BREACH OF TRUST

LAW556
DEFINITION OF BREACH
 In Tito v Waddell (No.2), the court referred to 2 American definitions.
 Pomeroy’s Equity Jurisprudence “every omission or violation by a trustee of
a duty which equity lays on him…is a breach of trust.”
 Prof Scott (Scott on Trusts, 1967) stated a trustee “commits a breach of trust
if he violated any duty which he owes as trustee to the beneficiaries.”
 Thus a breach occurs when a trustee fails to properly carry out his duties,
either through an act or omission.
EXAMPLES OF BREACHES
 When trustees acted in a  When trustees failed to
way which is inconsistent act according to the
with the provisions of standard of reasonable
trust instrument or TA skill and care which then
1949 resulted in the trust
 Examples suffering loss.
Khoo Tek Keong V Ch’ng Joo Tuan Neoh & Anor
 Facts: The trustee has absolute discretion to invest. They invested in:
1. Personal loans with jewelry as the security (and included interest), and
2. Personal loans to chetties without security
 Question: Were these breaches of trust?
 Privy Council: The first was valid but the second was a breach. Giving loans
without security was a breach of trust.
1. Breaches before his appointment
 The principle is that a trustee is not liable for breaches of trust committed
before his appointment. – Re Strahan (1856) 44 ER 402
 However, on being appointed, he has a duty to familirize himself with the
trust instrument and to make reasonable inquiries to ensure that the
previous trustees had carried out their duties properly and that everything
was in order.
 Generally, the new trustee is “entitled to assume that everything has been
duly attended to up to the time of his becoming trustee.”- Re Strahan, per
Turner L J
 However, if he discovers any irregularity or a breach, then he should take
action against the trustee responsible. Otherwise, he may find himself being
liable for breaches before his appointment.
2. During his trusteeship
 The issue is whether the trustee committed the breach himself or whether
the breach himself or whether the breach was committed by the co-
trustees.
a) Liable for their own breaches of trust
 Trustees are only liable for their own acts or omissions. Trustees’ liabilities
are personal and not vicarious. He is personally liable for his own breaches.
 So, not liable for breaches by a co-trustee.
 See s.35(1) TA 1949- Implied indemnity of trustees.
 S.35(1)
 Effect: A trustee is only liable for his own acts.
 So, if 3 out of 4 committed the breaches, then only 3 of them will be liable.
The other will not be liable.
 However, it may be difficult for a trustee to prove that he was no at fault- at
the very least he would be liable for not exercising reasonable skill and care
in failing to detect the breach by a co-trustee.
b) Breach by co-trustees
 Booth v Booth, per Langdale MR
 “I am of opinion,….that a trustee who stands by and sees a breach of trust
committed by his co- trustee, becomes responsible for that breach of
trust…..”
 Generally, if there are 3 trustees, and 3 trustees are involved in the breach,
then all 3 of them are equally liable.
 Trustees are jointly and severally liable for any breaches of trust. So all of
them or any one of them can be sued by the beneficiries.
 So a trustee may find that he has to replace the whole loss suffered by the
trust.
 See Wilson v Moore (1833)
 Note s.35(1)
 “A trustee shall be chargeable only for money and securities actually
received by him notwithstanding his signing any receipt for the sake of
comnformity, and shall be answerable and accountable only for his own
acts, receipts, neglects, or defaults, and not for those of any other trustee,
or of any banker, broker, or securities maybe deposited, nor for the
insufficiently or deficiency of any securities, nor for any other loss, unless
the same happens through his onw wilul default.”
2 points:
i. Trustee is liable for his own acts only
ii. Not liable for acts of other trustees, unless there’s willful default.
 If there is willful default, that means that trustee was negligent/ reckless. If
so, he may be equally liable as the co-trustee. Liability is joint and several.
Beneficiaries need not ascertain who the guilty trustee is since they are all
equally liable to the beneficiaries
Definition of willful default/misconduct
 See Re Vickery [1931]
 Re City of Equitable Fire Insurance [1925]
 Willful misconduct = “either a consciousness of negligence or a breach of duty or a
recklessness in the performance of a duty.”
3) After retirement/ resignation
 A trustee will continue to be liable for breaches committed by him during
his trusteeship. So, he cannot retire to escape liability by retiring.
 However, he is not liable for breaches committed by other trustees after he
has retired.
 On the other hand, he will be liable if he retired to enable a breach to take
place.
 Head v Gould [1898] 2 Ch 250 at 273-274
 “……..in order to make a retiring trustee liable for a breach of trust
committed by a successor you must show, and show clearly, that the breach
of trust which was in fact committed was not merely the outcome of the
retirement and new appointment, but was contemplated by the further
trustee when such retirement and appointment took place.”
 Ie, retired trustee was fully aware and connived in the subsequent breach.
Meaning, he realized or foresaw that a breach would occur. By retiring, he
made the breach possible.
4) Liability of a passive/ non active/ sleeping
trustee
 Generally, a passive trustee is liable for acts of active trustees.
 See Re Haji Ali Bin Haji Mohamed Noor (decd) [1933] MLJ 13
THE END