BREACH OF

TRUST
UEQ3622
EQUITY & TRUSTS II
INTRODUCTION
A trustee is not only accountable for any
profit made in breach of trust;

May also liable to make good to the

beneficiaries the loss to the trust estate
if fails to comply with the duties
imposed upon him by equity and by the
trust instrument;
General
Personal liability of the trustee is
independent of fraud, intent or personal
incompetence;

Exists where the breach is innocent or

merely technical;

Object of the rule: not to punish trustee

but to compensate the beneficiaries;
Cont.
Purpose : too put the plaintiff in a position as
he would have been in had sustained the
wrong for which he was being compensated:-
Target Holdings v Redferns;

Trustee only liable for his own breaches

and not for those of his co-trustee;

Unless the trustee is guilty of willful default;

Cont.
Trustee not liable for breaches of trust
committed before his appointment;

Remains liable after retirement for breaches

committed by him/her during his/her term of
office;

Not liable for breaches committed after his/her

retirement but liable if his/her retirement
facilitate the breach of trust;
Cont.
Head v Gould [1898] 2 Ch 250;

If the trustee in breach is also a

beneficiary the beneficial interest will
loss against the other beneficiaries;
Measure of Liability
Measure of the personal liability is the
loss caused to the trust estate, directly @
indirectly;

The onus is on the complainant to

prove a causal connection between the
breach and the loss;

Target Holdings v Redfrens [1995];

Cont.
The personal liability of the trustee
might accrue in the certain circumstances:

(a) Purchase of Unauthorised investments:

Trustees make an unauthorised investment liable for

the loss incurred on sale;

Beneficiaries may if they are sui juris and may adopt

the unauthorised investment;
Cont.
(b) :Improper retention of unauthorised
investments

Trustee who improperly retains unauthorised

investments is liable for the difference between the
present value and the price which it would have
raised if it had been sold at the proper time;
Cont.
(c) Improper sale of an unauthorised investments;
Beneficiaries may require the trustee either to account for the
proceeds of sale or replace the investment, valued as at he
date of judgment;

(d) Failure to invest:

Trustee should invest within a reasonable time;

If fails to do so will chargeable with interest;

Beneficiary will be entitled to the difference between the

actual value of the trust fund and the value which a prudent
trustee is likely to have achieved;
Cont.
(e) Employment of trust fund in trade:
Trustee who employs trust funds in his trade or business
is liable to account for the profits he makes or for the
sums involved with interests whichever is the greater;
Interest;
Misapplies trust funds will be liable not only to
replace the misapplied principal fund +
interest from the date of misapplication;
Rate of the interest and choice between
simple and compound interest is within the
courts discretion;
Cont.
Compound interest is usually charged
where that fairly represents what the
trustee may reasonably be treated as
having received and in cases of fraud or
misconduct;
Cont.
Profit in one transaction loss in another:

Gains made out the trust property belong to

the beneficiaries while a loss incurred by
reason of a breach of trust be made good by
the trustee;

Dimes v Scott (1828); Fletcher v Green

(1864); Bartlett v Barclays Bank Trust
Co. Ltd (No.1) [1980] Ch 515;
Liability of Trustees inter-se
2 or more trustees are liable for breach of trust
when their liability is joint and several;

Beneficiary may claim the whole loss by suing

all or some or anyone of those who are liable;

The rule: joint liability of trustees required an

equal sharing of the liability, regardless of
fault :- Bahin v Huges (1886) 31 Ch. D. 390
Cont.
(i) Solicitor and trustee: - Re
Partington (1887);

(ii) Beneficiary Trustee: -

Chillingworth v Chambers [1896] 1
Ch 685;
Defences
Participation in @ consent to a breach of
trust:
A beneficiary who has participated in or
consented to a breach of trust either in
advance or subsequently, may not proceed
against the trustee;
Mere knowledge and a passive assent do
not constitute consent;
Court has to consider all the circumstances
relevant;
Cont.
Re Pauling (1962) 1 WLR 86;

Release and acquiescence:

Concurrence in the act or acquiescence
without original concurrence, will release
the trustees;
But court must inquire into circumstances
which induce such;
Cont.
Impounding of the beneficiarys interest:
S64 (1) of Trustee Act 1949;
Re Somerset [1894] 1 Ch. 231;

Statutory power to relieve trustee:

S63 of Trustee Act 1949;
Re Mulligan(Decd) [1998] 1 NZLR 481;