What did a stuffed pike have to do with a court case over a trust?

It was a factor leading to a recent battle between three sisters and their brother over a farm in the New Forest. The farm, held in a trust, was allegedly sold at a significant undervalue of £4.2 million to Alister Cutts by trustees of a family trust. Alister’s sisters argued that the farm was actually worth £6.8 million, and one of the reasons for the sale was that Alister was the favourite of Paul Cutts, one of the trustees. Evidence supporting his preferential treatment of Alister was the purchase of a £950 vintage stuffed pike, bought for Paul by Alister.

The claim failed – but it serves as a reminder that strong emotional connections to family-owned land and money can often be at the heart of trust disputes.

• What is a trustee?
• What should trustees do?
• What is a ‘breach of trust’?
• What are the defences to a breach of trust claim?

What is a trustee?

A trustee is a person who holds ‘property’ (which includes money or other assets) in a ‘trust’ for the benefit of one or more other people, called ‘beneficiaries.’ A trustee can also be a beneficiary.

What should trustees do?

There are different types of trusts that are taxed differently. What the trustee must do depends on the nature of the trust, but their responsibilities broadly are that they should:

• Comply with the trust instrument.
• Take control of the trust assets.
• Act in the best interests of the beneficiaries and impartially between them.
• Avoid being in a position where their own personal interests conflict and not profit from the trust.
• Keep the beneficiaries informed and keep proper records and accounts for the trust.

What is a ‘breach of trust’?

A trustee who contravenes the terms of the trust or fails to carry out their duties will be in breach of trust. A beneficiary with an interest in the trust may bring a claim for breach of trust. Examples of breach of trust could include:

• Mismanagement of the trust assets.
• A transfer of assets to a beneficiary who should not have received them.
• ‘Self-dealing’ by a trustee (preferring their own interests to those of the beneficiaries).

The court will ask, “What would a reasonably prudent trustee have done in these circumstances?” In the case of Wight v Olswang (No 2) [2000], the trustee of a large holding of shares decided to diversify and sell them over a period of time. The claimant beneficiaries took him to court and argued that if all of the shares had been sold earlier, a higher price would have been achieved. The judge rejected the argument and found that the claim could only succeed if ‘no man of ordinary prudence’ with the trustee’s knowledge and experience would have kept the shares.

If a trustee is found to have acted in breach of trust, they are required to compensate the trust fund personally for the loss caused. Injunctions can also be sought to prevent the breach from continuing. Beneficiaries may also seek the removal of the trustee.

Where trustees are in doubt as to what to do, they can apply to the court for directions or guidance.

What are the defences to a breach of trust claim?

The defences of ‘limitation’ and ‘laches’ (excessive delay in bringing the claim) are available to a trustee seeking to defend a breach of trust claim.

So far as limitation is concerned, the starting point is six years from the breach (which is not necessarily the date of the loss arising). After then, a claim cannot be brought.

If a beneficiary’s interest has not yet ‘vested’ (i.e., come into their hands), then the six-year period will run from the point the interest vests. There is no limitation period for fraud or to recover trust property the trustee has taken for himself. Fraud for these purposes includes dishonesty and a reckless disregard for the interests of the beneficiaries. Laches applies if the beneficiary has unreasonably delayed in pursuing the claim.

It is also a defence if the beneficiaries consented to the breach, so long as they were of full age and capacity, were acting free of undue influence, and gave informed consent. It is not necessary for them to have benefited from the breach.

Also, section 61 of the Trustee Act 1925 allows the court to excuse a breach if it is the court’s view that the trustee has ‘acted honestly and reasonably and ought fairly to be excused’ for the breach. This is at the court’s discretion.

Where there is a ‘discretionary trust,’ trustees have absolute discretion as long as they act within their powers. The court will not interfere with the exercise of that discretion, even if the court would have exercised it differently (Gisborne v Gisborne [1877]).

If you need advice about a trust dispute, please contact our litigation team on our freephone 0800 8 60 62 65.

Sarah Young – Director & Solicitor