Breach of Trust

In Pikos Holdings (Northern Territory) 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 of the beneficiaries …Adherence to the terms of the trust is a duty which modifies all other duties (apart 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 that its departure was necessary or beneficial.

The duty to observe the terms of the trust is called by Underhill and Hayton as: “the most important of all the rules relating to the duties of trustees”: Law Relating to Trusts and Trustees. (18th ed 2011) at 432 saying that it is the trustee’s duty “to adhere rigidly to the terms of the trust.

Also refer to Augustine Birrell’s classic work, The Duties and Liabilities of Trustees here.

Trustees must also adhere to the more general regime of any relevant legislations such as the Trustee Act 1936 (SA) and in the case of trustees of superannuation trusts, the Superannuation Industry (Supervision) Act 1993.

The Supreme Court of the United Kingdom reviewed Breach of Trust in AIB Group (UK) Plc v Mark Redler & Co Solicitors [2014] 3 WLR 1367, [2014] UKSC 58, [2014] WLR(D) 466 {Link}. .

The Supreme Court stated at [64]:

All agree that 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. Where there has been a breach of that duty, the basic purpose of any remedy will be either to put the beneficiary in the same position as if the breach had not occurred or to vest in the beneficiary any profit which the trustee may have made by reason of the breach (and which ought therefore properly to be held on behalf of the beneficiary). Placing the beneficiary in the same position as he would have been in but for the breach may involve restoring the value of something lost by the breach or making good financial damage caused by the breach.

Making reference to Target Holdings v Redferns[1996] AC 421 the Supreme Court stated at [73]:

The basic equitable principle applicable to breach of trust, as Lord Browne-Wilkinson stated, is that the beneficiary is entitled to be compensated for any loss he would not have suffered but for the breach.

The Supreme Court made reference to Australian case law at [133]:

“In Australia, McLachlin J’s analysis of the distinction between fiduciary relationships and those regulated by tort and contract has been accepted by the High Court: Pilmer v Duke Group Ltd [2001] HCA 31; (2001) 207 CLR 165, para 71. The court has consequently questioned the view, based on the dictum of Millett LJ in Bristol and West Building Society v Mothew, that equitable compensation for breach of the duty of skill and care in the administration of a trust should be governed by common law rules: Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484, paras 39-40. The Australian cases proceed on the basis that liability in respect of losses sustained by reason of a breach of duty by a trustee or other fiduciary is determined by equitable principles, and that these may require different rules from those which govern the assessment of damages in tort or contract: see for example Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449, which concerned causation, and Pilmer v Duke Group Ltd, which concerned contributory negligence. In the latter case, McHugh, Gummow, Hayne and Callinan JJ said at para 85:

“In Australia, the measure of compensation in respect of losses sustained by reason of breach of duty by a trustee or other fiduciary is determined by equitable principles and … these do not necessarily reflect the rules for assessment of damages in tort or contract.””


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This tab updated on 25 July 2015