Equity and Trusts Problem Question: Tracing
Question:
Crowther is the trustee of the Vine Trust Fund. In breach of trust, Crowther donated two
paintings to a local children’s charity. The first painting is worth £20,000. The children’s
charity sold that painting to an art collector and spent the proceeds on delivering food-aid
packages. The second painting was initially valued at £10,000. However, since Crowther’s
donation, the artist has become very fashionable and, on its most recent valuation, the
second painting is now worth £125,000. The children’s charity has displayed the second
painting in its foyer.
Ramjohn is the trustee of the Mulberry Trust Fund. In breach of trust, Ramjohn transferred
£100,000 of the Mulberry Fund money into an account with 'Sparkleys Bank'. Prior to the
transfer, the Sparkleys account already contained £10,000 of Ramjohn's own money. Next,
Ramjohn spent £20,000, from the Sparkleys account, on a two-month road trip around the
United States. Finally, Ramjohn used £85,000 from the Sparkleys account to pay off a
personal debt he owed following the purchase of a luxury shed. Unfortunately, the shed has
suffered very severe damage in a recent storm.
Eloise is the trustee of both the Myrtle Trust Fund and the Grove Trust Fund. In breach of
trust, Eloise transferred £30,000 of Myrtle Trust Fund money into an account with 'Citywide
Bank', which had contained £0 prior to the transfer. She then, again acting in breach of
trust, added £10,000 from the Grove Trust Fund to the Citywide account. Next, using money
from the same account, Eloise bought a bottle of vintage wine worth £35,000, which she
drank. Finally, Eloise spent the remaining Citywide account money on shares, which have
increased in value to a current worth of £50,000.
Advise Crowther, Ramjohn and Eloise.
, Answer:
Crowther, Ramjohn are the trustees of Vine Trust Fund (VTF) and Mulbery Trust
Fund (MTF) respectively, while Eloise administers Myrtle Trust Fund (MYTF) and Grove Trust
Fund (GTF). All of them own fiduciary duties towards their beneficiaries to act in their best
interests. As they all had breached their obligations, they wish to know remedies available
to their beneficiaries.
Crowther
A breach of trust automatically grants the beneficiary the right to compensation for
losses occurred [Bateman v Davis]. As Crowther’s breach led to the losses of two paintings
which value £20,000 and £10,000 (currently £125,000) respectively, beneficiaries of VTF
could be entitled to £145,000 as Target Holdings v Redferns held that the value of property
is assessed at the date which the action was brought. However, it may appear that Crowther
was insolvent, and compensation would be useless to restore VTF. At such, proprietary
remedies under equity are considered.
To start with, as the two paintings were held by Crowther as trustee on behalf of
VTF, fiduciary duty and equitable interest of beneficiaries in the paintings are observed. This
will enable the process of tracing, to follow the same asset moving from hand to hand; or to
identify a new asset as the substitute for the old [Foskett v McKeown]. Applying the
definition above, the first painting was found possessed by an art collector. In fact, the
collector was a purchaser provided valuable consideration, hence it is important to verify his
knowledge upon the purchase, as if he knew that the painting was a trust property, and still
possess it, he will hold it on constructive trust for the beneficiaries. However, the case of
Macmillian v Bishopsgate Investment Trust illustrated that a constructive notice can be
affixed if the purchaser would have discovered if he had taken proper measures to
investigate them. Negligence would be irrelevant, since the purchaser was an art collector,
he must be equipped with the knowledge of the painting, constructive notice is imposed.
The purchaser will then bear the burden to rebut the notice, or the painting will be ordered
Question:
Crowther is the trustee of the Vine Trust Fund. In breach of trust, Crowther donated two
paintings to a local children’s charity. The first painting is worth £20,000. The children’s
charity sold that painting to an art collector and spent the proceeds on delivering food-aid
packages. The second painting was initially valued at £10,000. However, since Crowther’s
donation, the artist has become very fashionable and, on its most recent valuation, the
second painting is now worth £125,000. The children’s charity has displayed the second
painting in its foyer.
Ramjohn is the trustee of the Mulberry Trust Fund. In breach of trust, Ramjohn transferred
£100,000 of the Mulberry Fund money into an account with 'Sparkleys Bank'. Prior to the
transfer, the Sparkleys account already contained £10,000 of Ramjohn's own money. Next,
Ramjohn spent £20,000, from the Sparkleys account, on a two-month road trip around the
United States. Finally, Ramjohn used £85,000 from the Sparkleys account to pay off a
personal debt he owed following the purchase of a luxury shed. Unfortunately, the shed has
suffered very severe damage in a recent storm.
Eloise is the trustee of both the Myrtle Trust Fund and the Grove Trust Fund. In breach of
trust, Eloise transferred £30,000 of Myrtle Trust Fund money into an account with 'Citywide
Bank', which had contained £0 prior to the transfer. She then, again acting in breach of
trust, added £10,000 from the Grove Trust Fund to the Citywide account. Next, using money
from the same account, Eloise bought a bottle of vintage wine worth £35,000, which she
drank. Finally, Eloise spent the remaining Citywide account money on shares, which have
increased in value to a current worth of £50,000.
Advise Crowther, Ramjohn and Eloise.
, Answer:
Crowther, Ramjohn are the trustees of Vine Trust Fund (VTF) and Mulbery Trust
Fund (MTF) respectively, while Eloise administers Myrtle Trust Fund (MYTF) and Grove Trust
Fund (GTF). All of them own fiduciary duties towards their beneficiaries to act in their best
interests. As they all had breached their obligations, they wish to know remedies available
to their beneficiaries.
Crowther
A breach of trust automatically grants the beneficiary the right to compensation for
losses occurred [Bateman v Davis]. As Crowther’s breach led to the losses of two paintings
which value £20,000 and £10,000 (currently £125,000) respectively, beneficiaries of VTF
could be entitled to £145,000 as Target Holdings v Redferns held that the value of property
is assessed at the date which the action was brought. However, it may appear that Crowther
was insolvent, and compensation would be useless to restore VTF. At such, proprietary
remedies under equity are considered.
To start with, as the two paintings were held by Crowther as trustee on behalf of
VTF, fiduciary duty and equitable interest of beneficiaries in the paintings are observed. This
will enable the process of tracing, to follow the same asset moving from hand to hand; or to
identify a new asset as the substitute for the old [Foskett v McKeown]. Applying the
definition above, the first painting was found possessed by an art collector. In fact, the
collector was a purchaser provided valuable consideration, hence it is important to verify his
knowledge upon the purchase, as if he knew that the painting was a trust property, and still
possess it, he will hold it on constructive trust for the beneficiaries. However, the case of
Macmillian v Bishopsgate Investment Trust illustrated that a constructive notice can be
affixed if the purchaser would have discovered if he had taken proper measures to
investigate them. Negligence would be irrelevant, since the purchaser was an art collector,
he must be equipped with the knowledge of the painting, constructive notice is imposed.
The purchaser will then bear the burden to rebut the notice, or the painting will be ordered
