Chapter 18 Self-Test Questions

'Where a trustee has misappropriated trust property and used it to acquire other property, the beneficiaries must seek a personal remedy to recover the value of the property which was misappropriated.'

True.

False.

How do primary duties differ in Equity and Common Law?

There are no primary duties in Equity.

Primary duties are more likely to be enforced in Equity than at Common Law.

Monetary remedies are rarely an adequate substitution for the performance of a primary duty in Equity.

Primary duties are the same in Equity and at Common Law.

Traditionally, what was Equity's principal mechanism for providing relief following a breach of duty by a trustee or fiduciary?

Taking of an account.

Equitable compensation.

Pecuniary damages.

Order to act or stop acting in a certain way.

Which of the following statements are true?

Following a breach of trust or fiduciary duty, the only remedy is compensation for loss. If the beneficiary or principal has suffered no loss, then they are not entitled to a remedy.

Following a breach of trust or fiduciary duty, the only remedy is compensation for loss. If the beneficiary or principal has suffered no loss, they will still be entitled to a nominal remedy.

Following a breach of trust or fiduciary duty, there are a variety of remedies, but they will only be available if the beneficiary or principal suffered loss.

Following a breach of trust or fiduciary duty, there are a variety of remedies and they do not necessarily depend on establishing loss.

Frankie is a fiduciary and enters into a contract with Trixie on behalf of her principal, Phil, in circumstances under which Frankie will profit. What will it mean for Phil to unwind the transaction?

Phil will be entitled to compensation for loss suffered.

Frankie will be obliged to disgorge any benefits she has accrued.

The contract will be rescinded, and the parties will be restored to their original positions.

Phil will take Frankie's place as the contracting party.

'The effect of falsification is that the trustee will be treated as having funded the transaction from their own assets.'

True.

False.

Traditionally, which of the following features of causation have applied to the falsification of an account?

The 'but for' test.

Remoteness.

Foreseeability.

There is no role for causation in relation to falsification.

What is the key factor in assessing whether a trustee is liable to restore to the trust the value of property transferred in breach of trust?

Whether the trust is traditional or commercial.

Whether or not the trust continues to subsist.

The preference of the beneficiaries.

Whether the trustee is a professional or an amateur.

Which of the following is a consequence of the decisions in Target Holdings and AIB v Redler?

Equity no longer applies in commercial contexts.

There is a distinction between commercial and non-commercial trusts.

The role of falsification has been eliminated.

Falsification and surcharge are now recognized as the same thing.

In AIB v Redler, according to Lord Toulson, why was the defendant liable to compensate £275,000 instead of £3.3 million?

The loss would have been suffered even if the defendant had not acted in breach of trust.

It was unfair to require the defendant to restore the whole £3.3 million.

The claimant had contributed to the loss.

The trust had been terminated.

A trustee has made an unauthorized investment. Can the beneficiaries falsify or surcharge the trust?

Falsify.

Surcharge.

Neither.

Either.

A trustee failed to invest diligently as she should have. Can the beneficiaries falsify or surcharge the trust?

Falsify.

Surcharge.

Neither.

Either.

In what circumstances can a trustee offset a gain against a loss?

The trustee can always offset a gain against a loss.

Only where the gain is made and the loss in suffered in the course of the same transaction.

Only where the gain is made and the loss is suffered within a short period of time.

There are no circumstances in which a trustee can offset a gain against a loss.

When might equitable compensation be available?

Equitable compensation is available following any breach of trust.

Equitable compensation is available when it is not possible to take an account.

Equitable compensation is available when the trust has come to an end.

Equitable compensation is available when requested by the beneficiaries.

'Where a fiduciary breaches a fiduciary duty and the principal seeks equitable compensation, the test of causation adopted is the usual "but for" test.'

True.

False.

Will a fiduciary who has acted dishonestly in breaching their fiduciary duty be liable for all losses resulting from the breach, even those that are not foreseeable?

Yes.

No.

What was the decision in Murad v Al-Saraj?

The fiduciary was liable to account for only the profit that he would not have made without breaching his duty.

The fiduciary was not liable to account for any of the profit he made as he would have made some profit notwithstanding the breach of duty.

The fiduciary was liable to account for all of the profits, even those that he would have made notwithstanding the breach of duty.

The fiduciary was liable to compensate the principal for loss suffered as a result of his breach.

In order to obtain an account of profits, what must be shown?

It must be shown that the fiduciary profited from the breach.

It must be shown that the principal suffered loss.

It must be shown that the fiduciary profited at the expense of the principal.

It must be shown that the fiduciary has profited from some source.

When will the courts award an equitable allowance to a defendant in breach?

When the defendant's conduct is justified.

When profits were earned by virtue of the defendant's own efforts.

When the defendant's breach also caused the claimant to profit.

When it is equitable to do so.

'The equitable allowance can be justified on the ground that, where the defendant has made a profit by virtue of their own time and skill, it cannot be said that all of the defendant's profits derived from the commission of the wrong.'

True.

False.

'The court has a discretion to make an order for the payment of interest to punish the defendant.'

True.

False.

'The trustee or fiduciary in breach will only be liable to pay actual interest that they have received.'

True.

False.

'Compound interest originated in the Common Law courts.'

True.

False.

'Compensatory and gain-based remedies are not always inconsistent.'

True.

False.

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