the nature of liability and defences

1. 1. Breach and Absence of Equitable Authority
- the trustee wrongfully exceeds the equitable
authority conferred upon him or her by the trust
instrument
2. Personal and Proprietary Remedies
-both remedies can be claimed upon the trustee who
breaches of trust
3. Third parties involved in the breach of trust
- refer to constructive trust
Ex: knowing assistance
Case: Royal Brunei Airlines Sdn Bhd v Tan
Personal liability
1. Liability of the trustee is compensatory
2. Liability is personal, not vicarious
- Nothing to do with co-trustee
- s30,61 England Trustee Act
- s63 Malaysia Trustee Act
3. Breaches before Appointment
- not liable
case: Re Strahan
case: Re Forest of Dean Coal Mining Company
4. Breaches after Retirement
- not liable
- case: Head vs Gould
5. Trustee-beneficiary
- liable, not allowed to claim beneficial interest
Criminal liability
- s405,406 Penal Code
- case: Bahru Zaman Bin Ali v PP
1. Consent or Acquiescence
case: Re Kerr
case: Re Pauling’s Settlement Trust
2. STATUTORY PROTECTION AND DEFENCE
s63 Trustee Act 1949
… honestly and reasonably, and ought fairly to be excused for the
breach of trust
case: Re Umpherstone
s44 Trustee Act 1949
- the court has power to make beneficiary indemnify for breach of
trust
3. LACHES
s22 Limitation Act 1953
case: Nelson v Rye
4. DISCHARGE IN BANKRUPTCY
- bankruptcy relief for breach of trust
BREACH OF TRUST
(a trustee does any act which he or she ought not to do or fail to
do any act with regard to the administration of the trust or with
regard to the beneficial interest)
NATURE OF
LIABILITY
PERSONALAND
CRIMINAL
LIABILITIES
DEFENCES

2. NATURE OF LIABILITY
Breach and Absence of Equitable Authority
A trustee is found guilty of a breach of trust if he fails to do
what his duty requires, or if he does something that he is
not entitled to do in the trust.
Personal and Proprietary Remedies
Personal remedies are traditionally enforced by requiring
the trustee who breach of trust to be responsible and
account for his stewardship of the trust fund.
the trustee may liable to a proprietary remedy as
recovering the original trust assets or their traceable
proceeds from the trustee if the trustee had been found in
the misapplication of the trust assets.

3. Third parties involved in the breach of trust
- Constructive trustee
CASE: Royal Brunei Airlines Sdn Bhd v Tan
FACT:
Royal Brunei Airlines appointed Borneo Leisure Travel Sdn Bhd
to be its agent for booking passenger flights and cargo transport
around Sabah and Sarawak. Subsequently, Royal paid money to
Borneo. Mr Tan was Borneo Leisure Travel’s managing director
and main shareholder. Borneo Leisure Travel, with Mr Tan’s
knowledge and assistance, paid the money received from Royal
into its current account and used it for its own business. The
contract had being terminated as Borneo Leisure went insolvent.
HELD: the defendant was liable personally as a constructive
trustee since he had dishonestly caused or permitted the
company to commit a breach of trust, knowing the company was
not authorized to do what it did.

4. PERSONAL LIABILITY OF TRUSTEES TO
BENEFICIARIES
1. Liability of the trustee is compensatory
- A trustee who fails to comply with the duties imposed
upon him by equity and by the trust instrument is liable to
make good to the beneficiaries the loss to the trust
estate.
- Even if there is no loss, the trustee is accountable for
any profit made in breach of trust.

5. 2. Liability is personal, not vicarious
- personal claim, claim in personam
section 30 of England Trustee Act 1925:
a trustee is liable for his own breaches and not for those of his
co-trustees unless the trustee is guilty of wilful default.
section 61 of England Trustees Act 1925
a trustee can be excluded from the liability if the court considers
that the trustee had acted honestly and reasonably.
section 63 of Malaysia Trustee Act 1949
If it appears to the Court that a trustee, whether appointed by the
Court or otherwise, is or may be personally liable for any breach
of trust, whether the transaction alleged to be a breach of trust
occurred before or after the commencement of this Act, but has
acted honestly and reasonably, and ought fairly to be
excused for the breach of trust and for omitting to obtain the
directions of the Court in the matter in which he committed such
breach, then the Court may relieve him either wholly or partly
from personal liability for the same

6. Case: Armitage v Nurse
SIGNIFICANT:
The Court of Appeal held that in English law trustee
exemption clauses can validly exempt trustees from liability
for all breaches of trust except fraud. In other words, the
trustee was exempted from liability for loss or damage
‘unless such loss or damage shall be caused by his own
actual fraud’.

7. 3. Breaches before
Appointment
• A trustee is not liable for breaches of trust committed
before his appointment
CASE: Re Strahan
CASE: Re Forest of Dean Coal Mining Company
FACT: whether ¬Barrett as a director was liable to the
company for failing to take steps to recover money which
were due to the company from one Johnson under a
transaction which had been taken place three years before
Barrett’s appointment.
HELD: Jessel M.R. held that whatever might have been in
the case of a trustee in the strict sense, a director was no
such duty.

8. 4. Breaches after
Retirement
• A trustee remains liable after retirement for breaches
committed by him or her during his term of office; and
similarly his or her estate remains liable even after his
death
• Not liable for the act done by others after retirement
unless his retirement is for the purpose to facilitate a
breach of trust.

9. Case: Head vs Gould
FACT:
a property was settled on Mrs. Head for life with remainder to her three
children. The settlement contained an express power of advancement. As
Mrs. Head was continually in financial difficulties, her daughter asked the
trustees for advances on her share to help her mother. The trustees did so.
However, the daughter pressed for more when the daughter’s share was
exhausted. Therefore, the trustees refused to give her more. Subsequently,
the daughter asked the trustees to be released from the trusteeship and
suggested that new trustees should be sought who are willing to make the
advance. The trustees then were replaced by the daughter and further
advances were made in order to help Mrs. Head. As a result, the trust
property was sold off to do so. It caused one of the children was lost to the
entitlement.
HELD: the old trustees were not liable for the breaches committed by the
new trustees.

10. 5. Trustee-beneficiary
• If the trustee in breach is also a beneficiary, then his
beneficial interest bears the loss caused by the breach
against the other beneficiaries.
• a trustee, who is a beneficiary, is in default and liable to
the trust estate, then he will not be allowed to claim
against his beneficiaries for the beneficial interest until
he made good his default

11. CRIMINAL LIABILITY
OF TRUSTEES
England
section 5(2) of Theft Act 1968:
it provides that “any person having the right to enforce the
trust is regarded as the person to whom the subject matter
of the trust ‘belongs’. Thus a trustee would have committed
theft if he or she dishonestly appropriates property
‘belonging to another’ with an intention of permanently
depriving the other of it.

12. section 405 of Penal Code
criminal breach of trust
- a person is entrusted in any manner over property or
dominion over property and the person dishonestly
convert to his own use or dishonestly uses or disposes
the property in violation of any direction of law or any
legal contract or wilfully suffers any other person, he is
commit criminal breach of trust.
section 406 of Penal Code
- punished with imprisonment for a term not exceeding ten
years and with whipping, and shall also be liable to fine.”

13. three elements to prove
CBT
1. the trustee must be in entrustment or is in a
dominion over a property.
CASE: Bahru Zaman Bin Ali v PP
FACT: the accused, a clerk at parcel office who acted as
trustee of this company, had received 50 cents for a ticket
but no receipt was given.
HELD: as an employee, he was entrusted by his employer
to receive the money. Therefore, his act was amount to a
criminal breach of trust.

14. • the accused or the trustee must have control over the
property even though not in physically in possession over that
property. In other words, as long as the trustee owns a duty to
look after the trust property, he will be responsible for the trust
property even though he was not physically possessed that
property.
Case: Yeoh Teck Chye v PP
FACT: the accused was a bank manager. He had approved a
cheque for an overdraft facility which he has no power to do so.
Then, he had been charged for criminal breach of trust as he
had exceeded his duties which conferred by his employer.
HELD: although there was no entrustment but here was a
dominion on the part of the accused as he was bank manager
and responsible for the money disbursed.

15. 2. the criminal breach of trust happened in the circumstance
where the trustee dishonest misappropriate or convert to
his own use of the property.
section 23 and 24 of Penal Code:
dishonest is defined as an intention of causing wrongful gain or
wrongful loss to another person.
3. there must be the trustee dishonestly disposes the
property in violation of any direction of law or legal
contract.
Case: Mohd Adil v PP
FACT: the accused as a headmaster of a school had deducted
the salary of teachers for a society fund. However, there was no
payment was made to the fund.
HELD: he was committed to criminal breach of trust as the
accused as a trustee to the society fund but failed to deposit the
money to the fund.

16. DEFENCES
1. CONSENT OR ACQUIESCENCE
A liability for breach of trust may be negatived if the act complained of
was acquiesced in or consented to by the beneficiaries, all being sui
juris.
Case: Re Kerr
FACT: the trustees of a sheep farming property included the amount of
remuneration they were charging the trust in the trust accounts
provided to the beneficiaries. They were being overpaid considering the
work they were doing. However, the beneficiaries had full notice of the
amounts received and they had not raised any objections for nearly five
years. Thus, the issue arose was whether the trustee was a breach of
trust and the defense of acquiescence could be raised
HELD: the trustees were not liable to replay the amounts that they had
received because the conduct of the beneficiaries amounted to
acquiescence to the payments.

17. 2. STATUTORY PROTECTION AND DEFENCE
section 63 of Malaysia Trustee Act 1949
If it appears to the Court that a trustee, whether appointed by the
Court or otherwise, is or may be personally liable for any breach
of trust, whether the transaction alleged to be a breach of trust
occurred before or after the commencement of this Act, but has
acted honestly and reasonably, and ought fairly to be
excused for the breach of trust and for omitting to obtain the
directions of the Court in the matter in which he committed such
breach, then the Court may relieve him either wholly or partly
from personal liability for the same

18. Case: Re Umpherstone
FACT: a will established two charitable trusts for the award of
scholarships. The trustees mixed the funds of the two trusts and
failed to make any appointments for about forty years. However,
in fact, the trustees were unsure what to do and there was no
question of dishonesty. Although the mixing of funds was
sensible although wrong but there was no loss caused to the
corpus of the fund. Besides, there was no one had been
disadvantaged by the failure to make appointments. The trustee
has been sued for breach of trust.
HELD: the trustee was not liable as there was no dishonesty or
loss. The trustee was ought fairly to be excused.

19. section 44 of Trustee Act 1949
it states that the court has the power to make beneficiary
indemnify for breach of trust.
“Where a trustee commits a breach of trust at the
instigation or request or with the consent in writing of a
beneficiary, the Court may, if it thinks fit, and
notwithstanding that the beneficiary may be a married
woman restrained from anticipation, make such order as to
the Court seems just, for impounding all or any part of the
interest of the beneficiary in the trust estate by way of
indemnity to the trustee or persons claiming through him.”

20. 3. LACHES
Equity aids the vigilant not the indolent, this is an equity maxim which
means delay defeats equity. A beneficiary who seeks for equitable relief
must do so within a reasonable time.
section 22(2) of Limitation Act 1953
“an action by a beneficiary to recover trust property or in respect of any
breach of trust, not being an action for which a period of limitation is
prescribed by any other provision of this Act, shall not be brought after
the expiration of six years from the date on which the right of action
accrued: Provided that the right of action shall not be deemed to have
accrued to any beneficiary entitled to a future interest in the trust
property, until the interest fell into possession.”
Case: Nelson v Rye
FACT: a musician claimed an account of earning wrongfully retained by
his manager in breach of fiduciary duty.
HELD: rejected claim since claim made after 6 years

21. Exception to laches
section 22(1) of Limiatation Act 1953
“No period of limitation prescribed by this Act shall apply to
an action by a beneficiary under a trust, being an action in
respect of any fraud or fraudulent breach of trust to which
the trustee was a party or privy; or to recover from the
trustee trust property or the proceeds thereof in the
possession of the trustee, or previously received by the
trustee and converted to his use.”
That means that in the breach by fraudulent act or fraud,
the trustee would not able to raise the defence of laches.

22. CASE: North American
Land Co vs Watkins
FACT: an agent had been sent to America to buy land for
his company. He bought it and subsequently duly conveyed
to the company. However, the agent made and retained
profit for himself. The company realized and took an legal
action to claim back the money after six years.
HELD: succeeded the claim based on two grounds, first
that the agent was in the position of a trustee and had
retained the trust money, and second that his conduct had
been fraudulent.

23. 4. DISCHARGE IN BANKRUPTCY
A claim in respect of a breach of trust is provable in
bankruptcy, and in general, an order of discharge releases
a bankrupt from all the bankruptcy debts.
Thus, bankruptcy relief for breach of trust is possible if it is
shown that there has been no element of fraud.