Breach of trust

A breach of trust refers to the conduct a trustee appointed under a trust and their failure to discharge their duties as stipulated by the trust instrument and general duties under law (See Re Spedding [deceased] [1966] NZLLR 447).

A trustee may also be found to have breached a trust if they fail to discharge their duties “reasonably, in good faith and for the purposes for which they were conferred” (see Walker v Stones [2001] QB 902. However in New South Wales, a trustee may be relieved from a breach of trust if a Court finds that pursuant to section 85 of the Trustee Act 1925 (NSW) if:

  • They have acted honestly;
  • They have acted reasonable; and
  • They ought to be fairly excused.

If a breach of trust occurs generally speaking and pursuant to Occidental Life Insurance Co of Australia Ltd v Bank of Melbourne (1991) 7 ANZ, “no one can obtain redress for a breach of trust except a beneficiary or someone who stands in his shoes, like his personal representative or trustee in bankruptcy”. This statement excludes successor trustees and co-trustees, who also, in limited circumstances have standing to bring a cause of action for breach of trust.

A trustee also has a fiduciary relationship with a beneficiary and therefore if a trustee is found to have breached trust by putting their interests over and above the interests of the beneficiaries, they will also be answerable in equity to a breach of fiduciary duty.
The principal remedies that a beneficiary may seek as against a trustee who has breached trust is compensation and account of profits. In terms of compensation, the trustee is liable to restore the trust estate to the same position as it would have been had no breach occurred.

Alternatively, a trustee may have to account to the beneficiaries for any profit that that was made as a result of the breach of trust or in the ordinary course of the management of the trust.

The failure to perform the duties of a trustee.