Breach of trust and tracing — SQE1 Trusts question
A worked single-best-answer question on breach of trust and tracing, with why each wrong option is wrong — the way SQE1 traps candidates.
Jasper is an unpaid lay trustee of a trust for 'the children of Rosa who reach 18'. A man claiming to be Rosa's son produced a convincing birth certificate and passport. Jasper checked them with a solicitor, who saw nothing suspicious, and paid him £30,000. The documents were later found to be skilful forgeries. Rosa's genuine children now sue Jasper for breach of trust. The trust deed has no exemption clause.
Which of the following best describes Jasper's position?
- AJasper is automatically relieved of liability, because he is an unpaid trustee.
- BJasper is strictly liable and the court has no power to relieve him.
- CThe court may relieve Jasper wholly or partly from liability if he acted honestly and reasonably and ought fairly to be excused.
- DJasper is not liable, because the trust deed must contain an exemption clause before trustees can be held liable.
- EThe court may impound the interest of the person who received the £30,000 to indemnify Jasper.
Show answer and reasoning
Rule: The court may relieve a trustee from liability for breach of trust if he acted honestly and reasonably and ought fairly to be excused.
- A Unpaid status is relevant to whether relief is granted but does not give automatic relief. (wrong rule)
- B Section 61 gives the court discretion to relieve a trustee who acted honestly and reasonably. (wrong rule)
- D Liability for breach of trust does not depend on an exemption clause; such a clause, if present, would limit liability. (wrong rule)
- E Impounding under s 62 applies to a beneficiary who instigated, requested or consented to the breach; the fraudster was not a beneficiary. (right rule, wrong facts)
Source: Trustee Act 1925, ss 61 and 62