FLK2 · Trusts

Breach of trust & remedies

SQE1 revision notes — the key rules, leading cases and common traps for this topic, in plain English and current to 2026.

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.

Try a real SQE1 question

This question is taken from the bank. Answer it to see the worked reasoning and the tutor. You do not need to sign up to try it.

A woman is the treasurer of a small amateur football club. Members pay £20 each month in cash. Under the club rules she accepted on becoming treasurer, she must bank the subscriptions into the club's dedicated account within seven days. One month she receives £200 in subscriptions and spends the cash on her own gas bill that same day. She intends to replace the money from her wages before anyone notices, and pays an equivalent £200 into the club account two weeks later. Which statement best explains how section 5(3) of the Theft Act 1968 applies to the subscriptions when she pays the gas bill?

Practise at the real standard

Strong on this topic? SQE1 tests 137 of them, and 58% did not pass in July 2026. See where you stand across all of them.

Complete includes

✓An AI tutor on every question. The tutor already knows the correct answer
✓5 full timed mock papers, plus unlimited drilling — no daily cap
✓The whole 2,263-question bank, with worked answers and references, all 137 topics
✓Your weak-spot map: exactly where you’re losing marks

See what it costs →or try 25 questions free

One payment, nothing recurring. The 25-question diagnostic is free with no card.