Duty to Obey the Terms of the Trust

A trustee must first become thoroughly acquainted with the terms of the trust and all documents and deeds relating to or affecting the trust property.1

It is the Trustee’s plainest duty to obey the terms of the trust.2

This strict duty was described in the High Court of Australia as the duty “to adhere to the terms of the trust in all things great and small, important, and seemingly unimportant.”3

A Trustee has a duty to obey directions in the settlement (Trust instrument) unless the deviation is sanctioned by the court.4

Each Trustee is bound by all the obligations of the trust instrument.5

The trust instrument is the Trustee’s charter to which the Trustee must constantly refer and have regard.

A failure to carry out any action required by the trust or the performance of an unauthorised action will constitute a breach of trust for which each trustee may be personally liable.

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In A-G (UK) v Downing2 the Court stated:

“Powers are never imperative; they leave the act to be done at the will of the party, to whom they are given. Trusts are always imperative, and are obligatory upon the conscience of the party intrusted.”

In Pikos Holdings (NT) Pty Ltd v Territory Homes Pty Ltd [1997] NTSC 30, Kearney J said:

There is no such thing as a judicious breach of trust, where the breach involves a deliberate breach of the terms of the trust deed. The requirements of the trust deed take precedence over any perceived economic benefit to the beneficiaries… Adherence to the terms of the trust is a duty that modifies all other duties (a part from statutory duties and duties ordered by a court). A trustee departs from the provisions of the trust deed at its peril of afterwards having to satisfy the court its departure was necessary or beneficial.”

Corporate Trustees

Where the trustee is a corporate Trustee, it is the duty of each Director to acquaint him or herself with the terms of the trust. This is a duty that cannot be delegated to someone else.

This duty was confirmed in Arakella Pty Ltd v Paton (No. 2) [2004] NSWSC 605.

Arakella

Breach of Trust

It is difficult to provide a simple definition of a breach of trust. Megarry V-C in Tito v Waddell (No. 2)6 referred to two definitions which had found approval in the courts. Firstly, Pomeroy’s Equity Jurisprudence states:

Every omission or violation by a trustee of a duty which equity lays on him …..is a breach of trust.”

Secondly, Professor Scott states that:

“A trustee commits a breach of trust if he violates any duty which he owes as trustee to the beneficiaries.”7

If trustees act in a manner inconsistent with the terms of the trust they will have committed a breach of trust.8

If trustees fail to fulfil their duties to the trust through neglect or omission, they will have also committed a breach of trust.9

Compensation for a Breach of Trust

Lord Browne-Wilkinson stated in the House of Lords in Target Holdings v Redferns:10

“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”

The “trust Instrument” being the original Trust Deed as lawfully amended.

Lord Browne-Wilkinson continued:

“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.”


(1) Hallows v Lloyd (1888) 39 Ch D 686, 691

(2) A-G (UK) v Downing (1767) Wilm 1 [97] ER 1] Wilmot LCJ at 23; Davey v Thorton (1851) 9 Hare 222 [68 ER 483]

(3) Youyang Pty Ltd v Minter Ellision Morris and Fletcher [2003] HCA 15; (2003) 212 CLR at 498, quoting Augustine Birrell QC in The Duties and Liabilities of Trustees, 1896, p22

(4) see Harrison v Randall (1851) 9 Hare 397, 407 and Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, 390a-b

(5) Clough v Bond (1838) 3 My & Cr 490.

(6) Toto v Waddell (No. 2) [1977] 3 All ER 129

(7) Scott on Trusts (3rd Ed), vol 3, p1605, para 201

(8) Pye v Gorges (1710) Prec Ch 308; Mansell v Mansell (1732) 2 P Wms 678; Charitable Corpn v Sutton Thompson and M’Namara (1851) 2 1 Ch R 26; Dance v Goldingham (1873) 8 Ch App 902

(9) Charitable Corpn v Sutton (1742) 9 Mod Rep 349; Lord Montfort v Lord Cadogan (1810) 17 Ves 485; Molye v Molye (1831) 2 Russ & M 710; Taylor v Tabrum (1833) 6 Sim 281; Clough v Bond (1838) 3 My & Cr 490; Fenwick v Greenwell (1847) 10 Beav 412; Dix v Burford (1854) 19 Beav 409; Stone v Stone (1869)5 Ch App 74; Jeffreys v Marshall (1870) 19 WR 94; Re Brogden (1888) 38 Ch D 546, C.A.; Evans v London Co-operative Society (1976) Times, 6 July; Bartlett v Barclays Bank Trust Co Ltd [1980] Ch 515

(10)Target Holdings v Redferns [1995] UKHL 10


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This tab updated on 22 March 2015