Trusts: Breach of Trust

Introduction:

This note will discuss the meaning of breach of trust, the liability of trustees following a breach of trust, the remedies available to beneficiaries, and the defences available to trustees in respect of a breach of trust.

Meaning of Breach of Trust:

A trustee is said to be in breach of trust if he does anything contrary to his duties as a trustee.

According to Petitt in “Equity and the Law of Trusts”, at page 509,

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. Failure in such due administration, whether by a positive act—for instance, investing the trust funds in unauthorized investments—or by a failure to act —for instance, neglecting to get the trust funds transferred into his name—constitutes a breach of trust

According to Professor Kludze in Modern Principles of Equity, at page 332-333,  

A trustee is guilty of a breach of trust if he fails to do what his duty requires, or if he does what he is not entitled to do. Such duties are normally imposed by equity and by the trust instrument, and sometimes by statute.

A trustee is in breach of trust, if he does anything contrary to the duties imposed on him by the trust, whether by general law or by particular provisions of the trust instrument; or if he does anything in excess of the powers conferred on him or of the duties imposed on him; or if he neglects or omits to fulfil his duties in relation to the trust property.

According to Da Rocha and Lodoh in “Ghana Land Law and Conveyancing,” at page 122,

If a trustee fails to carry out the duties imposed on him by the trust instrument, by the rules of equity, he has committed a breach of trust and is liable to make good to the beneficiaries any loss to the trust estate occasioned by the breach.

The duties of trustees include:

1. Duty of care.
2. Duty to account.
3. Duty of loyalty.
4. Duty to not make unauthorised profits.
5. Duty to preserve and protect trust property.
6. Duty to comply with the provisions of the trust instrument.
7. Duty to examine all documents relating to the trust, including the trust instrument.
8. All other duties imposed on the trustee by the trust instrument.

A breach of any of these will amount to a breach of trust.

Liability of Trustee for Breach of Trust:

The following principles govern the liability of a trustee following a breach of trust:

1. A trustee incurs liability for breach of trust whether the breach is intentional, innocent, or merely technical. According to Da Rocha and Lodoh [1] at page 122, “the trustee’s liability will arise even where the breach is innocent and merely technical. It is not based on fraud or personal incompetence, although some breaches may involve these factors.”
2. A trustee’s liability for breach is personal and not vicarious. Where there are multiple trustees, a breach of trust by one trustee does not generally render the co-trustees liable for the breach.
3. However, where a trustee stands by and allows other trustees to commit a breach of trust, that trustee may be held liable for the breach, since such inaction amounts to a dereliction of duty. Also, concurring with co-trustees is tantamount to acting and will attract liability for breach of trust if loss is occasioned.
4. Also, if two or more trustees commit a breach of trust, they are jointly and severally liable for the breach.
5. A trustee is only liable for breaches committed while he was in office. A trustee cannot be liable for breach of trust committed before his appointment. Similarly, he cannot be liable for breach of trust after his retirement from the trusteeship. In the case of Head v. Gould [1898] 2 Ch 250, a settlor placed property on trust for himself and his wife for life, with remainders for their children. The initial trustees made negligent and unauthorised investments and caused losses to the trust property. They subsequently appointed new trustees who also made a series of unauthorised advances to the settlor’s widow. There was an issue of whether the former or initial trustees could be liable for a breach of trust committed by their successors. It was held that both the former and current trustees had committed breaches of trust during their tenure and were liable for those breaches. However, the former trustees were not liable for the breaches committed by their successors because they had not contemplated or facilitated those breaches.
6. Following a breach of trust, the trustee is liable to make good to the beneficiaries any loss to the trust estate occasioned by the breach. According to Da Rocha and Lodoh [1], the purpose of this position is simply to compensate the beneficiaries and not to punish the trustee.
7. Where a breach of duty does not result in loss, the trustee does not incur liability. In the case of Nestle v. National Westminster Bank Plc [1993] 1 WLR 1260 (CA), it was stated that “A breach of duty will not be actionable, and therefore will be immaterial, if it does not cause loss.” Also see the case of Swindle v. Harrison [1997] 4 AER 705.
8. Following a breach of trust, the measure of liability is the actual loss caused to the trust property, whether directly or indirectly. According to Petitt in “Equity and the Law of Trusts”, at page 509, “The liability extends to all loss thereby caused directly or indirectly to the trust estate and, even where no loss can be shown, to any profit that has accrued to the trustee.”

Remedies Available to Beneficiaries Following a Breach of Trust:

1. Personal Action Against Trustee to Recover Trust Property:

The trustee is a fiduciary. If he appropriates trust property for personal use, a beneficiary may institute an action against him to recover the property or its value. Where the property is traceable, the beneficiary may recover the property itself; where it is no longer traceable, the trustee will be required to account for its value.

In the case of Abotsi (An Infant), In Re; Kwao v. Nortey and Others [1984-86] 1 GLR 144-156, one Tawiah had only one son, the appellant. In 1975, Tawiah died intestate and his house was transferred to one Mr and Mrs Amah to hold in trust for the appellant. The house was eventually sold, and the proceeds were used to purchase a vehicle for the defendant and a crushing machine for the second co-defendant. The appellant instituted an action against them seeking to recover these properties. In the opinion of the court, the defendant was charged with overseeing and protecting the estate of the late Tawiah and was a fiduciary of the appellant. In using the latter's money to purchase a vehicle for himself, he committed a breach of his fiduciary duty to the appellant. Consequently, the court was of the view that the appellant was entitled to recover that vehicle from him.

2. Personal Action Against Trustee for Account of Profits:

Sometimes, a trustee may use trust property to personally profit. A beneficiary can institute an action against him for account of profits.

In Abotsi (An Infant), In Re; Kwao v. Nortey and Others (supra), the court stated:

Since a fiduciary is precluded in equity from making a profit out of his office, he should also account to the appellant for the profits he made from the use of the vehicle.

Here, the fiduciary was not only required to return the vehicle but also to return any profits he made from the use of the vehicle.

See the case of Attorney General for Hong Kong v. Reid (New Zealand) (UKPC) [1993] UKPC 2.

3. Injunction:

An injunction is an order or a decree of a court in the exercise of its equitable jurisdiction, instructing a person or group of persons to refrain from doing or performing certain acts considered wrongful.

A beneficiary may obtain an injunction to restrain a trustee from committing a threatened or continuing breach of trust, including acts that would amount to misapplication, waste, or improper disposition of trust property.

According to Professor Kludze, at page 137,

An injunction will be readily granted to restrain a breach or threatened breach of trust An injunction will also issue if the trustee, either out of his character or course of conduct, is likely to imperil the trust property. If, for instance, the trustee is about to sell trust property at an undervalue or under depreciatory conditions, the sale may be restrained by an injunction.

The learned author subsequently stated at page 334 that:

Any beneficiary who is apprehensive of a threatened breach of trust may obtain an injunction to restrain the trustee. This means that the beneficiary need not wait until a breach has actually been committed before he goes to court. An injunction will, therefore, lie to restrain a wrongful sale of trust property, a wrongful appointment by trustees of an unqualified person as a minister, a threatened distribution of the trust estate in violation of the trust or the grant of an unauthorised mortgage by trustees.

Defences Available to Trustee Following a Breach of Trust:

1. Release by Beneficiaries:

As stated earlier, the liability of a trustee following a breach of trust is not punitive in nature but is aimed at compensating the beneficiaries and restoring the trust estate to the position it would have occupied had the breach not occurred.

The beneficiaries can decide to release the trustee from liability. Such release amounts to an adoption by the beneficiaries of the act of the trustee which constituted a breach.

2. Acquiescence by Beneficiaries:

Acquiescence arises where beneficiaries, with full knowledge of a breach of trust, stand by and allow the trustee to continue or complete the breach without objection. In such circumstances, equity may treat the beneficiaries as having waived their right to complain.

3. Consent by the Beneficiaries:

Where beneficiaries consent to a breach of trust or participate in a breach of trust, they cannot proceed against the defaulting trustee. According to Kludze, at page 343 of Modern Principles of Equity,

A person who has consented to, or participated in, the infliction of injury on himself, cannot be heard subsequently to complain of his injuries either at law or in equity.

4. Lapse of Time:

In Section 15(1) of the Limitation Act, 1972 (NRCD 54), it is provided that:

Subject to subsection (4), a person shall not bring an action to recover money or other property or in respect of a breach of trust, which is not an action for which a period of limitation is fixed by any other provision of this Act, against a trustee or a person claiming through that trustee after the expiration of six years from the date on which the right of action accrued.

For instance, where a trustee appropriates trust property for his personal use, an action to recover that property must be brought before the expiration of six years from the date of appropriation.

5. Relief by Court:

In some jurisdictions, the court can relieve a trustee wholly or partially from liability following a breach of trust.