Fraudulent Breach of Trust

A trustee commits a Breach of Trust if the trustee fails to obey the terms of the trust or breaches the duties of a trustee under the general laws of trusts.Such a breach need not be intentional or with malice, but can be due to negligence.

“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).

In Wilkinson v Feldworth Financial Services1 the Supreme Court of New South Wales held:

“It is only necessary for a breach of trust obligation to be a cause of the loss in order for there to be a sufficient causal nexus. If the loss or damage which occurred after the breach would not have occurred but for the breach the person in breach will be made to compensate for the loss or damage.

O’Halloran v RT Thomas & Family Pty Ltd [1998] CA(NSW); Target Holdings v Redferns [1996] AC 421; Re Dawson [1966] 2 NSWR 211, applied

A trustee is guilty of fraud if the trustee knowingly commits an act amounting to a breach of trust of which is such that the trustee must be taken to have known that the act was contrary to law2. The trustee must be party or privy to the fraud or fraudulent breach of trust, which means that there must be some moral complicity in the wrong doing of the trustee3

The word “fraud” is here used in a sense which embraces conduct or inactivity which falls far short of fraud at common law: see, e.g., Kitchen v. Royal Air Force Association [1958] 1 W.L.R. 563; King v. Victor Parsons & Co. [1973] 1 W.L.R. 29

In Queensland, South Australia, Tasmania and Victoria, no limitations period applies to an action by a beneficiary under a trust in respect of fraud or fraudulent breach of trust and actions to recover trust property converted by a trustee 4.

Notes

(1) Wilkinson v Feldworth Financial Services (1998) 29 ACSR 642; (1999) 17 ACLC 220

(2) Re Sale Hotel and bBtanical Gardens Co Ltd (Hesketh’s Case) (1897) 77 LT 681; Hicks v Trustees Executors and Agency Co Ltd (1901) 27 VLR 389; 23 ALT 98

(3)Thorne v Heard [1895] AC 495; (1895) 64 LJ Ch 652; 73 LT 291; 44 WR 155

(4) (SA) Limitations of Actions Act 1936 s 32(1); (Vic) Limitations of Actions Act 1958 s 21(1)(a)