• Kylie Simmonds-Cox

What is Breach of Trust?

A breach of Trust arises when a trustee fails to carry out his duties, as outlined in the Trust Instrument as well as the law. This might include things such as:

  • Failing to invest funds in an authorised manner;

  • Making unauthorised profits from the trust funds;

  • Failing to distribute the trust funds to the right beneficiaries and/or in the right amounts;

  • Making unauthorised purchases of property

  • Failing to ensure that the property is owned in the name of the trustees.

What action can a beneficiary take?

A beneficiary does not have to wait for a breach to occur before taking any action if he anticipates a breach will occur and can:

  • Apply to the court for the Trust to be executed under the direction and supervision of the court.

  • Apply to the court for directions on any matters involving the administration of the Trust.

  • Request up-to-date accounts from the Trustees

  • Seek an injunction to prevent any threatened breach.

The liability lies with the trustee; individually and if it is found that a breach has occurred, then a beneficiary can take legal action against the Trustee personally for the loss and requiring them to restore the trust property and to compensate for any loss.

In Target Holdings Limited v Redfern [1996] 1 AC 421, the extent of the personal liability of the Trustee was stated as being:

Equitable compensation for breach of trust is designed to achieve exactly what the word compensation suggests: to make good a loss in fact suffered by the beneficiaries and which, using hindsight and common sense, can be seen to have been caused by the breach.

The court will determine how the loss should be measured and is normally calculated at the date of the judgement.

Where two or more Trustees are responsible for a breach of trust, the beneficiaries can choose to sue one or all of them, as they are jointly and severally liable. Under the Civil Liability (Contribution) Act 1978, a Trustee who is blameless can be granted a total indemnity for any loss resulting from a co-trustee, for example:

  • Where the breach of trust was committed on the advice of a solicitor trustee;

  • Where one trustee alone benefits from the breach

  • Where the Trustee was also a beneficiary.

It's worth noting that a retired Trustee may be responsible for a breach of trust that occurs after he retired, if he retired anticipating the breach and specifically to try to avoid involvement in the breach.

Is there any protection for the Trustee?

A Trustee may have a number of defences:

  1. That there was no breach of trust or if there was one, then no loss has been suffered.

  2. There was a breach of Trust but with the consent of the beneficiaries.

  3. There was a breach of Trust but it was authorised by the Court.

  4. They are exempt or have limited liability due to the inclusion of an Exemption Clause written in the Trust Instrument.

  5. They may be relieved under s. 61 Trustee Act 1925. Though it is more difficult for a professional to rely on this because of the higher standard of care expected.

As can be seen acting as a Trustee can be extremely onerous and you need to think carefully about whether this is something you actually want to do. Further details surrounding the duties of a Trustee can be found here.

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