Breach of Trust

Breach of trust consist in nothing more or less than an act by the trustee in contravention of the duties imposed upon him by the trust or in excess of his powers” {Re Spedding (decd) [1996] NZLR 447}

Breaches of Trust may be active or passive.

Active breaches of trust consist of some intentional, negligent or dishonest act committed by the Trustee(s), whilst a passive breach consists of some failure to act of the part of the Trustee(s).

A Trustee who, by reason of the breach of trust, causes a loss to the trust, is personally liable for the loss.

A Trustee who has committed a Breach of Trust may be sued by:

  • (i) a beneficiary
  • (ii) the estate of the beneficiary
  • (iii) a co-trustee, or
  • (iv) a successor trustee

{Occidental Life Insurance Co of Australia Ltd v Bank of Melbourne (1991) 7 ANZ Insurance Cases 61-201

 

“The basic right of a beneficiary is to have the trust duly administered in accordance with the provisions of the trust instrument, if any, and the general law”

–          Lord Browne-Wilkinson (Target Holdings and Redferns [1995] UKHL 10)

“The basic equitable principle applicable to breach of trust is that the beneficiary is
entitled to be compensated for any loss he would not have suffered but for the breach.”

–          Lord Browne-Wilkinson (Target Holdings and Redferns [1995] UKHL 10)

The obligation imposed by courts of equity upon defaulting trustees and other fiduciaries is of a more absolute nature than the common law obligation to pay damages for tort or breach of contract. It follows that the obligation is not limited or influenced by common law principles governing remoteness of damage, foreseeability or causation.  The question for consideration is not whether the loss was caused by or flowed from the breach. Rather, as Street J put it in Re Dawson (decd) [1966] 2 NSWR 211 at 215: “the inquiry in each case would be to whether the loss would have happened if there had been no breach” (Hill v Rose [1990] VR 129 at 144).

In the case of breach of fiduciary duty, as in deceit, the court does not have to look to the consequences to judge the reasonableness of the actions. A breach of fiduciary duty is a wrong in itself, regardless of whether a loss can be foreseen. Moreover the high duty assumed and the difficulty of detecting such breaches make it fair and practical to adopt a measure of compensation calculated to ensure that fiduciaries are kept “up to their duty“. (Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129 at 161).

Judicial Relief for a Breach of Trust

The courts can relieve a Trustee from personal liability for a Breach of Trust under the Trustee Acts.

Section 67 of the Trustee Act 1958 (Vic) states:

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.

Knowing assistants are jointly and severally liable with defaulting trustees and fiduciaries to pay equitable compensation for any loss suffered by the beneficiaries as a result of the breach. {New Cap Reinsurance Corporation Ltd v General Cologne Re Australia Ltd [2004] NSWSC 781, where Young CJ noted with apparent approval that ‘Ford and Lee point out … that the accessory is jointly and severally liable with the principal malefactor to pay the amount of equitable compensation required to restore the trust fund’. See also Ultraframe (UK) Ltd v Fielding  [2005] EWHC 1638 (Ch).

In Victoria, the equitable right to recover contribution has been supplanted by the Wrongs Act 1958 (Vic)  The relevant provisions of the Act, which were based upon the Civil Liability (Contribution) Act 1978 (UK) c 47, were introduced in 1986 to expand the statutory right of contribution, which had previously been restricted to claims between tortfeasors.
Application of the Wrongs Act to Accessories

Under the Wrongs Act, a ‘person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage’.[129]

Section 23A(1) provides that:

“a person is liable in respect of any damage if the person who suffered that damage … is entitled to recover compensation from the first-mentioned person in respect of that damage whatever the legal basis of liability, whether tort, breach of contract, breach of trust or otherwise.”

The reference to ‘breach of trust’ removes doubt that the Wrongs Act applies to trustees and accessories who are liable for losses arising out of breaches of trust.

Accordingly, the Wrongs Act is likely to govern contribution claims between accessories and trustees or fiduciaries.

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