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INTRODUCTION
To determine whether there is a breach of trust, generally, first thing is need to determine
there is a valid trust. We must know what type of valid trust. Example, express trust,
charitable trust, etc.
A breach of trust refers to any act on the part of a trustee which amounts to a contravention of
his or her duties, or is in excess of his or her power. A trustee can only be made liable for
breach of trust if that breach has resulted in an unauthorised gain to the trustee or has caused
the trust to suffer a loss. If the trustee gaining profit for the benefit of the trust, that is not
count as breach of trust but he is liable to act contrary to another thing. In breach of trust, the
trustee need to compensate the beneficiaries based on how much the Trustee gained from the
secret profit.
EQUITABLE COMPENSATION
One general proposition flowing from a breach of trust by a trustee is this: he or she is liable
to put the trust estate back in position as if there had been no breach. This proposition is to be
distinguished from a claim founded on damages at common law.
In Re Dawson, Street J explained:
“…where a money compensation is to be paid in lieu of restoring assets, the
compensation is to be assessed by reference to the value of the assets at the date of
restoration and not at the date of deprivation…”
In Target Holdings v Redferns, the Court held that:
“the purpose is to put the plaintiff in a position as he would have been in had
sustained the wrong for which he was being compensation.”
Breach of Duty causing direct damage or loss to trust property
The judicial approach here aims for a position as if the damage or loss had not taken place. In
Bank of New Zealand v Guardian Trust Co Ltd, Tipping J stated:
“The policy of the law in these circumstances is generally to hold the trustee
responsible if, but for the breach, the loss or damage would not have occurred...
questions of foreseeability and remoteness do not come into an assessment.”
Unconscionable Infidelity or Disloyalty
In instances where a breach of duty involves an element of infidelity or disloyalty engaging
the conscience of the fiduciary, the law expects the defendant to show that the loss
complained of would have occurred even without a breach of duty on his part. In Gilbert v
Shanahan, the Court stated:
“…once the plaintiff has shown a loss arising out of a transaction to which the breach
was material, the plaintiff is entitled to recover unless the defendant fiduciary, upon
who is the onus, shows that the loss or damage would have occurred in any event
without any breach on the fiduciary’s part.
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Loss Attributable to Failure to Exercise Appropriate Skills and Care

Where the loss complained of is caused by the failure to exercise appropriate skill or care, the
fiduciary nature of the relationship in not instrumental. In Bank of New Zealand case, it
stated that
“…where that is not present as where a person, though under some fiduciary
obligations, merely fails to exercise reasonable skill and care, there is no reason in
principle for the law to treat that person any differently than those wo breach duties of
care imposed by contract or tort…”
In Youyang Pty Ltd v Minter Ellison Morris Fletcher, the judges expressly characterised the
breach of trust, for example, by (1) merely the imprudent exercise of power, for example
power of investment, by failure to comply the care and diligence which equity requires; (2)
liability for breaches of trust causing loss to the trust estate; and (3) breaches of fiduciary
duties of loyalty and fidelity.
In Head v Gould, the court held that a trustee remains liable after retirement for breaches
committed during her office and similarly her state remains liable after her death. she may
however have been released by the other trustees, or by the beneficiaries if they are of full
capacity and in possession of all the facts.
Trustee only liable for his own breaches and not for those of his co-trustee unless the trustee
is guilty of willful default. Trustee is not liable for breaches of trust committed before his
appointment. Trustee remains liable after retirement for breaches committed by him/her
during his/her term of office. Not liable for breaches committed after his/her retirement but
liable if his/her retirement facilitate the breach of trust.
NON-DISCLOSURE OF MATERIAL FACT
In respect of causation, Lord Thankerton in Brickendan v Loan & Saving said this:
“when a party, holding a fiduciary relationship, commits a breach of his duty by non-
disclosure of material facts, he cannot be heard to maintain that disclosure would not
have altered the decision to proceed with the transaction, because the constituents
action would be solely determined by proposed to be mortgaged. Once the court has
determined that the non-disclosed facts were material, speculation as to what course
the constituent, on disclosure, would have taken is not relevant”
The above dicta would suggest that once a misrepresentation or a material non-disclosure is
proved, a causal link between breach or loss may not have to be proved.
In Everist v McEvedy, Tipping J:
“…where there is a breach of fiduciary duty by the failure to disclose material facts,
the party in breach will not be allowed to maintain that disclosure would not have
altered the other party’s decision to proceed with the transaction…”
In this case, Tipping J adopted the following as correctly representing the law, at least in New
Zealand. He further stated:
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“…to succeed in a claim for breach of fiduciary duty the plaintiff must show three
things; (1) the defendant owed the plaintiff a fiduciary duty; (2) the defendant was in
breach of that duty; (3) the plaintiff has suffered a loss arising out of a transaction or
circumstance to which the breach was material…”
Therefore, if it does not satisfied one of the elements, then there is no reason to prove the
others.
In Head v Gould, the court held that if the trustee in breach is also a beneficiary – the
beneficial interest will loss against the other beneficiaries.
CONTRIBUTORY NEGLIGENCE
A relate disuse in the present context is the question whether in equity reduction ought to be
permitted in respect of the claimant’s own fault. In Canson Enterprises Ltd v Boughton& Co,
as emphasised by McLachlin J on sound policy in the law of fiduciary duty:
“Trustee has to act prudent & reasonable especially to advise beneficiary”
Contributory negligence has been given statutory basis for negligence, and has not been
extended to contract and fortiori to breach of duty.
MEASURE OF LIABILITY
The basic proposition here is the trustees are liable to account for all loss caused, directly or
indirectly, by a breach of trust. The principles of law applicable where trustees unlawfully
profit from the position have been considered elsewhere.
To prove a causal connection, there are three elements that need to be proved namely (1)
fiduciary relationship; (2) breach of fiduciary; (3) the beneficiary suffered loss from the
breach. In Target Holdings v Redfrens, it was held that the onus is on the complainant to
prove a causal connection between the breach and the loss.
The personal liability of the trustee might accrue in the certain circumstances:
1. Purchase of Unauthorised investments. Trustees make an unauthorised investment –
liable for the loss incurred on sale;Beneficiaries may if they are sui juris and may adopt
the unauthorised investment. Read Section 4 and 5 of Trustees Act 1949

2. Improper retention of unauthorised investments. Trustee who improperly retains

unauthorised investments is liable for the difference between the present value and the
price which it would have raised if it had been sold at the proper time;

3. Improper sale of an unauthorised investments. Beneficiaries may require the trustee either
to account for the proceeds of sale or replace the investment, valued as at the date of
judgment;

4. Failure to invest: Trustee should invest within a reasonable time. If fails to do so will
chargeable with interest. Beneficiary will be entitled to the difference between the actual
value of the trust fund and the value which a prudent trustee is likely to have achieved;
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5. Employment of trust fund in trade. Trustee who employs trust funds in his trade or
business is liable to account for the profits he makes or for the sums involved with
interests whichever is the greater;
In respect of the liability of a trustee for that of a co-trustee, protection is afforded to the
former under Section 35(1) of the Trustee Act 1949 unless the acts, receipts, neglects, or
defaults complained of happened through his own wilful default.
Interest
Misapplies trust funds will be liable not only to replace the misapplied principal fund +
interest from the date of misapplication. Rate of the interest and choice between simple and
compound interest is within the court’s discretion. Compound interest is usually charged
where that fairly represents what the trustee may reasonably be treated as having received and
in cases of fraud or misconduct.
Profit in one transaction loss in another
Gains made out the trust property belong to the beneficiaries while a loss incurred by reason
of a breach of trust be made good by the trustee.
In Dimes v Scott, the court held that where an unauthorized transaction benefits the life
tenant but harms the capital beneficiary, the capital beneficiary can choose to falsify the
account and make the trustee liable for the loss to the value of the capital interest.The losses
occasioned by a breach of trust in one transaction cannot be set off against any profits made
by them in another.
In Fletcher v Green, the court held that a beneficiary may claim the whole loss by suing all or
some or one of those who are liable; and may levy fixation for the whole sum against only
one.
If the profit and loss can be seen to be part of the same transaction, however, the principles of
Dimes v Scott will not apply. In Bartlett v Barclay’s Bank Trust Co. Ltd (No.1), loss had
resulted from a disastrous development, but another development had produced profit. Whilst
acknowledging the general rule, Brightman J allowed that gain to be set off against the loss.
Where gains and losses arise in a single dealing or course of dealing, the trustees will be
liable only to the extent that a net loss results.
Liability of Trustees inter-se
2 or more trustees are liable for breach of trust when their liability is joint and several.
Beneficiary may claim the whole loss by suing all or some or anyone of those who are liable.
However, trustees are only liable for their own breach and so a unilateral action by one
trustee that constitutes a breach of trust will not engage the liability of other trustee's.
In Bahin v Hughes, the Court held that A trustee may be liable for a breach of trust even if
the act or omission in breach was committed by a co-trustee, but only if the trustee can be
said to have failed in his duty to supervise the trust's affairs, which failure facilitated the
breach of trust by the co-trustee. A trustee cannot claim an indemnity against his co-trustee
by arguing that he did nothing in the administration of the trust while his co-trustee, though
honestly, breached the trust by his erroneous actions. This is not liability for B's actions (it is
not vicarious), but rather A's primary liability because of his failure to monitor the trust in
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accordance with his own duty. Trustees are jointly and severally liable when they act
together, or ought to have acted together, in doing anything which they ought not to have
done, or failing to do what they ought to have done.
Solicitor and Trustee
In Re Partington, the Court held that trustee can claim an indemnity if they followed advice
of solicitor
Benefeciary and trustee
In Chillingworth v Chambers, The court may impound (confiscate) a beneficiary's equitable
interest in order to indemnify the trustee when the beneficiary has instigated or requested a
trustee to commit a breach of trust -- (Chillingworth v Chambers) or when the beneficiary
had consented to a breach of trust out of which he had received a personal benefit, such
confiscation being limited to the benefit received (Fletcher v Collis).
A beneficiary who consents to a breach may have his interest impounded to make up the loss
to the trust occasioned by the breach. The court will not exercise its statutory discretion
unless the beneficiary knew and understood all the relevant facts which thereafter amounted
to a breach of trust (Re Somerset).
Where one beneficiary out of a class of beneficiaries consents to a breach causing loss to the
trust fund, as much of the value of his interest as is needed will go to making up the loss to
the trust fund. Where a beneficiary is also trustee, he may not claim any share until he had
made good his liability and required to indemnify co-trustee to extent of his beneficial
interest.
DEFENCES
English law position on trustee liability is that, where there is a breach of a duty, this gives
rise to breach of trust. The numerous ways on which breach of trust can arise have been
explained in Armitage v Nurse. In this case, the court held that ‘breach of trust’ means within
the spectrum of its possible manifestations is that a trustee is liable to account, to the
beneficiary, for losses experienced by the trust and its assets.
In trust law, these limits defined in reference to the defences that a trustee accused of breach
of trust may be able to invoke.
Consent or Participation by Beneficiaries
A beneficiary who consents to or participates in a breach of trust will not usually be able to
succeed in a claim against the trustees, even if he has obtained no personal benefit from the
breach. The consent or participation of one beneficiary will not prevent those who did not
consent from claiming, and if it is uncertain which beneficiaries have consented, the court
may order an inquiry which no particular form of consent is required.
To be effective, consent must be that of an adult who is suiiuris and not acting under an
undue influence that prevents him from making an independent judgment. In Re Pauling, it
court stated whether undue influence has been exercised is a question of fact, depending on
circumstances. The trustees will not be liable if it cannot be shown that they knew, or ought
to have known, that the beneficiary was acting such under influence.
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In Re Pauling itself, the Court of Appeal held that where a presumption of undue influence
existed, as between a parent and child who was still subject to the child that was given to her
parents could not be retained by the parent unless it was clear that (1) the gift was the
spontaneous act of the child; and (2) the child knew what her rights were. It was also
desirable that the child had obtained independent and, if possible, professional advice.
Acquiescence and the Requirement of Consent
Consent involves more than mere awareness of what the trustees are proposing to do;
otherwise, trustees could protect themselves by simply telling the beneficiaries beforehand.
In Re Pauling, Wilberforce J explained:
“the court has to consider all the circumstances in which the concurrence of the cestui
que trust was given with a view to seeing whether it is fair and equitable that, having
given his occurrence, he should afterwards turn around and sue the trustees.”
The effect of the court making an order impounding a beneficiary’s interest is that beneficiary
is not only debarred from pursuing his own claim against trustee, but also liable to replace the
losses suffered by the other beneficiaries, to the extent ordered by the court, and perhaps up
to the full value of his own interest. To this extent, the trustee is protected at the beneficiary’s
expense.
Statutory Power to Relieve Trustee
Section 63 of the Trustees Act 1949 reads:
“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.”
The section corresponds to Section 61 of English Trustee Act 1925 and Section 73 of New
Zealand Trustee Act 1956. In Re Mulligan, restated the well-established principle that the
onus lies with the trustee to show that he or she has acted honestly and reasonably but more
importantly, what needs to be shown is not only the fact that the trustee should be fairly
excused for the breach but also reasons for the failure to secure the directions of the court.
In Partridge v Equity Trustee Executors Trustee Executors & Agency Co Ltd, to quote
another persuasive decision, clearly indicate the judicial policy that professional trustees must
have attempted their best endeavours, assessed in light of all the circumstances of a given
case, to safeguard the trust property.
Impounding of the Beneficiary’s Interest
Under Section 64(1) Trustee Act 1949 provides that Where a trustee commits a breach of
trust at the instigation or request or with the consent in writing of a beneficiary, the Court
may, if it thinks fit, and notwithstanding that the beneficiary may be a married woman
restrained from anticipation, make such order as to the Court seems just, for impounding all
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or any part of the interest of the beneficiary in the trust estate by way of indemnity to the
trustee or persons claiming through him.
The English position is found Section 62 of the Trustee Act 1925. In Re Somerset, speaking
of Section 6 of the English Trustee Act 1888, Lindley J stated that the section ought to be
construed as to carry out the legislative intention to offer protection to trustees.
Thus, in order to bring a case within this section the ‘cestui que trust’ must instigate, or
request, or consent in writing to some act or omission which is itself a breach of trust, and not
some act or omission which only becomes a breach of trust by reason of want of care on the
part of the trustees. If a ‘cestui que trust’ instigates, requests, or consents in writing to an
investment not in terms authorized by the power of investment, he clearly falls within the
section, and in such ignorance or forgetfulness of the terms of the power would not protect
him unless he gives some good reason like that it was caused by trustee.
He has a right to expect that the trustees will act with proper care in making the investment,
and if they do not, they cannot throw the consequences on him unless they can show that he
is instigated requested, or consented in writing to their non-performance of their duty in this
respect.