Breach of duty and accusations of fraud may appear to seem related; yet, the truth is that when put before a court, the facts are both distinct and separate.
In this instance, the younger of three beneficiaries took issue with the conduct of her appointed trustees and sued for damages, despite no evidence of foul play.
Upon the death of her grandfather, the appellant was granted a trust of both land and capital subject to her coming of age at twenty-five; after which, a number of trustees were to provide interim payments to increase the life of the trust.
The trust itself, was the product of a successful farming business now run by the appellant’s mother and grandmother, while assisted by the nominated trustees of their marriage settlement under the Variation of Trusts Act 1958, while clauses 9 and 15 of the original marriage settlement provided that:
“(9) [T]he trustees … shall have power to carry on or join or assist in carrying on or directing any business of farming … with power for that purpose … to employ or engage … any managers or agents … and to delegate all or any of the powers vested in them in relation to the business … [A]nd the trustees shall be free from all responsibility and be fully indemnified out of Paula’s fund in respect of any loss arising in relation to the business.
(15) No trustee shall be liable for any loss or damage which may happen to Paula’s fund or any part thereof or the income thereof at any time or from any cause whatsoever unless such loss or damage shall be caused by his own actual fraud…”Variation of Trusts 1958
In the course of litigation, the appellant claimed that the trustees had wrongfully farmed her portion of land at a cost to her trust funds, yet to the benefit of her mother and grandmother; that the trustees had thus failed to manage her trust in accordance with their obligations, that the trustees had failed to establish why her portion of land was sold for less than that of her mother’s, and that the trustees failed to set a suitable interest rate when loaning trust funds to her mother.
These four incidents were collectively presented under a claim of fraudulent breach of duty at the expense of the appellant’s interests, and that clause 15 failed to protect them from such liability.
Likewise, the respondents counter-claimed that clause 15 provided exemption from liability, and that clause 9 provided similar protections when examining the variation in land valuations and loan interests granted in the course of their duties.
The respondents also contended that the appellant’s allegations were statute barred under section 21 of the Limitation Act 1980, and so unlawful.
In the first instance, the judge held that clause 15 was correctly applied, but that clause 9 did not allow for such indiscretions, and that the appellant’s claims were not subject to the statute of limitations.
After which, the judge awarded the respondents eighty percent of the costs, but held that the remaining twenty percent was to be paid directly from them, as a number of points raised and lost fell outside the scope of the trust and were therefore exempt from recovery from the trust funds.
When the matter was presented to the Court of Appeal, the Court went to considerable lengths to clarify the definition of fraud and its relationship to breach of duty; and it became evident that while allegations of gross and general negligence, honest incompetence, indolence and misapplication of trust funds were feasible, there was simply no tenable reason to suggest that the respondents had acted with anything less than honest intent.
With regard to the barring under statute, it was explained how section 21(1)(a) of the Limitation Act 1980 clearly stipulated that:
“No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action (a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; …”Limitation Act 1980
Therefore, the appellant was well within her rights to bring a claim of fraud, despite the findings of the court.
Having reconsidered the position taken by the trial judge for cost apportionment, it was also held that while relying upon RSC Ord.62 r.6(2) to deny recovery on grounds that the trustee acted for reasons of self-interest over that of the trust fund, the judge had overlooked the principle that trustees are entitled to claim from trust funds when successfully defending themselves against a claim of breach.
Hence, funds were set aside for full payment while in closing, the Court granted the appellant a right to amend her claims (the House of Lords later dismissed her right to appeal), before reminding the parties that:
“It is the duty of a trustee to manage the trust property and deal with it in the interests of the beneficiaries. If he acts in a way which he does not honestly believe is in their interests then he is acting dishonestly.”