A more recent version of these Breach Of Trust notes – written by Oxford students – is available here.
The following is a more accessble plain text extract of the PDF sample above, taken from our Trusts and Equity Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:
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BREACH OF TRUST Abbreviations: C Claimant D Defendant T Trustee S Settlor B Beneficiary PoA Power of Appointment
1) WHAT IS A BREACH OF TRUST?
Breach of trust T's failure to act as he should, according to his duties and obligations. Sources of T's duties/obligations: A. Terms of the trust instrument B. Implied terms C. Additional statutory provisions (eg. TA 2000 doesn't actually say that provisions are terms of the trust, but breach still treated as if it were breach of trust terms) D. General law duties/judge-made rules (eg. Fiduciary obligations, equitable duties of care/skill/diligence)
2) WHAT PERSONAL REMEDIES ARE AVAILABLE?
NB: the various remedies can be combined. There is a much wider range of remedies than in breach of contract/tort, where you can usually only get damages. Personal remedies can be divided into compensatory (award of money) and others (declaration/injunction/removal etc)
SUBSTITUTIVE PERFORMANCE CLAIMS
Where B wants an order commanding T to perform duty, there is no need to first show that T did anything wrong - no need to show prior breach!
Eaves v Hickson, 1861: though there was no evidence that T failed to examine documents carefully, when documents later turned out to be forged, court held that T was still bound to pay trust fund. Strictness of the above standard can lead to court reclassifying previous unauthorised trustee action as authorised, to moderate severity.
In Speight v Gaunt, 1883: HOL held that delegation of T's investment duties to broker was not unauthorised. T's core obligations is to account - deliver trust asset in specie, according to terms of trust. If he can't court can order him to make money payment as substitute for performance (where he has already breached the trust). Bs don't have to first show loss, since Bs are just reinforcing proper performance. Money remedies not looking to compensate B in terms of damage, but to reinstate fund - hence concepts of remoteness/contributory negligence not relevant!
I. Execution of the trust
T may be forced by court to perform the trust - similar to specific performance in contract, but much easier to obtain such an order compared to contract (where must show damages are inadequate). 2 components: declaration + coercive element.
II. Money remedies
3 purposes: i) Order T to restore trust to prior level before breach, by paying in money
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Address other sorts of wrongdoing which didn't actually reduce the level of funds - Eg. If T hadn't been sufficiently careful/skilful/diligent.
pay in amount reflecting what true assets would've been if T hadn't breached. iii) Order account for unauthorised benefits/profits, where T placed himself in position where interests conflict with duties. Where does money go? Usually goes back to the trust fund itself, not claimant beneficiary. Exceptions:
Where C is the sole person entitled to claim for loss under a trust.
If the trust has been fully performed, hence no longer exist - wouldn't make sense to reconstitute trust fund. Reconstitution would be inconsistent with terms of the trust to do so Target Holdings v Redferns, 1996
Where trust still exists, but C claimed for loss which did not affect other Bs.
4. Stop a breach which has already commenced
5. Prevent a threatened breach which is about to commence. Most direct remedy for beach of trust!
IV. Removal of trustees and appointment of new trustees
Note this forced removal does not attack the operation of the trust itself. The trust will not fail because of removal of one T, amongst others.
Claim premised on T having committed a wrong - T should make good harm which B suffered as consequence of T's breach. Quantification: based on loss suffered by B
can include loss of chance to avoid detriment/make gain. Must show factual, but-for causation - doesn't matter that breach was innocent/negligent/fraudulent. Bartlett v Barclays Bank (No. 2): threshold of reasonableness - must be shown that loss would not have occurred but-for T's failure to do what no reasonable trustee could have failed to do. Note a higher duty can be expected of a trust corporation in the specialised business of trust management (Brightman J).
In this case, bank was in breach of trust in neglecting to ensure it got sufficient information about companies' board activities - otherwise, would've been able to step in and halt a risky project. Even without this sufficient info, the court held that the bank knew enough to put it on notice.
rejected bank's plea of s61 TA 1925, as bank was held to have acted honestly but not reasonably.
3) ACCOUNTING FOR LOSSES AND GAINS I) Falsifying The simple case a. Where T makes unauthorised disposition of trust property accounts will show debit reflecting the disbursement. b. B complains that disbursement shouldn't have been made (because of fraud on the power/ultra vires/breach of F duty). Hence seeks falsification c. Falsifying = disallowing/crossing out the disbursement. Places accounts back in the state they would have been had T performed duty and not made disbursement. d. Practical consequence: discrepancy between new account (what ought to be in fund) and what is actually in fund - amounts to equitable debt which CL courts don't recognise.
- T must make good by paying amount of debt back into the fund.Example: Target Holdings v Redferns, 1996
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- R (solicitors) received clients' money which they held on trust, subject to prior directions that money to be paid out to borrowers after documentation of land ties/mortgages received. R paid out too early, and it later turned out borrowers were insolvent, hence Bs suffered loss.
- HOL held there was breach of trust as soon as money was paid away without authority. Ts had immediate duty to restore trust asset.
- falsification = perfect remedy here!--In Re Dawson, 1996: once T commits breach, he is liable to place trust fund back in same position as if no breach had occurred - causation, forgeability and remoteness are irrelevant!
NB: T will be treated as having made the unauthorised investment with his own money - needs to account for entire amount of disbursement, not just loss suffered where investment drops in value. Hence, will need to provide the relevant trust property in specie , or pay money substitute from own pocket.
Bonham v Blake Lapthorn Linell, 2007: but even though account isn't drawn so as to reflect loss, this does not mean trust hasn't sustained loss! Hence, clause exempting liability for "loss' can still apply.
The complicated case - raising an election a. In the simple case, T didn't get anything in return but simply made wrongful disbursement. b. Here, talking about T who made unauthorised disbursement and got, in return, an unauthorised asset located in the trust accounts. c. B has a choice!
- sue for loss, saying disbursement shouldn't have occurred and seeking just reinstatement of funds
- ignore the disbursement (if unauthorised asset is appealing), thus adopting the unauthorised asset When is loss assessed?
Target Holdings: the assessment of quantum of compensation payable is at the date of judgment.
- this is so even though the cause of action accrues as soon as T commits breach.
- here, required security documents were later obtained. This was held to be relevant in deciding whether B was entitled to compensation!
Relevance of common law rules?
Target Holdings: Common law rules on remoteness of damage and causation do not apply! But must still have some causal connection between the breach and the loss.
- falsification is meant to restore position of fund - if we apply these common law tort rules the fund will not be properly replenished!
Hence, In re Dawson, 1966: at common law, increases in market value after breach wouldn't be included in damages BUT for falsification, defaulting T is still liable for these increases.
- only looking at what is necessary to restore trust fund to level it would be at had breach not occurred, at time of judgement.
Basically inserting into account an amount which should be there, but isn't.
Different from accounting of profits when D breached fiduciary duties: for this, you are adding something to the trust which shouldn't be there. Only given to specific breaches of fiduciary duties which are particularly crude.
In comparison, surcharging applies to the whole trust fund. Usually arises from breach of duties of care/skill/diligence. Quantifying: amount that would have been obtained had T acted carefully, skilfully and diligently
like falsifying, it is assessed at time of judgment!
CL rules don't apply here either!
Target Holdings: T still liable even if immediate cause of loss is dishonesty/failure of third party. (note this case was actually on falsification)
Caffrey v Darby, 1801: once T is shown to have breached equitable duty of care (and now, same applies for statutory duties of care), T will be liable for all loss, regardless of the immediate cause - might have been due to fire/lightning etc. 3
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the only limitation is "but for" causation. Cf Bristol & West Building Society v Mothew, 1998: where Miller LJ argued for application of CL rules of causation/remoteness. But this is NOT the English approach at present!
in CL, it is assumed that parties act independently in their own interests. But in equity, this cannot be true cos of T's fiduciary duties!
III) Interest? [might be necessary, on top of surcharging/falsifying, for breach to be completely remedied]
Simple or compound interest?
Right now, unclear how far the choice is a matter for court's discretion.
Wallersteiner v Moir (No 2), 1975: CA held that it should be presumed that B would have made most beneficial use of money had B not been deprived of it. Alternatively, it should be presumed that T (wrongdoer) made most beneficial use of it hence, compound basis.
But in Target Holdings, HOL, commenting on Jaffray v Marshall (1993), didn't approve of the presumption. What rate of interest?
At court's discretion! Applies different rates, partly influenced by inflation.
Bartlett v Barclays Trust Co Ltd (No 2), 1980: courts award current short term investment rate applying to courts' account.
BUT might decide to award higher rate if T was under duty to receive/actually received higher rate.
Where T incurs loss, but also gains profit. Allows profit to be set-off against loss, so that T does not does not have to pay as much (or even, anything at all) General rule is that T is NOT entitled to set-off. 2 key situations:
A) where profit and loss were made on the same, single breach of trust, OR
Here, B is entitled to elect to sue for profit or loss. Distinct alternatives! Hence, T usually can't have set-off, which would involve a combination of both.
BUT there is one situation which may give rise to possibility of set-off: Fletcher v Green, 1864
T made unauthorised investment which turned out profitably.
Bs had choice of: 1) falsifying account; 2) forgo claim to falsify and adopt breach. Bs picked (1)!
Unusual insofar as the unauthorised investment continued to play a role in the quantification of remedy - court applied lien to the asset, securing repayment to Bs. The asset, being the unauthorised profit, had lien on it so that when it was sold, it generated money used to cover debt owed by Ts.
This is still not true setting-off. Asset is being used as a source of money.B) where loss is sustained through one breach, but profit made through another.
Equitable policy says T should NOT be allowed to set-off to keep T to his duty properly, T should be required to account for all profits made in breach of trust. Each separate breach is remedied according to terms of trust. Allowing set-off would dilute T's duties - might encourage him to commit more breaches in hopes that next one will be profitable.
Wiles v Gresham, 1854 illustrates this category of cases.
2 breaches here: (i) failure to collect PS2000 owed on bond by W; (ii) unauthorised investment to buy land. Value of land then went up when W, having paid part of purchase price too, spent PS making improvements to the land.
Ts claimed set-off, of increase in value of land against failure to collect money owed.
Court rejected this argument!
could only work if W (debtor) intended, by spending additional money on land, to satisfy debt owed on bond. Otherwise, there is still an uncollected debt!
**further, Bs could elect! Here, Bs chose to adopt investment, electing not to sue/falsify. Hence, unauthorised land investment and increase in value belongs to trust fund - Ts can't just take and use it as set-off.-
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