Breach of trust & remedies

TR.08 Breach of Trust & Remedies

A breach of trust is any failure by a trustee to carry out duties under the trust instrument, trust law, or statute (e.g. unauthorised investment, mixing trust money, paying the wrong beneficiary, failing to act with the required care). Liability is fault-based for negligence but strict as to outcome — a trustee who acts honestly but causes loss may still be liable.

Personal claim against the trustee

The primary remedy is equitable compensation to restore the trust fund to the position it would have been in but for the breach.

• Causation, not foreseeability: the test is "but for" causation assessed with hindsight at the date of judgment (Target Holdings v Redferns [1996]; refined in AIB Group v Mark Redler [2014]). Remoteness and contributory negligence do not apply as in common law.
• Liability is joint and several between trustees; a trustee who pays can seek contribution.
• Trustees are generally not liable for predecessors' or co-trustees' breaches unless they knew/turned a blind eye or failed to act.

Defences

• Trustee Act 1925 s.61: court may relieve a trustee who acted honestly and reasonably and ought fairly to be excused. Both honesty and reasonableness required.
• Beneficiary consent / instigation (must be a fully-informed adult); exemption clauses valid for negligence but not dishonesty/recklessness (Armitage v Nurse [1998]).
• Limitation Act 1980 s.21: six-year limit — but no limitation for fraudulent breach or recovering trust property the trustee retains.

Tracing & proprietary claims

Beneficiaries may trace trust property into substitutes — preferable because it captures increases in value and beats the trustee's other creditors on insolvency.

• Mixed funds: charge over the mixed fund; Re Hallett (trustee spends own money first) vs Re Oatway (beneficiary takes the surviving asset); lowest intermediate balance rule caps recovery.
• Tracing fails into a bona fide purchaser for value without notice, or once the asset is dissipated.

Third-party (stranger) liability

• Knowing receipt: receipt of trust property in breach where conscience is affected.
• Dishonest assistance: assisting a breach with dishonesty — objective standard (Royal Brunei v Tan; Ivey v Genting [2017]). No breach of property need pass to the assister.

Common traps

• Equitable compensation uses but-for causation, not tort remoteness/foreseeability.
• s.61 needs both honesty and reasonableness — honest-but-careless fails.
• Distinguish knowing receipt (receipt-based, conscience) from dishonest assistance (dishonesty, no receipt needed).
• Tracing is the process; the claim that follows is proprietary or personal.