Chapter 13: Liability of Trustees

Question 1

Liability for breach of trust and fiduciary duty

Answer 1

In this chapter we will explore liability for breach of trust and fiduciary duty. We will consider the
ways in which a trustee might be liable for breaching their obligations and the consequences of
doing so, including:
* The measure of liability;
* The diferent types of remedy that may be sought;
* The ways in which a trustee might be protected from liability.
* The respective liability of co-trustees and the possibility of apportioning liability between them
and/or third parties who are also liable in respect of the same loss

Question 2

Powers, duties and breach

Answer 2

As we have seen in the chapter on ‘Trustee powers and duties’, it is important to be able to
understand the relationship between trustee powers and duties, as well as distinguish trustee
duties from fiduciary duties of trustees. In this section, we are going explore the link between powers, duties and breach.

Question 3

Acting Outside of Power

Answer 3

If a trustee acts outside their powers, their act will be unauthorised and therefore a breach of trust. Examples include misapplications of trust funds such as wrongful distribution and
making unauthorised investments. Misappropriation of trust funds (ie using funds for a trustee’s own purposes) will also clearly be a breach of trust.

Question 4

Failure to comply with applicable duties

Answer 4

Even if the actions of the trustee are authorised (ie they do something within their powers),
they will still be liable for breach of trust if they fail to comply with any applicable duties. For
example, a trustee who makes a permitted investment but fails to consider the standard
investment criteria or take proper advice will have committed a breach of trust. Other examples include failing to monitor investments or making decisions that are not in the best interests of the beneficiaries

Question 5

Unauthorised personal profit

Answer 5

Finally, a trustee will be liable for breach of fiduciary duty if they breach the no-conflict or
no-profit rule, or if they self-deal. This will be the case even if they have complied with all
relevant trustee duties. As an example, a trustee who makes an authorised, and profitable,
investment on behalf of the trust will nonetheless be liable for breach of fiduciary duty if it
transpires that they have also made an unauthorised personal profit (for example by taking a
secret commission).

Question 6

Breach of trust = Caused Loss?

Answer 6

If there has been a breach of trust, the key question will be whether that breach has caused a loss
to the trust fund. It will be important here to look both at income and capital. Importantly, this does not just mean that the trust fund has produced less income than before, or that the capital has gone down in value. Trustees have an obligation to safeguard and invest a trust fund so loss may involve the trust fund not having produced as much income or capital growth as it should
have done if the trustee had acted in accordance with their duties.

Question 7

Breach of fiduciary duty

Answer 7

If there has been a breach of fiduciary duty you might be looking for loss or, more commonly, you
might be seeking to establish that the trustee has made an unauthorised profit. Breach of
fiduciary duty was considered in detail in the chapter on ‘The fiduciary relationship’.

Question 8

Making a personal claim

Answer 8

The remedy sought will depend on the nature and consequences of the breach. Sometimes a
beneficiary will be seeking to make a personal claim against the trustee (either for compensation
for loss or an account of profits). Sometimes they may be seeking to make a proprietary claim
over an asset held by the trustee (or, in some cases, a third party). Equitable remedies and the
processes of following and tracing are covered in the chapter on ‘Equitable remedies and tracing’

Question 9

Restore the trust fund

Answer 9

If such a remedy is obtained, it will usually be to restore the trust fund rather than payable to an
individual beneficiary (unless, for example, the claim is for income or capital which should already
have been distributed to that beneficiary).

Question 10

Rescind and Unwind

Answer 10

Sometimes it is possible to rescind a transaction ie unwind it. This is rarely possible in cases
involving a third party. It is more likely where the trustee has been personally involved in the
transaction.

Question 11

What if there is no loss or profit?

Answer 11

If there is no loss or profit, does that mean there is no remedy? Sometimes the answer is yes:
Sometimes there may be a technical breach of trust but it hasn’t actually had any impact on the
trust fund (indeed it may have had a positive impact). In such cases, the beneficiaries may simply
choose to do nothing or to afrm an unauthorised act.

Question 12

Still lost confidence

Answer 12

Even if a breach has not resulted in a monetary remedy, the beneficiaries may still have lost
confidence in the trustee and seek to remove or replace them. Alternatively, if they have Saunders
v Vautier rights, they may decide to bring the trust to an end.

Question 13

Who is liable for breach?

Trustee Duties

Answer 13

It is important to ascertain who has committed a breach as this impacts who the beneficiaries
may take action against. Often a trust will have more than one trustee. Although trustees are only
liable for their own breaches, co-trustees must act together.

Question 14

Trustee duties

Answer 14

All trustees should take an active role in the trust and failure to do so may result in them being
liable for breach of trust. It is also possible that a court may conclude that some, but not all,
trustees have a defence available that precludes liability for breach. Co-trustees who are found to
have committed a breach of trust will be jointly and severally liable.

Question 15

Fiduciary Duties

Answer 15

If a trustee has breached their fiduciary duties, it is less likely that their co-trustees will be liable. A
fiduciary is liable for their own breaches of fiduciary duty and often will act alone in doing so. In
particular, if there has been a breach of the no-profit rule, it is the trustee who receives the profit
who will be liable for it.

Question 16

Possible that other breaches are there too

Answer 16

However, if a breach of fiduciary duty causes a loss to the trust fund, it may be the case that
there are other breaches there too. A breach of fiduciary duty resulting in a loss may well also
have involved a breach of trust (both by the trustee who has breached their fiduciary duties and
by their co-trustees who have enabled them to do so)

Question 17

Strangers can be liable for breach of trust

Answer 17

It is also worth mentioning here that there may be other people liable for loss caused by a breach
of trust or fiduciary duty. Strangers to the trust may be liable if they have assisted a breach or
knowingly received the traceable proceeds of a breach. Liability of strangers is considered in the
chapter on ‘Liability of strangers’.

Question 18

Defences and protection of trustees

Answer 18

How might a trustee be protected against liability for breach of trust or fiduciary duty?
Firstly, it is essential to check the trust instrument carefully to see whether it authorises an act
which would otherwise be a breach. This would mean that there was no breach at all. The trust
instrument might also contain an exclusion clause, reducing the liability of trustees in some way
for a breach.

Question 19

Statutory Limitation Period

Answer 19

Breaches might also be authorised by the beneficiaries or by the court. If a trustee is unsure of
whether a course of action is permitted, they could seek court directions before going ahead.
There are also statutory defences available to breach of trust and a statutory limitation period.

Question 20

Insurance

Answer 20

Finally, although not a defence as such, trustees may take out insurance to protect themselves
against the financial efects of liability for breach of trust. This does not mean that they are not
liable but will hopefully mean that the insurer, rather than the trustee, picks up the bill.

Question 21

Apportionment of liability

Answer 21

When there are multiple individuals liable in respect of the same loss, the beneficiary cannot
recover more than once. They may sue all the potential defendants together, and join them in the
same action, or they may choose to sue just one for the full amount. This is the benefit of joint and
several liability from the claimant’s perspective.

Question 22

Apportionment of liability

Answer 22

Often they will join as many parties in the action as possible, particularly when there is
uncertainty as to who is actually liable. But there may be cases when it is concluded that it is not
worth suing a particular defendant, and that it may be worth choosing to sue those from whom
they are most likely to recover.

Question 23

Compensating the trust fund

Answer 23

From the perspective of the defendant, this means they may end up compensating the trust fund
for the full amount even though they are not the only person liable. In such cases, they may seek
an indemnity or contribution from their co-trustees. (The same action can also be brought by others liable for the same loss, for example a third party who has been found liable as an accessory and ended up having to pay the full amount.)

Question 24

Separate action

Answer 24

Crucially, this is a separate action between those people who are potentially liable for the same
loss. It does not prevent the beneficiary recovering from whoever they choose to sue.

Question 25

Two Questions for Breach of Trust

Answer 25

In order to establish liability for breach of trust two questions should be asked:
(a) Did the trustee(s) act in accordance with their powers?
(b) If so, did they comply with their trustee duties?

Question 26

Acting outside powers

Answer 26

Examples of the first type of breach include:
* Making an unauthorised investment
* Wrongful distribution
* Misappropriation of trust property (this would also be a breach of fiduciary duty)
These are generally quite straightforward to establish as the trustee will have done something
they are not allowed to do.

Question 27

Acting in breach of duties

Answer 27

The second type of breach involves the trustee falling below the standard of behaviour expected
of them as trustee. Some such breaches will involve a straightforward failure to carry out a positive duty such as not distributing trust property, but many will require a more careful analysis of the specific facts, such as:
* Failure to take into account the standard investment criteria or properly consider advice when
exercising investment powers.
* Failure to comply with the duty of care when exercising investment powers.
* Failure to properly monitor investments.

Question 28

Who has breached the trust?

Co-Trustees

Answer 28

Where a trust has more than one trustee, it is necessary to identify which of the trustees has
committed the breach.
As trusteeship is a joint ofce it will often be the case that more than one trustee will be liable,
although they may be liable for breaches in diferent ways. For example, one trustee may
misapply trust property and be actively responsible for a breach while the other trustees may be
liable for failing to monitor the actions of their co-trustees. Where multiple trustees have breached
the trust, they will be jointly and severally liable.

Question 29

Example: Different breaches by diferent trustees

Answer 29

A is a professional trustee and breaches their duty of care by authorising an investment without
considering the standard investment criteria. B is a co-trustee and lay person, who agrees to the
investment on the basis that A has suggested it. Both trustees have breached the trust. A has
actively breached it by making the investment while B has breached it by failing to properly turn
their own mind to the matter.

Question 30

Liability for breach of trust before appointment as trustee

Answer 30

A trustee will not be liable for a breach of trust which took place before the trustee was appointed
(see Re Strahan (1856) 8 De GM & G 291). On appointment, if a trustee discovers that a breach of
trust occurred, they should commence proceedings in order to recover from the former trustee.
Failure to take such action may result in the new trustee becoming liable for their own breach of
trust

Question 31

Liability for breach of trust after retirement

Answer 31

A trustee will continue to be liable for any breaches committed during the time that they acted as
a trustee, even after they have retired.
A trustee will only be liable for breaches of trust that occur after they retire in two cases:
(a) Where the trustee retired to facilitate the breach; or
(b) The trustee parts with trust property in retiring without due regard, so loss is sufered when
the property is transferred to the new trustees (see Head v Gould [1989] 2 Ch 250, 272).

Question 32

2.4 Effect of breach

Answer 32

If it is concluded that there has been a breach of trust, it is necessary to consider the following
issues:
(a) Did the breach cause any loss?
(b) Are there any defences available to exclude or limit the liability of the trustee(s)?
(c) If more than one trustee is liable, how should liability be apportioned between them?

Question 33

Introduction to Loss

Answer 33

Once a breach of trust has been established, it is necessary to consider the claim the
beneficiaries can make. This will depend on the nature and consequences of the breach:
* If the trustee has misapplied or misappropriated trust property, the beneficiaries may seek to
recover the property itself (or its traceable proceeds). Proprietary claims are covered in detail
in the chapter on ‘Equitable remedies and tracing’. If it is not possible or desirable to recover
the trust property, or if the breach has not involved a misapplication of trust property, the
beneficiaries may instead seek equitable compensation to reflect the loss caused (if any) to
the trust fund.

Question 34

Not liable for loss unless they have breached duties

Answer 34

Trustees are not liable for losses unless they have breached their duties. They are not insurers. So,
for example, if a trustee makes a prudent investment (and has complied with their obligations to
consider the standard investment criteria and consider proper advice) they will not be liable if it
happens to fall in value (eg due to market forces beyond the trustee’s control). This is not the fault
of the trustee and the trust fund must bear the loss.

Question 35

Continue to hold investment

Answer 35

However, the trustee may become liable if they continue to hold the investment notwithstanding
its poor performance. This would be a breach of their duty to review investments and consider
whether to vary them

Question 36

How is loss assessed

Answer 36

Where there has been a breach of trust the trustees will be liable to account to the trust fund for
the consequences of that breach. Loss is assessed at the date of the trial, rather than the date of
breach, and involves ‘taking an account’ to determine the expected value of the trust fund. If the
actual value of the trust fund is lower than the expected value, the trustees will be personally
liable to compensate the trust fund for the difference.

Question 37

Taking an account

Answer 37

Before the decision in Target Holdings v Redferns [1996] AC 421 it was clear that different principles applied to assessment of loss depending on whether the relevant breach of trust involved:
(a) A misapplication of trust funds (eg making an unauthorised investment); or
(b) A different type of breach (eg a breach of the s 1 TA 2000 duty of care when making an authorised investment).

Question 38

Misapplication

Answer 38

Traditionally, the court would ‘falsify’ the account in the case of a misapplication of trust funds.
This requires the trustees to return the trust fund to the position it would have been in if the
misapplication had not occurred, ideally restoring the same type of property to the fund. You
may also see this described as ‘reconstituting’ the trust fund.

Question 39

Misapplication (Not possible to restore same type of property)

Answer 39

If it is not possible to restore the same type of property, the trustees will need to pay equitable
compensation in lieu (to the value of the property that should have been restored). If the misapplication has resulted in a profit to the trust fund (eg the trustees make an unauthorised but profitable investment) the beneficiaries can instead elect to affirm the transaction.

Question 40

Example: Wrongful distribution

Answer 40

Trustees wrongfully distribute 100 shares in a company to an individual. The shares were worth
£1,000 at the date of distribution. At the date of trial, the shares are worth £2,000. Falsifying the
account, you would expect the trust fund to contain 100 shares in the company. The trustees would therefore be required to purchase 100 shares in the company for the trust fund. If they are unable to purchase shares, they would instead need to pay equitable compensation of £2,000 to reflect the loss to the trust fund.

Question 41

Example: Unauthorised investment

Answer 41

Trustees invest £5,000 in 100 units in a unit trust. The trust instrument prohibits investment in unit
trusts, making the investment unauthorised. At the date of the trial, the 100 units are worth
£4,000. Falsifying the account treats the trustees as having bought the units in their personal
capacity instead of on behalf of the trust. The trustees should therefore sell the 100 units and pay
the £4,000 proceeds into the trust fund. They will also need to compensate the trust fund for the
remaining £1,000 shortfall (plus an amount representing interest on the £5,000 between the date
of the investment and the date of trial).

Question 42

Other breaches

Answer 42

Where the breach does not involve a misapplication of trust funds, taking an account is known as
‘surcharging’. In this case, the court will be looking to assess the expected value of the trust fund if
the breach had not occurred. In other words, the trustees will be required to pay equitable
compensation for loss of which the breach can be shown to be a ‘but for’ cause. You may also see
this described as a ‘reparation’ claim.

Question 43

Assessment of Loss

Answer 43

Assessment of loss in such cases can be quite complicated and will be assessed by reference to
what a hypothetical prudent body of trustees would have done in the circumstances. In cases
involving lots of interrelated transactions, it may be necessary to look very carefully at the facts to
identify the loss that can be attributed to the breach.

Question 44

The modern approach to causation

Answer 44

Following the case of Target Holdings v Redferns [1996] AC 421, the courts have taken a less rigid
approach to the distinction between falsification and surcharging and it is unclear to what extent
the traditional approach has survived Target.
The facts of Target are complicated but, broadly, they involved a commercial transaction under
which a solicitor was holding funds on trust for a mortgage lender until the parties were ready to
complete the transaction.

Question 45

Release funds to the borrower

Answer 45

Upon completion, the solicitor was supposed to release the funds to the borrower, who would
grant security over the property. The solicitor breached the trust by releasing the funds early to a
third-party intermediary. This was technically a misapplication of the trust funds because the solicitor did not have the authority to release the funds to the intermediary. Ultimately, however, the funds were received by the borrower who granted the mortgage over the property as agreed between the parties. So why did the lender go on to sue the trustee?

Question 46

Fundamentally overstated the value of the property

Answer 46

The problem in Target was not really that the solicitor had misapplied the trust funds. The issue was that the borrower had fraudulently overstated the value of the property over which the
mortgage was granted. The borrower went insolvent and the lender was unable to fully recover
the loan money via the security. So they also sued the solicitor for breach of trust arguing that the
trust fund should be falsified because the solicitor had misapplied the funds.

Question 47

Received the expected security

Answer 47

The House of Lords held that no loss had been caused by the breach because the claimant had
ultimately received the expected security for the money loaned. In justifying this conclusion, Lord
Browne-Wilkinson drew a distinction between (i) traditional trusts and (ii) bare commercial trusts

Question 48

Traditional approach to causation applies

Answer 48

The suggestion here is that the traditional approach to causation still applies to traditional trusts
that subsist following the breach, but not to bare commercial trusts that only subsist during the
course of an underlying commercial transaction. This sort of trust is very common in property transactions, where a solicitor will often hold funds on trust temporarily until the parties are ready to proceed to completion

Question 49

Bare trust completely falls away

Answer 49

The reasoning in Target was that the bare trust completely falls away once the commercial
transaction has been completed, meaning the trustee (ie the solicitor in this case) has no
continued obligation to reconstitute the trust fund. Target was endorsed and applied by the Supreme Court in AIB Group (UK) plc v Redler and Co [2014] UKSC 58

Question 50

Falsification is still relevant when assessing loss

Answer 50

In light of this line of case law, it appears that falsification is still relevant when assessing loss
caused by misapplication of trust funds by the trustees of a traditional trust, but loss caused by
breach of a bare commercial trust will be assessed on a ‘but for’ basis.

Question 51

Offsetting losses against gains

Answer 51

In general, trustees are not permitted to set of the losses caused by a breach of trust against
profits they have made on other investments or transactions.
Trustees are held to the same high standard every time they exercise their functions, so it is no
excuse to a breach of trust that they have performed their duties better on other occasions. They
are not assessed on their average performance. However, it is possible to ofset losses against profits where they arise from the same transaction or course of dealing

Question 52

Could offset the profit

Answer 52

This is well illustrated by Bartlett v Barclays Bank Trust Co Limited [1980] Ch 515. In Bartlett, the
trustees had a majority shareholding in a company but failed to properly supervise it. The
company made two investments in property, one of which was profitable but the other made a
large loss. The trustees could ofset the profit against the loss as they arose from the same breach
(ie the failure to monitor the company’s speculative investments).

Question 53

Defences for Breach

Answer 53

Even if there has been a breach of trust or fiduciary duty, there may be defences available to
mitigate or even exclude liability altogether. In this section we consider the following defences:
* Exemption clauses
* Beneficiary instigation/consent/acquiescence
* Statutory limitation rules/defence of laches
* Statutory relief under 61 TA 1925

Question 54

Exemption Clauses

Answer 54

Trust instruments will often contain exemption clauses that have the efect of limiting or excluding
trustee liability for particular sorts of breach. The duty still exists but the trustees will be protected
from personal liability if they breach it.
An exemption clause can exclude liability for any sort of breach other than a fraudulent breach. A
trustee cannot rely on an exemption clause if they have acted dishonestly (Armitage v Nurse
[1998] Ch 241).

Question 55

Instigation, consent and acquiescence

Fully informed consent

Answer 55

Trustees will not be liable for a breach of trust or fiduciary duty if they received the fully informed
consent of all the beneficiaries. If only some of the beneficiaries have consented, the trustees will
not be able to fully escape liability but will have a partial defence against those beneficiaries.

Question 56

Defence against instigation or request

Answer 56

Trustees will also have a defence against beneficiaries who instigate or request the breach. Again,
this will only provide a partial defence if there are other beneficiaries who did not.

Question 57

Affirm actions of trustees

Answer 57

Trustees will also have a defence against beneficiaries who instigate or request the breach. Again,
this will only provide a partial defence if there are other beneficiaries who did not.

Question 58

Impounding a beneficiary’s interest

Answer 58

Where a beneficiary instigates or requests a breach, the trustees will only have a defence against
that particular beneficiary. However they may also be able to impound the beneficiary’s interest.
This means using some or all of the instigating beneficiary’s share of the trust fund to indemnify
the trustees against a claim by the other beneficiaries.

Question 59

Discretion to impound a beneficiary’s interest

Answer 59

The court has discretion to impound a beneficiary’s interest in such circumstances under s 62 TA
1925. There is no requirement to show that the instigating beneficiary benefitted from the breach.
This codifies an existing common law discretion

Question 60

Consent provided in writing

Answer 60

The statutory power to impound beneficial interests also applies to cases where the beneficiary
has consented to the breach but only where the consent was provided in writing. Again, there is
no requirement for the beneficiary to benefit from the breach

Question 61

Beneficiary to benefit from the breach

Answer 61

The courts also have a common law discretion to impound a beneficial interest in cases of
consent. The common law discretion does not require the consent to be in writing but does
require the beneficiary to have benefitted from the breach.

Question 62

Delay and the Statutory Limitation Period

Answer 62

As with other civil law claims (such as claims in tort or for breach of contract) there are limitation
periods applicable to claims for breach of trust.
Under s 21(3) Limitation Act 1980 the limitation period for bringing a claim for breach of trust is six
years from the breach. However, this only applies to claims by beneficiaries with interests vested
in possession. For beneficiaries with future interests, the limitation period only starts to run when
their interest vests in possession.

Question 63

Inapplicable for fraudulent breaches

Answer 63

The limitation period does not apply to fraudulent breaches or proprietary claims against the
trustee (ie claims to recover trust property or its traceable proceeds from trustee).

Question 64

Only excesses can be recovered after the normal 6 year period

Answer 64

If a trustee is also a beneficiary, and receives an unfairly large distribution from the trust, only the
excess can be recovered after the normal six-year period (unless the trustee acted dishonestly or
unreasonably in making the distribution, in which case it may be possible to make a claim for the
full amount of the payment).

Question 65

Equitable defence of leches

Answer 65

In cases where the statutory limitation period has not yet expired, trustees may still be able to rely on an equitable doctrine known as ‘laches’ to argue that a beneficiary has waited too long to
bring a claim.

Whether a defence of laches will be successful is highly fact-specific. It requires the trustees to
demonstrate that the beneficiary knew of a breach but has delayed their claim unacceptably,
making it unconscionable for the beneficiary to assert their beneficial interest.

Question 66

Section 61 TA 1925

Answer 66

If none of the protections above apply, trustees may seek to obtain relief under s 61 TA 1925. This
gives the court discretion to excuse a trustee in circumstances where the trustee ‘acted honestly
and reasonably, and ought fairly to be excused for the breach of trust’. The trustees bear the
burden of establishing the three requirements ie:
(a) Honesty
(b) Reasonableness
(c) They ought ‘fairly’ to be excused

Question 67

Court has wide discretion

Answer 67

The court then has a wide discretion to consider all the circumstances of the case. The court will
not use s 61 lightly, as it may deny the beneficiaries a remedy (although note that it can be used
to excuse individual trustees while others remain liable).

Question 68

Cases where s 61 TA 1925 may apply

Answer 68

The most likely use for s 61 is in cases where a trustee has inadvertently acted outside their
powers, for example by making an unauthorised investment or by distributing to the wrong
person. It is more likely to be successful in cases involving lay trustees (rather than professionals)
because although a professional trustee may easily establish that they acted honestly, it will be
harder to prove that they have acted reasonably or that it is fair to grant them relief (thereby
prejudicing the beneficiaries).

Question 69

Taking advice does not guarantee relief

Answer 69

In particular, if a lay trustee has sought advice before taking action they may be able to rely on s
61. Taking advice will not necessarily guarantee relief under s 61, but it will clearly be an important
consideration. See, for example, Re Evans [1999] 2 All E.R. 777 where an individual acted as the
executor of her father’s estate. Believing a missing beneficiary (her brother) to be dead, she
sought legal advice and took out missing beneficiary insurance before distributing the estate. It
transpired that her brother was alive and the insurance policy did not fully cover the loss. In the
circumstances, the court agreed that it was appropriate to grant her relief under s 61 TA 1925

Question 70

Apportionment of liability

Answer 70

As trustees are jointly and severally liable for breach of trust it is possible that one trustee may
end up compensating the trust fund for the entire loss. That trustee is then likely to seek a
contribution from their co-trustees under the Civil Liability Contribution Act 1978.

Question 71

Civil Liability Contribution Act 1978

Answer 71

A claim can be made under s 1(1) where two or more parties are liable for the same damage. The
court has a discretion to require one party to make a ‘just and equitable’ contribution to another
(s 2(1)). While the court will presume equal responsibility they may depart from this presumption
where the facts indicate that it would be fair to do so

Question 72

Unequal level of contributions

Answer 72

Unequal contributions will reflect difering levels of culpability for the loss. The trustees may, for
example, have delegated a particular function to a particular trustee. While they all remain
responsible for ensuring that function is properly executed, the trustee with responsibility may be
seen to be more at fault for any resulting breach.

Question 73

Higher Standard of Care

Answer 73

This would be particularly the case if a higher standard of care applied to that trustee because
they had particular expertise or were acting as a professional trustee alongside lay trustees.

Question 74

Full indemnity (Rare cases)

Answer 74

In very rare cases, the court may even award a contribution amounting to a full indemnity (s 2(2)).
This is likely only in cases where:
(a) A particular trustee is morally culpable for the breach, such as cases where the trustee has
misappropriated trust property for their own benefit.
(b) A trustee is also a beneficiary.
(c) A trustee acts as solicitor to the trust and the breach is committed in reliance on their advice.
The court will not necessarily grant an indemnity in such circumstances, as demonstrated by
comparing the following cases involving solicitor trustees.

Question 75

Indemnity case law: Solicitor trustees

Answer 75

In Re Partington (1887) 57 LT 654 a testamentary trust had two trustees. One was a solicitor and
the other was the testator’s widow.
The solicitor took sole responsibility for the administration, failed to properly inform the widow and
negligently made an unauthorised investment. The court awarded a full indemnity on the basis
that it was reasonable for the widow to have relied on the advice.

Question 76

No Indemnity

Answer 76

In contrast, no indemnity was awarded in Head v Gould [1898] 2 Ch, where the lay trustee took an
active role in the breach of trust. The solicitor trustee did not have a controlling influence over their
co-trustee so an indemnity was inappropriate.

Question 77

Contributions between trustees and third parties

Answer 77

Trustees who are liable for breach of trust, and find themselves compensating the beneficiaries for
the loss caused by the breach, may also seek a contribution from other persons who are liable in
respect of the same loss.
This might therefore include professional advisers who provided negligent advice which led to the
breach.

Question 78

Third Parties that become involved

Answer 78

It might also include third parties who have become involved in the breach of trust in some way,
such as strangers to the trust (especially those who benefit from the breach such as knowing
recipients). Liability of strangers is covered in detail in the chapter on the ‘Liability of strangers’.

Question 79

Defending proceedings under the Act

Answer 79

On the other hand, a trustee may also find themselves defending proceedings under the Act in
cases where the beneficiaries have recovered from a third party (perhaps an accessory or
knowing recipient) who then sues the trustee for a contribution.