LW351: The Diamond Family Trust (the “Trust”) was established in 1990, when its instrument of trust was executed by Harry Diamond: Equity & Trust Law Assignment, MU, Ireland

The Diamond Family Trust (the “Trust”) was established in 1990, when its instrument of trust was executed by Harry Diamond, who donated many valuable assets to the trust. Harry subsequently died in 1992. The trust instrument provides that the trust is governed by three trustees.

Under the instrument of trust, the trustees must act unanimously in all major Trust decisions, including those involving the purchase and sale of Trust property.

Events on or about January 15, 2020. Alice is one of the three trustees for the Trust. The trust owns many valuable paintings, including a Picasso. Without authority from the other two trustees, Alice negotiates to sell the Picasso to Betty.

The negotiation takes place online by video link. Alice and Betty reach an agreement, and Alice sells the Picasso to Betty. Betty pays the agreed price: €100,000. (An objective expert would estimate that fair value, in 2020, was about €150,000.) Betty made payment, and Betty took immediate possession of the Picasso. Betty is an expert art dealer. Betty thinks she is getting a “good” buy, but not a “great” buy. In other words, the €100,000 price is not entirely out of line for the illiquid market in valuable paintings by Picasso. Alice gives Betty a receipt.

Betty is not on notice of any reason to believe that Alice lacked good title or lacked authority to transfer the painting. Betty purchased the painting for her personal account, and not for her business or for a third party.

Alice invests the €100,000 in publicly traded stocks, which increase in value. Her investment is now worth €350,000. She sells some of the stock for €100,000, and then she deposits that amount in the Trust’s bank account.

Betty has a special friend: Charles. Betty and Charles spend time together. Like Betty, Charles is also an expert art dealer. Charles was in the next room during the negotiation between Alice and Betty. Charles heard the entire
negotiation. Charles and Alice have known one another for many years; indeed,

they were special friends for many years. And Charles was familiar with the Diamond Family Trust’s instrument of trust. Charles also knew that Alice was selling the painting without authority from the other two trustees. Charles failed to intervene before, during, or immediately after the transaction.

Betty is now under some personal financial pressure. Charles knows this. Charles offers to buy the Picasso from Betty for €110,000. And Betty accepts Charles’ offer. Charles makes payment, and he takes possession of the Picasso.

The remaining two trustees are David and Jonathan. They discover what Alice has done as a result of Alice’s subsequently transferring €100,000 into the Trust’s bank account. They demand Alice resign as trustee. Alice makes a full statement of what she has done (including the facts about her investments in stocks), and then Alice resigns. The instrument of trust provides that where one of the three trustee positions is vacant, the remaining two trustees can choose a new trustee. David and Jonathan, not knowing that Charles now possesses the Picasso, select Charles as the third trustee.

Events on or about July 15, 2020. Charles is now under some personal financial pressure. Charles authorizes an art auction house—“Sethby’s”—to sell the Picasso at a public auction. Charles transfers the Picasso to Sethby’s vault,
where it is now stored. Sethby’s advertises the painting and gives the public notice that it will go on auction on January 15, 2021.

Jonathan reads the Sethby’s advertisement, which appeared in a newspaper of record. Jonathan and David then interview Charles. Charles is not reluctant to discuss how he came into possession of the Picasso. As a result, Jonathan and David know all the relevant facts and circumstances.

You are the solicitor to the Trust. You have held that role since 1992, when you replaced the Trust’s original solicitor (who held that position from 1990 to 1992). Jonathan and David ask you for a memorandum. At this juncture, Sethby’s has not yet sold the Picasso. Jonathan and David are considering one or more lawsuits brought against four potential defendants (the “defendants”): Alice, Betty, Charles, and Sethby’s. Who or what entity should bring the lawsuits? Jonathan and David want to know who or which (if any of the defendants) should be sued.

What is the likelihood of success in a lawsuit against each defendant, and why? Discuss what defences (if any) each defendant is most likely to make use of. What remedies (if any) can be sought against each defendant with
a reasonable likelihood of success? If monetary compensation is a remedy that can be sought with a reasonable likelihood of success, how will the court determine the amount of such compensation? Discuss the potential applicability of joint and several liability among the defendants and related limitations (if any) against double recovery. Explain the strengths and weaknesses of a lawsuit brought against each defendant.

How (if at all) does any of your analysis change if Charles was the Trust’s original solicitor between 1990 and 1992?

Finally, how does your analysis show (if at all) that equity functions as a conscience-focused or honesty-focused judicial system?

Except as otherwise directed, follow all the original guidance put forward in the checklist and model instructions which were part of the original continuous assessment.

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LW351: The Diamond Family Trust (the “Trust”) was established in 1990, when its instrument of trust was executed by Harry Diamond: Equity & Trust Law Assignment, MU, Ireland
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