BREACH OF TRUST & DEFENCES A trustee is liable for his own wrong and not
for those of his co-trustee. Unless if there is a
Breach of Trust is failure to comply with duties
laid upon trustee by the trust instrument and
also by equity
 May be in a positive action, eg;
investing in an unauthorised investment
 Maladministration that cause losses to
trust property
Settlor-trustee is liable to the same extent as
any other trustee although trust was created by
the same person.
Nature of Liability
1. Personal Liability to beneficiaries
2. Liability Inter Se : Contribution and
Indemnity
3. Criminal Liability
4. Defences
Basis of liability: Liability is compulsory.
1. Compensation to the beneficiaries for
whatever loss
2. Restoration to the beneficiaries of the
property if an unauthorised profit has
been made.
Objective is not to punish trustee but to
compensate beneficiary.
1. Personal Liability to the Beneficiary
Compensation to beneficiaries: Remedy sought
is compensation for breach.
Target Holdings v Redferns [1995] .
HOL : the principle on compensation for breach
is the same as damages at common law.
A trustee who committed a breach of trust was
not liable to compensate the beneficiary for
losses which the beneficiary would have
suffered if there had been no such breach
Liability is Personal Not Vicarious
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breach by co-trustee, trustee will be at fault.
S. 35 of the Trustee Act 1949: Implied
indemnity of trustees.
(1) A trustee ……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 other
person with whom any trust money or
securities may be deposited, nor for the
insufficiency or deficiency of any securities, nor
for any other loss, unless the same happens
through his own wilful default.
Re Lucking’s WT [1968] 1 WLR 866
Lucking had committed a BOT in entrusting
large sums of money to a manager, without
adequately supervising him.
His fellow trustee, Block, was not liable for
Lucking’s BOT, but entitled to rely on what
Lucking had told him about the company’s
affairs.
Bahin v Hughes (1886) 31 Ch D 390
A passive trustee was liable to the same extent
as an active one.
In this the breach was a breach by a co-trustee
but trustee left the matter in the hand of
trustee without inquire or stand by to see that
breach is committed.
Breaches before Appointment:
A trustee is not liable for breaches of trust
committed before his appointment.
Breach After Retirement
A trustee remain liable after retirement for
breaches committed by him during his term of
office. If he died, his estate will be liable.
He will not be liable if breach is committed
after his retirement
He will be liable if he retire in order to facilitate
a breach of trust
Head v Gould (1989) 2 Ch 250
H: In order to make a retiring trustee liable you
must clearly show the breach by him.
Breach of Trustee – Beneficiary
Where trustee in breach is also a beneficiary,
his beneficial interest bears the loss against the
other beneficiaries.
A trustee will be required to indemnify his co-
trustees to the extent of his beneficial interest
and not merely the extent that he has
personally received some benefit from the
breach.
Chillingworth v Chambers [1896] 1 Ch 685
Criminal Liability
Breach of trust is not a criminal offence. But
there is a breach of trust committed in respect
of criminal offence
Bankruptcy of a defaulting trustee
If a liable trustee for breach of trust becomes
bankrupt, the claim (breach) is provable in his
bankruptcy.
MEASURE OF LIABILITY
Trustee liable for the restitution of the money
or thing, or value of the thing, and to account
for profit made or loss caused.
a) Payment to wrong person or
misapplication of Trust funds.
Increased rate of interest plus principal amount
payable
b) Sale of authorized and purchase of
unauthorized investment
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DEFENCES A TRUSTEE MAY TAKE
A trustee who has committed a Breach of trust
may be able to escape personal liability by
bringing the case within a few ground .
RE PAULING’S SETTLEMENT TRUST (1964)
Facts: The children of the Mrs. Young husband’s
family sued to recover from the trustee who
managed their mother’s marriage settlement.
The children were in many occasion faced
financial difficulties. Main financial sources was
Mrs Young husband’s marriage settlement
where she was the tenant for life.
The trustee in this settlement has the power to
advance the trust fund up to ½ of the
presumptive share of each children.
Several advances were made to the children.
The mother’s consent was obtained in every
case.
1954 : an advancement was made in order to
avoid estate duty on the death of the mother –
children were aware that advancement might
be in breach of trust.
1958 : the children brought an action against
the trustee claiming £29,160 on the ground that
this sum had been improperly paid out by way
of advancement
The trustee relied on the consent and
acceptance of the advanced beneficiaries.
i) A beneficiary who has participated in or
consented to breach.
Wilmer LJ: “that if the trustee can established a
valid request or consent by advanced
beneficiary to the advance in question that is a
good defence”
ii) After the breach, beneficiaries whether
formally or informally showed their approval
through ‘release or acquiescence.
This refers to the conduct of the beneficiaries
after breach
A release may be formal or inferred from
conduct
iii) Expiration of 6 years
No action can be taken against trustee
personally, after expiration of 6 years period
under the Limitation Act 1953; Except in cases
regarding fraud.
iv) Statutory relief s. 63 of Trustee Act
Power to relieve trustee from Personal Liability
If it appears to the court, the trustee has acted
honestly and reasonably and ought to be
excused for the breach of trust, the court may
relieve him either wholly or partly from
personal liability.
RAJA ENA JAINAB ABIDEEN (1930) SSLR 212.
Three requirements that trustee ought to be
fairly excused.
1) trustee had acted honestly
2)Trustee had acted reasonably – depends on
the circumstances of the case
3) Court will take into account the conduct of
parties, trustee and beneficiary.
v) Advice of Solicitor - Trustee
What need to be proved is that the trustee in
committing breach of trust acted on the advice
of solicitor.
vi) Breach by a Single Trustee Alone
If breach is committed by one trustee, the co-
trustee will not be held liable.
Dicta in Bahin v Hughes; ‘But as far as cases had
gone at present, relief has only been granted
against trustee who has himself benefited of
BOT.
vii) Exemption Clause in the Trust Document
If the trust document has specify matters which
could exclude trustee from breach, then the
trustee will not be liable.
Statutory Indemnities.
Section 31 – 35 & s64 of the Trustee Act 1949.
DEFENCES (summery)
RE PAULING’S SETTLEMENT TRUST (1964)
The trustee relied on the consent and
acceptance of the advanced beneficiaries.
i) Beneficiary who has participated in or
consented to breach.
ii) After the breach, beneficiaries whether
formally or informally showed their approval
through ‘release or acquiescence.
iii) Expiration of 6 years (Except in cases
regarding fraud.)
iv) Statutory relief s. 63 of Trustee Act (the
trustee has acted honestly and reasonably)
RAJA ENA JAINAB ABIDEEN (1930) SSLR 212.
Three requirements that trustee ought to be
fairly excused.
1) trustee had acted honestly
2)Trustee had acted reasonably – depends on
the circumstances of the case
3) Court will take into account the conduct of
parties, trustee and beneficiary.
v) Advice of Solicitor - Trustee
vi) Breach by a Single Trustee Alone
vii) Exemption Clause in the Trust Document
Statutory Indemnities.