Chapter 18 Scenario Questions

Maria is a trustee. She makes an unauthorized investment of £10,000 in shares. The shares are now worth only £8,000.
What can the beneficiaries do?

The beneficiaries can surcharge the trust and demonstrate that it would have an additional £10,000 but for Maria's breach of trust. Maria is required to pay £10,000 into the trust fund.

The beneficiaries can falsify the trust. Maria will own the shares absolutely and is required to pay £8,000 into the trust fund.

The beneficiaries can falsify the trust. Maria will hold the shares on trust for the beneficiaries.

The beneficiaries can falsify the trust. Maria is required to pay £10,000 into the trust fund.

Julie is a trustee. She holds £100,000 on trust for Harriet. Julie is instructed to invest £50,000 in shares upon the receipt of certain documents. Julie mistakenly invests the £50,000 before receiving the documents. In that time, the value of the shares falls significantly. The next day, Julie receives the documents.
What is Harriet entitled to?

Once Julie received the documents the trust was terminated so Harriet is entitled to compensation for loss suffered by the breach. As Harriet would have suffered the loss in any event, by virtue of the fall in value of the shares, there is no loss caused by the breach to be compensated.

The trust subsisted, and Julie was still under a duty to act in accordance with her instructions. The trust was to have either the £100,000 or £50,000 and the relevant documents. At the date Harriet took an account, there was nothing to falsify.

Julie acted in breach of trust by investing without receiving the documents and so Harriet is entitled to take an account. The account is taken at the date of breach at which time the trust is missing £50,000 and so Harriet can falsify the disbursement and Julie is obliged to restore £50,000 to the trust fund.

Harriet would be entitled to falsify the trust but Julie would be entitled to relief under section 61 of the Trustee Act 1925.

Felix is a trustee. He has a duty to sell a house and invest the proceeds from the sale in various companies as identified by the settlor. The trust instrument states that the property should be sold as soon as possible for whatever reasonable amount can be obtained. The house is worth £250,000 and Felix puts it on the market for that price. He gets an offer for £225,000 but refuses it. Subsequently, a motorway is built next to the house which makes it more difficult to sell and lowers its value to £150,000.
Is Felix personally liable for breach of trust?

Felix has not breached any duties and so cannot be liable for any loss.

The beneficiaries are able to surcharge the account for £225,000.

The beneficiaries are able to surcharge the account for the value of the investments, as determined at the date of judgment.

The beneficiaries are able to surcharge the account for £150,000.

Dan is a fiduciary. Dan profited from his position as a fiduciary by receiving a bribe. Dan invested the bribe in land which significantly increased in value.
What, if anything, is Dan's principal, Paula, entitled to?

Dan is liable to account to Paula for the value of the land.

Dan is liable to account to Paula the original value of the bribe.

Dan is liable to compensate Paula for loss caused by his breach.

Dan is not liable.

Georgia is a trustee. Georgia gives £1,000 of trust property to her cousin, George, in deliberate breach of trust knowing that he does not fall within the class of beneficiaries. The money was a loan with interest paid to Georgia at 5 per cent per month. If the money had been property administered under the trust, it would have been invested in shares and received interest of 3 per cent per month.
What options are available to the beneficiaries?

Georgia is liable to restore the £1,000. The beneficiaries are entitled to the total of the 3 per cent and the 5 per cent interest meaning that Georgia owes 8 per cent interest to the trust.

Georgia is liable to restore the £1,000. The beneficiaries are entitled only to the compensatory interest and so Georgia is liable to pay only 3 per cent interest to the trust.

Georgia is liable to restore the £1,000. Not only is Georgia liable to pay 8 per cent interest to the trust, but the court has a discretion to order a higher rate of interest. The court would likely order Georgia to pay more than 8 per cent as she deliberately and dishonestly breached the trust.

Georgia is liable to restore the £1,000. The beneficiaries have a choice of the compensatory interest or the disgorgement interest. They cannot have both.

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