Law of trust, breach of trust.

1. 1
BREACH OF TRUST & DEFENCES
Breach of Trust is failure tocomplywithduties
laidupontrustee bythe trust instrumentand
alsoby equity
 May be ina positive action,eg;
investinginanunauthorisedinvestment
 Maladministrationthatcause lossesto
trust property
Settlor-trustee isliable tothe same extentas
any othertrustee althoughtrustwascreatedby
the same person.
Nature of Liability
1. Personal Liabilitytobeneficiaries
2. LiabilityInterSe :Contributionand
Indemnity
3. Criminal Liability
4. Defences
Basis of liability:Liabilityiscompulsory.
1. Compensationtothe beneficiariesfor
whateverloss
2. Restorationtothe beneficiariesof the
propertyif an unauthorisedprofithas
beenmade.
Objective isnot to punishtrustee but to
compensate beneficiary.
1. Personal Liabilityto the Beneficiary
Compensationtobeneficiaries: Remedysought
iscompensationforbreach.
Target Holdings vRedferns [1995] .
HOL : the principle oncompensationforbreach
isthe same as damagesat commonlaw.
A trustee whocommittedabreachof trustwas
not liable tocompensate the beneficiaryfor
losseswhichthe beneficiarywouldhave
sufferedif there hadbeennosuchbreach
Liabilityis Personal Not Vicarious
A trustee is liableforhis ownwrong and not
for those of hisco-trustee. Unlessif there isa
breachby co-trustee,trustee will be atfault.
S. 35 of the Trustee Act 1949: Implied
indemnityoftrustees.
(1) A trustee ……shall be answerable and
accountable onlyforhisownacts, receipts,
neglects,ordefaults,andnotforthose of any
othertrustee,or of anybanker,broker,or other
personwithwhomanytrust moneyor
securitiesmaybe deposited,norforthe
insufficiencyordeficiencyof anysecurities,nor
for anyotherloss,unlessthe same happens
throughhisown wilful default.
Re Lucking’s WT[1968] 1 WLR 866
Luckinghad committedaBOT in entrusting
large sumsof moneytoa manager, without
adequatelysupervising him.
His fellowtrustee, Block, was not liable for
Lucking’sBOT,but entitledtorelyonwhat
Luckinghad toldhimaboutthe company’s
affairs.
Bahin v Hughes (1886) 31 Ch D 390
A passive trustee wasliable tothe same extent
as an active one.
In thisthe breachwas a breach bya co-trustee
but trustee leftthe matterinthe handof
trustee withoutinquire orstandbyto see that
breachis committed.
Breaches before Appointment:
A trustee is not liable for breachesof trust
committedbefore his appointment.
Breach After Retirement
A trustee remain liable afterretirementfor
breachescommitted byhimduring his term of
office. If he died,hisestate will be liable.

2. 2
He will not be liableif breach iscommitted
after his retirement
He will be liableif he retire inordertofacilitate
a breach of trust
Head v Gould(1989) 2 Ch 250
H: In orderto make a retiringtrustee liable you
mustclearlyshowthe breachby him.
Breach of Trustee – Beneficiary
Where trustee inbreachisalso a beneficiary,
hisbeneficialinterestbearsthe lossagainstthe
otherbeneficiaries.
A trustee will be requiredtoindemnifyhisco-
trustees tothe extentof hisbeneficial interest
and not merelythe extentthat he has
personallyreceivedsome benefitfromthe
breach.
Chillingworth v Chambers [1896] 1 Ch 685
Criminal Liability
Breach of trust isnot a criminal offence.But
there isa breach of trust committedinrespect
of criminal offence
Bankruptcy of a defaultingtrustee
If a liable trustee forbreachof trust becomes
bankrupt,the claim(breach) isprovable inhis
bankruptcy.
MEASURE OF LIABILITY
Trustee liable forthe restitutionof the money
or thing,or value of the thing,andto account
for profitmade or losscaused.
a) Payment to wrongperson or
misapplicationofTrustfunds.
Increasedrate of interestplusprincipal amount
payable
b) Saleof authorized and purchaseof
unauthorized investment
DEFENCES A TRUSTEE MAY TAKE
A trustee whohascommittedaBreach of trust
may be able to escape personal liabilityby
bringingthe case withinafew ground .
RE PAULING’SSETTLEMENT TRUST (1964)
Facts: The childrenof the Mrs. Young husband’s
familysuedtorecoverfromthe trustee who
managedtheirmother’smarriage settlement.
The childrenwere inmanyoccasionfaced
financial difficulties.Mainfinancial sourceswas
Mrs Younghusband’smarriage settlement
where she wasthe tenantfor life.
The trustee inthissettlementhasthe powerto
advance the trust fundup to ½ of the
presumptive share of each children.
Several advanceswere made tothe children.
The mother’sconsentwasobtainedinevery
case.
1954 : an advancementwasmade inorderto
avoidestate dutyonthe deathof the mother –
childrenwere aware thatadvancementmight
be in breachof trust.
1958 : the childrenbroughtanactionagainst
the trustee claiming£29,160 on the groundthat
thissum hadbeenimproperlypaidoutbyway
of advancement
The trustee reliedonthe consentand
acceptance of the advancedbeneficiaries.
i) A beneficiarywhohas participated in or
consentedto breach.
WilmerLJ:“that if the trustee canestablisheda
validrequestorconsentbyadvanced
beneficiarytothe advance inquestionthatisa
gooddefence”
ii) After the breach, beneficiarieswhether
formallyor informallyshowedtheirapproval
through ‘release or acquiescence.

3. 3
Thisrefersto the conductof the beneficiaries
afterbreach
A release maybe formal orinferredfrom
conduct
iii) Expirationof 6 years
No actioncan be taken againsttrustee
personally, afterexpirationof 6yearsperiod
underthe LimitationAct1953; Except in cases
regardingfraud.
iv) Statutory reliefs.63 ofTrustee Act
Powerto relievetrustee fromPersonal Liability
If it appearsto the court, the trustee hasacted
honestlyand reasonably andought to be
excusedforthe breachof trust, the court may
relieve himeitherwhollyorpartlyfrom
personal liability.
RAJA ENA JAINAB ABIDEEN (1930) SSLR 212.
Three requirementsthattrustee oughttobe
fairlyexcused.
1) trustee had acted honestly
2)Trustee had acted reasonably – dependson
the circumstancesof the case
3) Court will take intoaccount the conduct of
parties,trustee and beneficiary.
v) Advice of Solicitor- Trustee
What needtobe provedisthatthe trustee in
committingbreachof trust actedon the advice
of solicitor.
vi) Breach by a Single Trustee Alone
If breach iscommittedbyone trustee,the co-
trustee will notbe heldliable.
Dicta inBahin v Hughes;‘But as far as caseshad
gone at present,relief hasonlybeengranted
againsttrustee whohashimself benefitedof
BOT.
vii) ExemptionClause in the Trust Document
If the trustdocumenthas specifymatterswhich
couldexclude trustee frombreach,thenthe
trustee will notbe liable.
Statutory Indemnities.
Section31 – 35 & s64 of the Trustee Act 1949.
DEFENCES (summery)
RE PAULING’SSETTLEMENT TRUST (1964)
The trustee reliedonthe consentand
acceptance of the advancedbeneficiaries.
i) Beneficiarywho has participated in or
consentedto breach.
ii) After the breach, beneficiarieswhether
formallyor informallyshowedtheirapproval
through ‘release or acquiescence.
iii) Expirationof 6 years (Except incases
regardingfraud.)
iv) Statutory reliefs.63 ofTrustee Act (the
trustee hasacted honestlyand reasonably)
RAJA ENA JAINAB ABIDEEN (1930) SSLR 212.
Three requirementsthattrustee oughttobe
fairlyexcused.
1) trustee had acted honestly
2)Trustee had acted reasonably – dependson
the circumstancesof the case
3) Court will take intoaccount the conduct of
parties,trustee and beneficiary.
v) Advice of Solicitor- Trustee
vi) Breach by a Single Trustee Alone
vii) ExemptionClause in the Trust Document
Statutory Indemnities.