TRUSTS LAW: BREACH OF TRUST – TERM 2 WEEK 3

Trustees have powers which entitle them to do certain things and duties they must fulfill.

Beneficiaries can control trustees by virtue of fact they have equitable proprietary rights and then they
can go and make court applications, getting trustees to account.

Introduction

 A trustee will be liable for breach of trust if that breach of trust causes loss to beneficiaries!

 Trustee will be liable in situation in which breach of trust caused some loss to trust. Causal Link
between Trustee’s actions and the loss suffered by trust fund  - Target Holdings v Redferns

 No liability in respect to breach of trust if breach resulted in no loss to trust. - Target Holdings v
Redferns

 Trustee will be liable in event of breach of trust either to (1) restore trust property which was
passed away in the breach of trust, OR (2) if that is not possible to reconstitute value of trust fund
in cash to its level before breach of trust OR (3) pay equitable compensation (not exactly the
same as damages) to beneficiaries – Nocton v Ashburn & Target Holdings v Redferns

 Measurement of compensation will be actual, demonstrable loss to trust, rather than some
intermediate value of property lost to the trust. - Target Holdings v Redferns

 C will bring claim to recover original trust property OR recover its equivalent value in cash from
trustees and other people involved in events where trusts are breached.

 How does the court respond to breaches of trust? Do different types of breach merit different
responses? (Compare, for example, the misappropriation of trust assets with the failure to act
with due care and skill.) – Seminar Question

 Is there a difference between damages and equitable compensation? What advantages and
disadvantages might accompany a more tort-like approach to breach of trust? – Seminar
Question

1. Liability of trustees within context of breach of trust more generally

 **Later  We need to bear in mind of other claims that are significant to beneficiaries when
there has been breach of trust  (1) Tracing rights in trust property into substitute property –
process by which beneficiary can claim title either to original property OR substitute for original
property in hands of another person, (2) Imposing personal liability to account on other people
who received property knowing of breach of trust – Knowing Receipt (Re Montagu) & (3) On
people who have dishonestly assisted in breach of trust – Dishonest Assistance (Royal Brunei
Airlines v Tan)  Trustee’s liability for any loss suffered by beneficiaries because of breach of
trust.

 Under (2) and (3), it can result in personal liability of the other person to account to beneficiary
as a CONSTRUCTIVE TRUSTEE under a CONSTRUCTIVE TRUST for any loss suffered if D either
received property knowing breach of trust OR dishonestly assisted in breach of trust.

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 This liability is also in addition to any liability to account for any profits made out of breach of
trust (Boardman v Phipps) by holding these profits on CT for beneficiaries of trust (AG Hong
Kong v Reid).

 (1) , (2) & (3)  TYPES OF CLAIMS THAT CONSTITUTE POTENTIAL SCOPE OF LIABILITY FOR
BREACH OF TRUST AVAILABLE TO BENEFICIARIS

2. Nature of liability for breach of trust

Q: In what circumstances will a breach arise & what forms of claim may flow from that?

 Trustee will be liable in situation in which breach of trust caused some loss to trust. - Target
Holdings v Redferns

 No liability in respect to breach of trust if breach resulted in no loss to trust. - Target Holdings v
Redferns

 Trustee will be liable in event of breach of trust either to (1) restore trust property which was
passed away in the breach of trust, OR (2) if that is not possible to reconstitute value of trust fund
in cash to its level before breach of trust OR (3) pay equitable compensation (not exactly the
same as damages) to beneficiaries – Nocton v Ashburn & Target Holdings v Redferns

 Purpose of remedies for breach of trust is to COMPENSATE beneficiaries for any loss to value of
trust fund & protect integrity of the trust fund!

3. What constitutes a breach of trust?

 Trustee will be liable in situation in which breach of trust caused some loss to trust. Causal Link
 - Target Holdings v Redferns

 Target Holdings v Redferns  beneficiaries are entitled to see that trustees perform and
administer trust according to provisions of trust instrument if any & the general law.

 Examples: Breach of terms of trust instrument = ANY FAILURE of trustees to comply with trust
instrument (Clough v Bond) OR breach under general law under TA 2000.

 Breach of trust can take on many forms  Can be deliberate or inadvertent, actual
misappropriation OR misapplication of trust property or just an investment or other dealing
which is outside trustees’ powers, may consist of failure to carry out positive obligation of the
trustees OR merely of a want of skill and care on their part of management of trust property;
may be injurious to interests of beneficiaries or to their benefit: Armitage v Nurse

Basis of Liability for Breach of Trust

Q1: In what circumstances a loss can be remedied by claim based on breach of trust

Q2: How should the loss be valued?

1. Development of liability for breach of trust

 Trustee’s principal duty is to account to trustees by providing accounts as to trust fund

contents from time to time & justify their actions to the beneficiaries.  Millet J

 Beneficiaries entitled to recover any loss caused by a breach of the trustees’ duties.

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  Traditional approaches to this area as follow:

Case Stance
Hayton Strict deterrent policy –
Clough v Bond Trustee strictly liable for any loss from breach of trust
Eaves v Hickson, Ashby v Blackwell If trustee makes distribution out of trust property to a
person whom she considered to be entitled to receive
that property on basis forged documentation, trustee
will be liable for breach of trust
Re Massingberd’s Settlement Trustee will be responsible for not replacement of
specific property but for equivalent amount by way of
compensation …

When trustee makes unauthorized investments in

breach of trust, he was required to procure authorized
investments within terms of trust and make good loss
suffered by trust from transaction by reconstituting trust
fund with hose authorized investments

This is NOT specific restitution because trustees are not

recovering property passed away from trust in breach of
their duties but rather the ASSETS OF A TYPE WHICH
OUGHT TO HAVE ACQURIED BEFOREHAND!
Fry v Fry Trustees may be liable for breach of trust in failing to sell
property in sufficient time to make profit
Adair v Shaw, Dornford v Dornford, Still not needed thet trustee has made any personal
Mountford v Cadogan profit fron breach of trust to be liable for breach of trust

Principal duty of trustee is going to effect RESTITUTION of breach of trust.

Restitution means RESTORATION of property OR its equivalent cash value to original owner, NOT
necessarily unjust enrichment resersal..

COMPENSATING BENEFICIARIES FOR ANY LOSS, PROTECTING THEIR PROPERTY RIGHTS, THIS
OBLIGATION NOT LIMITED BY COMMON LAW PRINCIPLE OF REMOTENESS OF DAMAGE.

2. Modern Law on Breach of Trust: Target Holdings v Redferns

 Target Holdings v Redferns illustrates to you what loss to trust fund actually means.

Target Holdings v Redferns

Facts Target wanted to enter investment with people but turned out that the
transaction was fraudulent. So Target got a valuation for property that was
fraudulently high. Borrowers were fraudsters. Target wanted mortgage over a
piece of land property and needed solicitor firm Redferns to ensure there was a
valid legal charge over property. The high valuation procured by fraudsters
convinced Target there was a valid legal charge.

Target paid $ to Redferns, solicitors. Agreement was that solicitors were to hold

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 $ as trustees on trust for Targets in client account, to be paid out if security was
acquired or to be returned to Target if not.

Redferns not party to fraudulent valuation BUT if did commit a breach of trust
by paying trust fund away in breach of trust in a prohibited manner such as
advancing $ to borrower before mortgage security had been created and defray
other personal expenses of their solicitor’s firm. This breach of trust not
connected to the fraudulent valuation.

Solicitors had enough money paid to client account to pay for mortgage
security so Target acquired mortgage security. Target attempted to enforce
security, underlying commercial transacton broke down and then realized
valuation was too high.

Fraudsters were no where to be found so Target decided to sue Redferns –

whatever solvent party available.
What loss did Fraudulently High Valuation – Real value of Property = Difference
Redferns suffer?
Target’s Arguments 1. Target entitled at date of trial to have trust fund restored on
restitutionary basis.  Redferns paid away property & Target argued
Redferns had strict liability to make good loss to trust fund.
2. Immediately after $ paid away by Redferns in breach of trust 
Immediate loss to trust fund which Redferns need to make good!
Target said very moment Redferns paid $ away = Breach of trust
Refern’s 1. Yes there was a breach of trust but $ was estored to trust fund before
Arguments Redferns were required to acquire mortgage security.
What was Target * Target was actually asking for a payment equal to loss suffered as a result of
really asking for property not being worth value represented by fraudulent valuation, not a
from Court? restoration of trust fund.
Holding Loss suffered by Target was due to fraudulent valuation, NOT Redferns’ breach
of trust. Breach of trust was remedied by Redferns getting mortgage security
Target needed from Redferns.

Target cannot claim compensation from Redferns because of any insufficiency

of mortgage security value!
Principle There must be a CASUAL LINK between the loss and the breach of trust,
meaning loss suffered must be a direct result of breach of trust!
Academic Critique This case shows you what LOSS really means.
Don’t want a situation where beneficiaries can double up on damages by suing
for breach of tryst even if that technical breach of trust happened to benefit
beneficiaries.

Sequence of events MATTERS because there must be a trust formed before the
purported breach of trust took place!!!

Hypothetical example: Trust instrument says can only invest in A Shares but trustees went to invest B
shares. Happened that B shares gave trust fund profit. Under Target Holdings v Redferns, beneficiaries
can only order trustee to go replace B shares with authorized A shares.

3. Loss as a foundation for the claim  see academic critique of table

4. Allocating liability for breach of trust among a number of trustees

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When there is more than 1 trustee, all trustees are expected to act jointly! Point of multiple trustees:
So that they can take active part in managing trusts, exercise control over one another!!!

General rule: Trustees are Jointly & Severally Liable for breach of trust. => Meaning that all trustees
are equally liable for any loss to trust => meaning if 1 or more trustees unable to meet obligations,
beneficiaries would be able to recover their loss from those trustees who are able to meet their
trustees’ collective obligations!

Q: What happens when there are multiple trustees BUT only one of them committed breach of
trust?

A: Beneficiaries can go and recover their loss from those trustees who are able to meet their
trustees’ collective obligations! It is for the trustees themselves to go and apportion amongst
themselves how to sort out liability. => That 1 trustee who breached trust is to compensate the
other trustees who did not breach it and paid beneficiaries compensation i.e. bore responsibility for
that 1 trustee who breached trust.

Trustes may be liable under Civil Liability (Contribution) Act 1978 to go and make contributions
alongside other trustees in situations in which they are liable for breach of trust in common with
those other trustees.

1978 displaced inherent power of courts of equity to order trustee to make such contribution.

That 1 trustee who breached trust is to compensate the other trustees who did not breach it and
paid beneficiaries compensation. The “innocent” trustee can go and recover a CONTRIBUTION
towards her liability from other trustees who were liable for that same breach  1978 Act s1(1),
s6(1)

Amount of contribution is going to be based on what court considers to be just and equitable in the
circs – 1978 Act s2(1)

Court will see how’s fault would be attached to that trustee in relation to breach of trust. – Baker v
Willoughby . Cpurt will either absolve that one trustee from liability altogether OR require her to
provide complete indemnity to other trustees or anything in between – 1978 Act s2

If no loss suffered but costs are involved in righting breach of trust those costs can be recovered from
trustee against whom action is taken – Re Mulligan.

Factors court will consider:

 How large a role each trustee played in causing loss.

 Level of moral blameworthiness attaching to each trustee.
 Extent to which each trustee had taken some personal benefit from breach of trust.

Remedies for Breach of Trust

1. Remedies for breach of trust outlined

 Trustee will be liable in event of breach of trust either to (1) restore trust property which was
passed away in the breach of trust, OR (2) if that is not possible to reconstitute value of trust
fund in cash to its level before breach of trust OR (3) pay equitable compensation (not
exactly the same as damages) to beneficiaries – Nocton v Ashburn & Target Holdings v
Redferns

 Even in situations where loss or breach of trust caused by DISHONESTY OF 3 rd PARTY to trust,
beenficisary is required to proceed FIRST against TRUSTEE FOR BREACH OF TRUST IN ANY
EVENT - Target Holdings v Redferns

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  Liability of trustees for any breach of trust = primary liability!

2. Specific Restitution of Trust Property

Specific Restitution of Trust Property is PROPRIETARY OBLIGATION on trustee to recover original trust
assets!

Why is this matter so vital? Beneficiaries want original property held on trust probably because of
sentimental value, expected to increase in value, intrinsically valuable , rather than merely receive
cash equivalent because it may not reflect future profits which could be earned from that property
and will not reflect any value beyond simply its market value in cash!

*In 1st instance if it is possible to recover original trust property, then go for it! If this can’t be done,
compensate with $$ cash.  Target Holdings v Redferns.

Q: What is the nature of the remedy needed to compensate beneficiary by means of restoration to
the trusts fund? (Clough v Bond)

Restore trust property (to its original condition) which was passed away in the breach of trust =>
meaning recover THAT VERY PROPERTY WHICH WAS ORIGINALLY HELD ON TRUST.

Property Involved – its nature is important;

Trustee to deliver up that specific property if it is in her possession or under her control

OR

Enable a clean substitute for trust property to be identified & recovered (Common Law Tracing)  FC
Jones v Jones OR its traceable substitute to be acquired & added to trust fund (Equitable Tracing)
Re Diplock’s Estate & Boscawen v Bajwa

Specific restitution is the primary remedy to compensate fiduciary by means of restoration of trusts
fund because it enforces trustees’ obligation to safeguard trust property!

Essence of Tracing
Assertion of proprietary rights either in a specific item of property OR its substitute.
Jurisdiction of Equity in this context to be in Court provides an action in personam against a
personam against trustee to recover trust particular person who is identified as a trustee,
estate..  Target Holdings v Redferns seemingly, acting on principle “equity looks upon
as done that which ought to have been done”
such that trustee is required to continue to hold
that item of specific property on trust fpor
beneficiaries (unless property has passed out of
trustees’ control or possession such that it cant
be recovered  converts to mere action for $ to
recoer equivalent cash value of specific assets
misapplied in breach of trust) AG HK v Reid

Compare these ideas to what specific restitution is:

* Specific restitution: It’s not a personal action. It’s an action in relation to specific property, which is
brought against the trustee. => There will only be personal action to account in $$$ if original trust
property cannot be recovered.

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Side point  A suggestion in Harris v Kent that if none of parties want to keep trust in existence then
this specific restitution remedy won’t be suitable or appropriate => maybe better remedy would be to
compensate beneficiary for loss she wpuld not have suffered but for breach of trust.

3. Equitable compensation to restore value of trust fund

NOTE: Equitable compensation is NOT THE SAME AS DAMAGES.

Clough v Bond  Specific restitution not possible. Liability of trustee to pay sufficient compensation
to trust estate to put it back to what it would have been had the breach not been committed.

Equitable compensation to RESTORE VALUE of property lost to trust fund by breach of trust! - Target
Holdings v Redferns

Brief introduction to valuation  How to measure VALUE to be paid back because of the property
lost?

Valuation = amount to be returned to trust to position it had occupied before transaction which
constituted breach of trust.

Calculate amount of $ necessary to restore value of trust fund! 

Personal compensation for loss suffered as breach of trust  Compensation equal to property lost to
__________________________________________________trust

The amount of compensation must = loss which beneficiary can demonstrate that was CAUSED by
breach of trust such that trust fund is placed back in position it would have occupied BUT FOR the
breach.

This amount can include any loss which the trust would have suffered subsequently as a result of
nature of trust property e.g. accounting for large fall in value of such property subsequently!

Equitable compensation for losses to trust in general:

Equitable compensation is available more broadly under general principles of equity for any other
losses which may have been suffered by the trust.

 Trust incurred expenses in committing breach of trust such as selling property which ought to
have been retained as part of trust fund!
 Restoration to trust fund of value of property transferred away should be considered to be
separate from recovery of any other loss consequential to breach of trust.
 E..g  Loss to trust in the form of lost opportunity in future, such as right o receive dividend
which was lost when shares held as part of trust fund were sold in breach of trust , then
beneficiaries will want to recover equitable compensation from trustees for this lost
opportunity to receive dividend and not simply for capital value of the shares.

 Compensation is an EQUITABLE REMEDY which gives rise to a right which is purely personal
in nature, giving NO RIGHT to any specific property. In relation to breach of trust, some loss
has been caused to the trust & it is loss which is made good by compensation.

 Court is awarding payment of $$$ instead of some proprietary right which relies on
beneficiaries showing that a loss has resulted from breach of trust. Rather than recognizing
some proprietary right in beneficiary and imposing a trust OR charge to recognise the right as
being proprietary, compensation requires only that loss to trust is calculated in cash terms
and that that amount is accounted for by trustee to trust fund.

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  So basically, it is the CONNOTATION behind it.

 Beneficiaries need to decide whether to proceed in relation to restitutionary proprietary

claim for some property held in trustee’s hands, for a claim = to value of some specific
property lost to the trust, OR for compensatory claim in relation to breach of trust
simpliciter!!!

 Different remedies and beneficiary will be required to elect between them to remove
possibility of multiple recovery in respect of the same loss!

4. Equitable compensation for losses to trust in general

NOTE: Equitable compensation is NOT THE SAME AS DAMAGES.

Difference between personal compensation for loss suffered as breach of trust AND compensation =
to value of property lost to trust.

Restorative VS Compensatory:

Compensation related to breach of duty of skill and care  causation, remoteness of damage of
principles apply  => COMPENSATORY

VS

Compensation in relation to breach of general fiduciary duty not to permit conflict of interests OR not
deal with trust property personally! => duty to avoid conflict of interests & self-dealing  award in
lieu of rescission of contract which trustee had entered into breach of duty => RESTORATIVE

Restorative remedy is available only where Plaintiff had been in some way culpable of her loss;
whereas if plaintiff had been induced into contract by some fraud or unconscionable act on part of
fiduciary then compensatory remedy would be appropriate  Swindle v Harrison

Swindle v Harrison  Held in this case that H could only get restorative remedy from S  amount of
compensation which would put trust into the position which it was BEFORE the transaction (before
transaction took place Mr S did not disclose all material facts to H  So, S lost $$ instead,

** Measure of size of loss suffered = Measurement of consequential loss only  Not limited to a
measurement of value of property that made up trust fund before transaction!

Common Law & Equity: The similarity in terms of rationale behind compensation – D liable for
consequences of legal wrong he has done to P and to make good damage caused buy his wrong or
pay by way of compensation more than the loss from suffering wrong…

Target Holdings v Redferns: Compensation for breach is based on fault, not any strict liability of
trustee!

Compensation = Value of Property lost to trust – Price paid to trustee + interest 

Nature of compensation as part of equity:

 Trustee will be liable to compensate beneficiaries for loss occasioned by breach of trust even
though loss may flow unexpectedly from breach.

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  Equity  We are ALWAYS looking at D’s CONSCIENCE:

 Breach of trust is an unconscionable act imposing liability on trustees to compensate

beneficiaries no matter what & this conscience can extent properly to situation in which
trustee breaches the terms of trust such that trustee may have been acting out of best of
motives!

 Perhaps the investing in assets not strictly within her investment powers, but nevertherless
caused some loss to trust!!!!

 Target Holdings v Redferns  When breach causes loss to trust  trustee liability for breach
of trust will arise! => This implies trustees have positive duty to protect trust fund & its value
=> concomitant duty on trustees to account to beneficiaries for any loss in value of fund
caused by their breach of trust!

Nature of compensation as part of equity: Lost opportunity?

 More difficult situation where beneficiaries seek to recover some lost opportunity caused by
breach of trust. For e.g. Lost opportunity of a more valuable sale  When trust property
could have been sold for $100K when it was sold for $75K, would be reasonable to suppose
beneficiary ought to have some claim against trustee for lost opportunity of a more valuable
sale….

 Development of CAUSAL LINK for liability of trustees will lead to liability of losses which are
foreseeable as a result of breach of trust. – Target Holdings v Redferns

 Specific restitution not possible, then trustee MUST pay sufficient compensation to trust
estate to put it back to what it would have been had breach not been committed – Clough v
Bond

 Immediate cause of the loss is the dishonesty OR failure of 3 rd party, trustee is liable to make
good that loss to trust estate if but for breach, such loss would not have occurred.

 Compensation on almost strict liability basis  provided causation can be demonstrated.

Trustee is personally liable even where source of misfeasance is with some 3 rd party who
perhaps induced trustee to act as she did.

5. Comparison of common law damages and equitable compensation

 Is there a difference between damages and equitable compensation? What advantages and
disadvantages might accompany a more tort-like approach to breach of trust? – Seminar
Question
 Remedy No. 3  equitable compensation (not exactly the same as damages) to beneficiaries –
Nocton v Ashburn & Target Holdings v Redferns

 Suit must be brought against trustee in case of breach of trust before matter is pursued against
other people who MAY have orchestrated the breach of trust in fact.

 Even if immediate cause of loss is dishonesty or failure of 3 rd party, trustee IS LIABLE to MAKE
GOOD LOSS TO TRUST ESTATE IF BUT FOR THE BREACH SUCH LOSS WOULD NOT HAVE
OCCURRED.

Common Law Damages Equitable Compensation

Are they actually similar or different?

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 SIMILAR:

In Target Holdings v Redferns, Lord Browne-Wilkinson said there is LITTLE DIFFERENCE between 2
doctrines because they depend on (1) fault of D & (2) nexus between loss suffered by C & D’s
wrongdoing

DIFFERENT:

Evidential burden in cases of equitable compensation in contradictinction to cases involving common

law damages.

It's just that common law rules of remoteness of damage and causation don't apply in relation to
breach of trust… BUT there’s some causal connection between breach of trust & loss to trust estate
for which compensation is recoverable, viz the fact that loss would not have occurred BUT FOR the
breach.

Overall Conclusion:

Conceptual difficulty for future cases in understanding very slight difference between common law
& equitable doctrines.

Liability in tort of negligence in relation to trusts

 Claims in negligence are also available to people who do not have rights of beneficiaries
under trusts, esp if hopes of prospective rights were frustrated by someone’s negligence.
 Example: White v Hones
 Liability at common law may also be held to arise on basis of breach of an implied
contractual term
 Principal claim a beneficiary under trusts law will bring will be claim for breach of trust as
there is no need to prove forseeability nor causation in common law sense of that term &
remedies available for breach of trust are broader than those available for breach of a
common law duty!

Fusion Fallacy: merging equity with common law in error

 Fusion fallacy: means common lawyers occasionally rely on common law remedies (in
particular damages) to impose liability to effect compensation on people who are trustees;
whereas they should rely on law of breach of trust!

6. Valuation of loss to the trust

Q: At what level should compensation be awarded in respect to property that fluctuates in value
between date of breach & date of judgment?

A:

(1) Old approach  Highest intermediate balance approach (Jaffray v Marshall): Required court
to identify the highest value for trust property between time of breach & date of trial, & that
valuation should be used to identify amount to be compensation.

(2) Valuation might involve an impossible sale, just because value of an item of property
theoretically at level X at a given time does not mean beneficiaries would have been able to
sell property for that price at that time. *(Target Holdings v Redferns)

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 (3) Target Holdings v Redferns overruled Jaffray v Marshall: preferred courts simply identify
amount that was actually lost by beneficiary and use that as valuation. C would have to prove
what he had lost.

Q: What is the measure of compensation for breach of trust?

A: Fair Compensation  Difference between proper performance of trust obligations & what trustee
actually achieved, not least that could have been achieved : Nestle v NatWest Bank

Trustee will not be liable for speculative or unliquidated losses and beneficiary must be able to
demonstrate amounts have been lost. (Palmer v Jones)

Trustees not permitted to set off profit in 1 transaction against a loss in another transaction. In Dimes
v Scott, trustees breached their trust by paying income to testor’s widow but delay in admin of trust
made them buy more securities than otherwise would have been the case.

HELD: Commission for breach of trust actionable in itself regardless of profit which trustees had made
in some collateral transaction.

7. Claim for breach of trust after termination of trust

Q: What is the nature of the claim which can be brought when trust property has been paid away?
Q: Where property is paid away in breach of trust, at what point the trust terminates?

A: A trust ends when trust property is transferred away. BUT it is unclear after Westdeutsche (HOL)
how this position can be maintained in principle, because in that case it would appear that trust –
obligation of trustee doesn't come to an end when property is being transferred away.

Trust is not simply title to property BUT ALSO INVOLVES obligation of trusteeship to beneficaries
which are imposed on trustee personally. True essence of a trust  it is not merely due to the
property title itself…=> That’s why trusteeship MUST continue wherethere is some order either for
reconstitution of fund OR payment of compensation!!

Trusteeship MUST NECESSARILY CONTINUE where there is some order either for reconstitution of
fund OR for payment of compensation!

Perhaps a trust can be deemed to have been terminated, for e.g. when its purpose has been
superseded by anther structure & all of property transferred out of trust with intention that trust will
have NO FURTHER ACTIVITIES!

Must know why trust ends in deciding whether a claim for breach can be brought after termination of
trust.

8. Breach of trust in relation to investment of the trust fund

Where there is a Vandervell-Style trust obligation (where LT & ET to the fund are transferred
together), that is validly performed (that is there is no equitable claim against trustee), it can properly
be said that the trust has ended as trusteeship has ended.

Acid Test Counter-argumnets presented by Target

Holdings v Redferns
Whether trustee has acted in any sense in breach a) Trust in Target terminated at the date of
of trust in conduct of that Vandervell-style transfer & therefore, no need to raise argument
transfer OR whether she breached some that there be reconstitution of trust fund on basis
contractual warranty concerning manner in that there would be no fund to reconstitute in
which transfer was to be performed. any event.

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 No claim in equity in respect of trusteeship => b) Once trust is dead, it cannot be brought back
Trust has come to an end to life  Q: Whether trust had transformed into
chose of action against trustee personally equal
to value of trust fund.

c) BUT this would overlook fact that equity will

STILL give effect to many of those equitable
obligations that made up trust by means of
equitable tracing claims, personal claims for
dishonest assistance or knowing receipt, or
subrogation claims.

Thus, it must be the case that property acquired

as a result of such claim must be held on trust in
the same manner that property was held on trust
before unconscionable event which gives rise to
the claim.

Otherwise, when fund property just entered, it

won’t be subject to terms of the same . Could not
be established on principle, that breach of trust
would be remedied by an order to deal with
property otherwise than in accordance with trust
that originally breached.

d)No liability to reconstitute trust fund where

underlying commercial transaction has been
performed. For E.g. Bank = Trustee and is to
invest in ordinary shares for clients. If Bank that's
unacceptable risks with that fund in breach of
trust & causes loss to client  trustee liable for
breach of trust and put fund back. However, if it’s
just mere fall in price of shares, bank wont br
liable. For.g. Bank invest in bonds  LIABLE>

e) Obtaining security over property – commercial

purpose of trust. Loss suffered by beneficiary did
NOT flow from technical breach of trust. ISSUE 
Whether appropriate claim is breach of contract,
negligence, OR breach of trust! => Suggestion:
Allocation of risk & not conscionability is the only
useful analysis of this matter regarding share
dealing transactions!

f) Critique  should we have difference between

commercial trust & traditional family trust? =>
Non compliance with instructions becomes a
contract law matter instead of commercial trust.

Defences to Liability for Breach of Trust

1. Lack of causal link between breach and loss

Must have CAUSAL LINK between loss suffered & breach of trust. No causal Link = Truste not liable for
breach of trust (Target Holdings v Redferns)

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 2. Breach committed by another trustee

1 trustee not liable for acts or omissions of the other trustee. E.g. Trustee liable for custody of money
only where trustee had given receipt for property and not otherwise – TA 1925 s30(1)

Trustee will only be liable in this context for any willful default – Re Vickey OR for failure to ensure $
properly invested such that liability won’t be attached to trustee who has attempted to ascertain
other trustee has carried out her obligations properly.

Obligation on trustee to tack action to protect beneficiaries when she learns of breach of trust
committed by another trustee, for e.g. by beginning claim for restoration of trust fund.

3. Failure by beneficiary to alleviate loss

If beneficiary does not take measures to alleviate loss due to breach of trust, the trustee is NOT liable
for any future losses.

4. Release

When employees signed release form in respect of any breach of duty by their employer, it was held
that this would not prevent a claim for relief in relation to stigma attached to them when it is
subsequently emerged that their employer bank has been dealing dishonestly!

5. Trustee exemption clause

Armitage v Nurse  (modern)

Walker v Stones (more restricted) – exemption clause sought to exclude trustee’s liability for all
actions except dishonesty was held to be effective in general terms, but not so as to exclude liability in
circumstances in which trustee could not reasonably have believed that her actions would be
considered to be honest.

Q: What’s the minimum content of trusteeship?

Armitage v Nurse  Must uphold exclusion clause because otherwise professional trustees would
have refused to hold the office in Q

Walker v Stones  Court doubt BREADTH of the proposition & preferred to look objectively at
probity of trustee’s actions.

Principle generally accepted trustee exemption clauses will be effective to LIMIT trustee’s liability,
even if its negligence or gross negligence, but NOT DISHONESTY – Armitage v Nurse

6. Excuses for breach of trust

S61 TA 1925 gives court power to grant partial OR total relief for breach of trust!

Q: Did trustee act honestly such that court considers it appropriate to relieve her of her liability!

Purpose of S61  mitigate harshness of case law, which tends to hold amateur trustees liable for
whole of any loss suffered by beneficiaries in circs in which there was no reason to suppose that those
trustees had held themselves out as having particular competence to manage tust to any aprticualr
standard

S61 Power to relieve trustee from personal liability.

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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.

7. Excuses for breach of trust – Technical Breach needed to protect beneficiaries (Investment
context)

 Trustee breaches precise terms of trust by investing in property outwith investment powers
contained in trust deed, in circs where trustee is able to demonstrate technical breach of
trust protected beneficiaries from losses which they would have otherwise suffered, it will be
open to that trustee to maintain that breach of trust is therefore NOT actionable.

 One one level, beneficiary must show loss in any event. On authority of Nestle v NatWest
Bank , even if small loss had been suffered, it is open to trustee to demonstrate that
investment strategy applied was adopted both for long term benefit of beneficiaries and
guard against future risk to the fund.

 If proven, this argument equates to a good defence to claim for compensation for breach
of trust arising out of such loss on basis that it shielded fund from future loss even if it
failed to generate maximum short term gain.

 Trustee would be needed to prove adopted course of action well founded in accordance to
market practice (Nestle v NatWest Bank) & then any loss was reasonable to achieve
alternate goal.

8. Action not in connection with fiduciary duties, or action permitted by terms of trust

Trustee obviously wont be liable for such actions since they are permitted!!

9. Concurrence by a beneficiary in breach of trust

 When beneficiary concurs OR acquiesces in breach of a trust, then the beneficiary is

estopped from seeking to recover compensation for that breach of trust from any trustees
to whom that concurrence was proffered (Re Pauling’s Settlement Trusts)

 Underlying concern  Fairness & Equity in the beneficiary bringing an action for
compensation for breach of trust. When a beneficiary had known and agreed to
something, then she cant seek compensation from that thing after that!! !

10. Change of Position

 Defence of change in position potentially available.

Allocating Claims

Q1: How does C decide which of a potentially large number of claims to pursue?
Q2: How does court decide how liability for loss suffered by C is allocated between large number of
Ds?

1. Choice between remedies

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  Possibility of a number of remedies from those associated with tracing claims, to those
related to value of specific property, to those based on compensation – Target Holdings v
Redferns
 What remedy C beneficiary goes for and pursues is really her own choice. Equitable doctrine
of election arises in such situations to provide that it is open to C to elect between
alternatsive remedies – Tang v Capacious Investments

Tang v Capacious Investments

Facts: Possibility of parallel remedies arose regaring breach of trust, for C beneficiary to (1) claim an
account of profits from malfeasant trustee OR to (2) claim damages representing lost profits to the
trust.

HELD: These 2 remedies existed in alternative and therefore, C could claim BOTH, not being required
to elect between them until judgment was awarded in its favour.

Whatever it is, court will NOT allow double recovery in respect of same loss => THUS, election
between those remedies is ultimately needed!

2. Allocation of liability between Ds

Q: What’s the manner in which court apportion liability between trustees?

A: Hard to decide which number of Ds required to make good C’s loss. Under example scenario below,
court needs D who is most culpable to bear larger share of loss (Dubai Aluminium v Salaam)

E.g .

D1 acted deliberately to defraud C,

D2 and etc Ds less culpable because they didn't act deliberately OR because D1’s actions were primary
factor in causing loss, or some similar explanation!

Factors that the court will consider:

(1) How large a role each D played in causing the loss.

(2) Level of moral blameworthiness attaching to each D.
(3) Extent to which each D had taken some personal benefit for breach of trust.
(4) Note that each D to claim for breach of trust is potentially liable for enire loss, if for example,
other Ds bankrupt at time of trial.

3. Limitation Period

Q: Limitation period on action for account?

A: Appropriate period is that for common law fraud unless there has been a dishonest breach of
fiduciary duty, so in which case no period applicable.

Breach of Trust after AIB v Redler (Supreme Court)

AID v Redler approved Target Holdings v Redferns (Lord Browne-Wilkinson’s judgment) .

Facts: Solicitors held GBP3.3.MIL on trust to acquire trust over property for clients by discharging prior
charges held by Barclays Bank. In breach of trust, they failed to advance approximately GBP 309K of
that amount and so the first charge in favour of Barclays was not discharged.

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Issue in Q: Whether trustee solicitors were required to account for entire GBP3.3MIL , OR only GBP
309K which was actually lost here.

 HELD: Only GBP 309K actual loss needed to be compensated.

 Lord Toulson  In practical terms its all going back to same point in claims for breach of trust 
restoring trust back to original position had it not suffered the loss. Trustees liable to compensate
beneficiaries directly for any loss actually caused by breach, but w/o any of common law
concepts of causation needing to be applied

 Lord Reed  Purpose of remedy is to restore trust fund to position it would have been but for
breach of trust.

Academic Critique:

(1) Confusion presented between “substitutive” remedies  where property was being
restored to beneficaries & “reparative” remedies  where trustees were paying
compensation to beneficiaries.

(2) Old approach of “account & falsification” now to be understood as being based on equitable
compensation.

Lecture Problem Question:

In 2007, Bob and Terry held an oil painting on trust and in breach of duty sold it for £300,000. They
used the proceeds to purchase an apartment in Leamington that is now worth £280,000. The oil
painting has since changed hands several times, including once for £500,000, and is currently valued
at £400,000.

Advise the beneficiaries.

Seminar Week 5: Breach of Trust

PQ: Penny and Murdoc are the trustees of a trust under which Angus has a life interest, with
remainder to his adult son Pete. Murdoc is a solicitor with little or no experience in the property
market. Penny is an elderly spinster who runs a ‘Gardener’s Question Time’ fanzine and follows Eric
Robson (the presenter) around the country. Because she spends so much time on the road, she tends
to defer to Murdoc’s wishes. They invest the trust fund in land to be used to build a skyscraper in
Kenilworth. The development was doomed to failure, though Murdoc could not see this. It therefore
produces a very poor income for Angus. For several years he does not object to this, as he has
substantial income from abroad, and out of friendship he does not want to cause trouble with Penny
and Murdoc. After seven years, his income from abroad dries up, and he feels he should be getting a
better income from the trust. He takes advice as to whether he may have any legal redress against
Penny and Murdoc. Pete also goes along with her to seek advice. Advise Angus and Pete as to
whether they have any legal redress against Penny and Murdoc, and Penny on whether she may have
any redress against Murdoc.

1.

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