Deck 22: Tracing

Question 1

A corrupt trustee dishonestly withdraws some of the trust funds and pays them into his own bank account. He use some to make gifts to members of his family who do not know the source of the money. Which of the following statements are true (more than one applies)?

A) The trustee is in breach of trust and will be personally liable to restore to the trust the value of what he took from the trust.
B) The beneficiaries can recover from the trustee any sums which he took and which are still in his possession.
C) The beneficiaries can recover from any members of the family any sums which they received which can be proved to have been derived from the trust and which are still in their possession.
D) The family members are personally liable, as volunteers, to restore to the trust fund the value of any sums which they received and which can be proved to have been derived from the trust but which they have spent or otherwise disposed of.

Answer 1

A , B , C

Question 2

Fred, a corrupt trustee, dishonestly withdraws £10,000 of trust funds. He pays the funds into a joint current bank account which he operates with his wife, Gladys. At the time the £10,000 was paid in, the account was £3.000 overdrawn. Two days later, Gladys's salary of £2,000 is paid into the account, so that it now stands £9,000 in credit.
Fred and Gladys have just been declared bankrupt. Which of the following statements about the rights of the beneficiaries to any money in the account is true?

A) The beneficiaries of the trust can claim the whole £9,000 in the account because this is less than the sum which Fred stole from the trust.
B) The beneficiaries of the trust can claim £4,500 from the account, representing Fred's entitlement to funds held in the account.
C) The beneficiaries of the trust can claim £7,000 from the account because this represents the lowest intermediate balance.
D) The beneficiaries of the trust can make no claim to any money in the account. The bankruptcy of the account holders means that they are limited to making a claim with all the other creditors against Fred's trustee in bankruptcy.

Answer 2

C

Question 3

Howard, a trustee, bought a brand new car costing £20,000. He paid the deposit of £5,000 in January using his credit card. He paid this credit card debt in full using his own money. He paid the balance of £15,000 in March, again using his credit card, which at the time had a debit balance of £6,000. In April Howard repaid the whole of the credit card debt of £21,000 using money wrongly withdrawn from the trust.
Which of the following statements most accurately describes the rights of the beneficiaries?

A) The beneficiaries can assert a proprietary claim to the car because it cost less than the sum which was wrongly taken from the trust.
B) The beneficiaries cannot assert any proprietary claim to the car because it was purchased using a credit card and the trust money was used merely to pay a debt.
C) The beneficiaries can assert a proprietary claim to three-quarters of the value of the car because their funds were used indirectly to make this proportion of the purchase.
D) The beneficiaries can assert a proprietary claim to the whole value of the car because their funds were used indirectly to fund the whole of the purchase.

Answer 3

C

Question 4

In which of the following situations is it least likely that property of the original trust could be traced by the beneficiaries? (Think carefully before answering).

A) Reginald, as trustee, withdrew £60,000 from a trust and put it into his own bank account, which contained £10,000. Reginald spent £10,000 on a world cruise.
B) Katrina withdrew £2,000 in breach of trust, and put it in her bank account, containing £1,000. Katrina spent £3,000 on a luxury weekend in Paris. She has since deposited a further £2,000 into the account.
C) Harold, as trustee, withdrew £4,000 from a trust and put it into his own bank account, which contained £6,000. Harold bought a second-hand Harley Davison motorcycle for £4,000 and then spent the remainder of the bank account on a coast-to-coast biking holiday in the United States of America.
D) Melissa took £5,000 in breach of trust from the trust, and placed it into the current account of another trust for which she was a trustee. The current account contained £5,000. Melissa then took £5,000 from the current account and used it to pay her medical bills.

Question 5

Karl, a dishonest financial adviser, took deposits from clients as part of a Ponzi scheme. He told 'investors' that they were investing in high yield securities, but in fact he was using the money to fund his high living lifestyle. He kept very poor records. Having taken £5million from investors, he was declared insolvent. Karl's only remaining asset is a house which has just been sold for £500,000 and which had been purchased with investors' funds.
Which of the following statements most accurately describes the rights of investors?

A) Those who made the most recent investments will be paid first because the usual rule is 'first in, first out'.
B) Those who made the earliest investments will be paid first because the usual rule is 'first in, first out.'
C) The available assets will probably be distributed proportionately between those investors who can prove they made an investment.
D) Because there is no easy way of telling who owns what, the assets will be available for distribution between Karl's general creditors.

Question 6

Which of the following is unlikely to be considered a trustee de son tort?

A) A solicitor who continues acting on behalf of a trust without further instructions after the death of the last surviving trustee.
B) A financial adviser who is employed by the trustees to make an unauthorised investment on behalf of the trust.
C) A person purportedly appointed as a trustee by an instrument in writing when the trust instrument requires the appointment to be made by deed.
D) A person purportedly appointed as a trustee by deed as specified in the trust instrument but without the written consent of the protector as required by the trust instrument.

Question 7

Which of the following is not a requirement to establish liability for dishonest assistance in breach of trust.

A) Dishonesty on the part of the person being held liable
B) Dishonesty on the part of the trustee
C) Assistance by the person being held liable
D) A breach of trust or a breach of fiduciary duty by a trustee or other fiduciary.

Question 8

Malignant decided to commit a breach of trust by selling shares in a company owned by the trust for £80,000. Malignant enlisted the help of his personal agent, Trusting, to make the sale. Malignant told Trusting that the sale was to raise money for investment and the proceeds should be paid to him to speed up any subsequent investment. Trusting did as instructed and gave the proceeds to Malignant, saying 'This is not normal procedure, but I'd rather not know what you are up to'. Malignant has now spent the £80,000 on a weekend trip to Las Vegas.
Hopeful, the beneficiary, wants to know if he may have an action against Trustingt

A) Hopeful will not have an action against Trusting, as Trusting did not know that the sale was in breach of trust.
B) Hopeful has no action against Trusting, as Trusting is not a trustee of the trust.
C) Hopeful may have an action against Trusting, as Trusting did not act as an honest and reasonable person would in the circumstances.
D) Hopeful may have an action against Trusting, as he received trust property in breach of trust.

Question 9

Which of the following is not a requirement for imposing personal liability where a person has received trust property in breach of trust.

A) The person must still be in possession of the property concerned.
B) The person must have received the trust property for their own benefit.
C) There must be something which can be characterised as fault on the part of the recipient to impose liability on them.
D) The person receiving the property must have received it in circumstances which constituted a breach of trust.

Question 10

What is the key holding in BCCI v Akindele [2000] 4 All ER 221 in relation to liability for knowing receipt of trust property in breach of trust?

A) It must be proved that the recipient was dishonest because this aligns liability with dishonest assistance in breach a trust.
B) Liability can only be imposed where the recipient had such knowledge of the circumstances that it would be unconscionable for them to retain the benefit of the property.
C) There is no need to show any degree of knowledge on the part of the recipient if they were volunteers because no one who receives property to which they were not entitled should have any right to retain the benefit of it.
D) Liability will be imposed on a recipient of trust property who has failed to enquire fully into the source of the property.