and got Matt to agree to invest in Crash & Burn, a new concert promoting
company. In fact, James chose this company because he thought it would get him lots of free
VIP tickets to various gigs and festivals.

Matt bought shares in Pretty Fine Plc in his own personal name, until he, and the trust,
together owned 52%. Matt asked his wife Emma, a glamour model, to star in a new
advertising campaign, and the company’s performance improved spectacularly. The share
value increased by 50%; the trust made a profit of over £1 million, and Matt made £250,000.
Crash & Burn, on the other hand, went into liquidation, so that the trust’s £300,000
investment was completely lost.

The trust beneficiaries have heard that a new by-pass road will use the land north of Burstedt
Hall, which has consequently doubled in value. They have also discovered that Charlie has
been receiving bribes totalling £20’000 from James, “to keep his nose out of the trust’s
affairs”, and that Charlie has used this money to buy two paintings by the artist Stacey
Venom. Stacey has recently died, and the paintings are now worth £60,000. Charlie,
however, also has unsecured debts of approximately £100’000.

Advise the beneficiaries.

READING: Watt, Chapter 14, Chapter 11.

1. Problem Question

Patrick and Pete act as trustees for the Playne-White family trust. They have been given the
power, by the trust instrument, to invest in any way they choose, subject only to “their
statutory duties”. For the last decade, Patrick and Pete have been content to leave half the
trust fund in a government savings scheme. This scheme is one of the safest investments
available, but it pays a low rate of interest. The other half of the trust fund has been invested
in shares in two companies: Clandestine Industries and Fuel by Ramen (FBR). However, six
months ago, Pete married Ashlee, an environmental campaigner, who complained that
Clandestine and FBR were both involved in business that threatens rainforests. Pete and
Patrick decided to sell these shares and, at Ashlee’s suggestion, acquired a majority
shareholding in Fall Out Books (FOB), a small company which publishes books about the
dangers of nuclear energy. Patrick and Pete, who know nothing about this type of business,
feel too intimidated to attend any FOB board meetings. In any event, they consider
themselves to be far too busy. In fact, the management of FOB are also busy with alternative
ventures, and the company has been making a loss for several years.
Delilah, the beneficiary, was recently devastated when she discovered that FOB had been put
into liquidation. Delilah is also unhappy about the investment in the government scheme,
since it has resulted in no measurable capital growth. Patrick and Pete have referred her to a
clause in the trust instrument, which states: ‘the trustees shall not be liable for any loss or
damage from any cause whatsoever unless such loss is caused by the trustee’s actual fraud’.
Advise Delilah.
READING: Watt, Chapter 19.

1. In what circumstances can a third party be found liable for his involvement in trust
affairs?

2. What are the four requirements for liability for dishonest assistance?

3. Essay Question

The five categories of knowledge listed in Baden v Societe Generale [1993] 1 W.L.R. 509
have been rejected as unnecessarily technical, yet subsequent attempts to design fair and
workable tests for liability under dishonest assistance and knowing receipt have not been
entirely successful. Discuss.
How would you answer this? Please prepare an essay plan with bullet points.

4. Problem Question

When Nina left University, she was unable to secure a training contract. She found herself
unemployed, and was delighted to be contacted by a charming local businesswoman, Ella.
Ella, Managing Director of several companies, and said she needed some legal assistance.
Nina has been helping her draw up contracts for a restructuring of his group of companies.
Nina has also paid several cheques into her own bank account and then given Ella the cash.
What Nina did not realise, is that these were very complicated fraudulent schemes designed
to steal company funds. Ella’s companies have all been put into liquidation, and the bank that
lent him the money is now demanding that Nina should compensate them. Nina protests that
she never realised that something was wrong. Advise her.
READING: Watt, Chapter 18.

1. Why has tracing at common law become much less useful today than it was 100
years ago?

2. What are the advantages of using equitable tracing to assert proprietary rights?

3. What must be established before equitable tracing can be used?

4. Problem Question

Curtis and Marshall are trustees for a small trust. Curtis has just discovered that Marshall
took £100,000 for his own purposes, in breach of trust. He took this money to the race track
at Barnham, where he gambled the lot but managed to win back £50,000. He then used
£20,000 of that money to buy a car as a present for his mother. He then appears to have had a
pang of guilty conscience and donated £25,000 to his friend Melissa, who campaigns against
gun crime and gang culture. Melissa used this money to realise a long-standing dream to hire
a youth theatre company that toured inner city schools with a critically acclaimed play that
shows teenagers the dangers or joining violent gangs. It is presumed that Marshall then used
the remaining money to buy himself a new identity, because he has disappeared without a
trace. Advice Curtis, who would prefer to deal with this matter himself without involving the
beneficiaries.
1. How did Lord Greene MR in Re Diplock balance the interests of beneficiaries
tracing their assets against innocent volunteers who have mixed the trust monies
with their own?

2. Why do you think Lord Musthill in Re Goldcorp urged other judges not be too
ready to find fiduciary relationships, and so allow tracing in equity?

3. Problem Question

Rachel, an accountant, was employed by a number of musicians who trusted her to look after
their investments. Their confidence in Rachel was, however, proven to be misplaced when
she began helping herself to these clients’ money.

In January 2008, Rachel stole £10,000 from Bradley and placed it in her bank account, where
she already had £10,000 of her own money. In February, Rachel withdrew £10,000 to invest
in Jo’s Chickens Ltd. In March, she spent the remaining £10,000 on a diamond ring she gave
as a birthday present to her best friend Hannah.

In April, Rachel stole £5,000 from Paul’s account. The following month, she took £5,000
from another client, Jon. Both these sums were deposited in her own account. In June,
Rachel withdrew £5,000 and invested it in shares in a new record label called Tina’s
Turntables. Rachel decided in July that she needed a break, and so spent her last £5,000 on
booking a luxury vacation in Miami with Club 24 Seven.

In December, Rachel’s thefts were discovered. Jo’s Chickens had gone into liquidation and
the shares were worthless. Tina’s Turntables had signed famous rapper Giddy Scamp, so that
their shares were now worth £20,000.

Advise Bradley, Jon and Paul.