BREACH OF TRUST

CONTENTS

1.0    Introduction

2.0    Objectives

• Main Content
• Breach of Trust

4.0    Conclusion

5.0    Summary

6.0    Tutor-Marked Assignment (TMA)

7.0    References/Further Readings

INTRODUCTION

It is impossible to say that breach of duty will not occur in respect of the performance of the trustees duties. It is thus important to examine what constitutes breach of trust and the extent of liability in some of the cases. It will be important for a trustee to be able to project before hand what his liability will be in respect of a particular breach and what would be the position of the beneficiary in each case.

OBJECTIVES

In this Unit, you will learn about breach of trust and the various acts that can amount to a breach. You will further learn about how the liability of trustees, how the measure of liability is determined in each case of breach and when trustees can be protected from liabilities. Another important issue that you will  learn in this  unit is the remedies available to a beneficiary in respect of a breach of trust concerning the trust property, and the time limitation in instituting cases of breach of trust. At the end of this Unit, you should be able to:

• State what kind of trustees’ act can amount to a breach of trust
• Understand the extent of trustee’s liability and how liability is measured
• State grounds upon which a trustee may be relieved from liability
• Explain what the remedies of breach of trust are
• Advice as to the limitation period within which a suit concerning breach of trust can be brought

MAIN CONTENT

Breach of Trust

It can be said with reasonable certainty that a breach might occur on the part of the trustee in the performance of his duties, whether directly or indirectly. Owing to  the fiduciary nature of the trustee’s duties, a breach of trust will be deemed to have occurred where the trustee has failed in his duties as contained in the trust instrument, as imposed  by equity or by statute. If a trustee failed in his duties to  the beneficiaries under the trust, a breach of trust has also occurred. Where as a result of his breach the beneficiaries suffered any loss; he will be liable to make good such loss to the beneficiaries. You must note that the act in question need not be in respect of fraud or dishonestly before it can amount to a breach of trust. Indeed, it may be just act of honest mistake or technical error, but that will not absolve a trustee of liability.

A trustee is personally responsible for any breach of trust committed by him such that a breach by a trustee does not necessarily make others liable. See Bahin v. Hughes (1886) 31 Ch.D. 390. A co-trustee will however be liable where his negligence of duties facilitates the breach committed by the other trustee. See  Lewis v. Nobles (1878) 8 Ch.D. 591. Section 12 of the Trustee Law Cap.  125, Laws of Western Nigeria 1959 provides for personal liability of trustees.

Where a breach has been committed before a trustee was appointed, he is not  liable. See Re Strahan (1856) De G.M. & G. 291.

The following issues have to be noted in respect of breach of trust.

Measure of Liability

The basic principle is that a trustee shall make good the loss that his breach has caused to the estate. See Knott v. Cottee (1852) 16 Beav. 77. The trustee is normally bound to restore the estate to the position it would have been had the breach not occur. See Re Dawson (1966) 2 N.S.W.R. 211. If the loss was an inevitable one and the breach merely increased the loss, the trustee shall be liable only to the extent to which the breach increased the loss. See Lord GainsboroughWatcombe Terra Cotta Co. (1885) 54 L.J. Ch.

Where a trustee has committed act of serious misconduct such as fraud or misappropriation of funds, the court may order him to pay the capital loss with interest to be calculated from the date of fraud or misappropriation. See Wallersteiner v. Moir (No. 2) [1975] 1 All E.R. 849.

If the trustee has made an unauthorized investment, the measure of liability of the trustee will be the difference between the unauthorized investment and the authorized one. See Knott v. Cottee (supra). Where the trustee has applied the trust funds for his own use, he will be deemed to be a constructive trustee for the profits accruing from the transaction. See Re Davis (1902) 2 Ch. 314. In cases where the fund was applied for a commercial venture, the interest rate to be paid by the  trustee will be at a compound rate, which will be one percent above the minimum lending rate together with yearly rates. See Wallersteiner v. Moir (No. 2) (supra).

Liability

Trustee’s liabilities are joint and several but in an action concerning the liability of trustees, the beneficiary must joint all the trustees. In cases of breach of trust, the trustees and the third parties who committed the breach are all liable. See Cowper Stoneham (1893) 68 L.T. 18. Where a trustee has been made liable for a breach of trust which was not due to his fault, he can make a claim for reimbursement from the other trustees. See Bahin v. Hughes (supra). A trustee in some cases can claim indemnity for damages sustained by him from the co-trustees but such damage must not be due to his fault. See Re Partington (1887) 57 L.T. 654. Also, where a beneficiary has successfully sued a trustee liable for a breach of trust,  he is entitled to contribution from his co-trustees.

A trustee/beneficiary who has committed a breach of trust is not entitled to his beneficiary interest until he has remedied such breach. See Re Dacre (1916) 1Ch. 344.

Protection of Trustees

A trustee who despite having acted honestly and reasonably was nonetheless found liable for breach of trust, he  may be granted reprieve by being relieved wholly or  in part from personal liability. See Section 44 Trustee Law, Laws of Western Nigeria, 1959. The court has the discretion to relieve a trustee of personal liability and this will depend on the facts and circumstances of each case. See Re Pauling S.T. (1964) Ch. 303.

The above provisions of the law can however avail a trustee only where he has acted honestly and reasonably and it is on this basis that the court can exercise discretion in the trustee’s favour and relieve him of personal liability.

In other cases, a trustee can be entitled to be indemnified by a beneficiary where  the breach was committed at his instigation or request. In such a case, the interest  of the beneficiary may be applied to make good such loss. See Section 45(1) Trustee Law. For the beneficiary to be liable to indemnify the trustee, he  must  have known that the request or instigation was in breach of the trust and his act must have gone beyond mere offering advice to the trustee. See Bolton v. Curre (1895) 1 Ch. 544. A beneficiary may on account of that be deprived of any income from the trust property until the loss has been satisfied.

You must know however that action for breach of trust can only be brought within a period of six years after which such action will be statute barred. See Section 31(1) of the Limitation Act and Section 32(1) Cap. 118, Laws of  Lagos  State 1994. Actions concerning fraud or fraudulent breach of trust is not affected by the limitation law. Also, where the trustee has converted the trust property, such action will not be affected. See Re Howlett (1949) Ch. 767.

Where the beneficiary or any other person who has a right of action in respect of the breach of trust is under a particular disability, the right of action will not be deemed to accrue until the disability is removed or ceases. See Section 35 of the Limitation Act.

However, where a beneficiary who is of full age has acquiesced or assented to the breach, then no action will lie against the trustee.

Remedies for Breach of Trust

As a result of the equitable nature of trust, several remedies are available against the trustee and third parties for breach of trusts, some of which have been  examined above. Others will however be briefly outlined as follows:

i.) Injunction and receivership – the court can make an order of injunction to restrain a trustee from performing his duties in respect of the trust property, if the trust property is endangered and a receiver may be appointed in respect of the  same. See Fletcher v. Fletcher (1844) 4 Hare 67.

ii.) Tracing of Trust Property

In appropriate cases, the remedies of tracing the trust property into the hands of the trustee and third parties may be available to a beneficiary. This remedy will be appropriate where the trustee although is personally liable for the breach has no means to make good the loss. This remedy is available both at common law and at equity. Tracing in equity is however a right in rem and for the beneficiary to be able to exercise the right to trace, there are some conditions that must be fulfilled. Essentially, the conditions are that there must be fiduciary relationship involved  and the fund or property must be identifiable or in a form that it can be traced.

Note however, that the right to trace may be lost where the trust property has  ceased to exist, where the equitable owner cannot identify the property and where the property has lost its distinct quality, etc. See Taylor v, Blakelock (1886) 32 Ch.D. 560.

SELF ASSESSMENT EXERCISE (SAE) 1

Discuss how the liability of trustee in cases of breach of trustee is determined with particular reference to unauthorized investment and misappropriation of funds.

CONCLUSION

Liability for breach of trust is necessary to enable trustee to be alive to their responsibilities and the graduation of the liabilities by measuring the same is consistent with deterrence of trustees from committing serious acts  of  beaches. The trust property and the beneficiaries are equally protect by the prohibited acts and remedies that are available to the beneficiaries.

SUMMARY

In this Unit, you have learnt about the breach of trust and the likely acts of breach that could be committed by the trustees. You also learnt about the extent to which trustees could be liable either individually or jointly for breaches committed  against the trust. You were familiarized how the liability of trustees is measured and the instances where he is protected from liability and thus be absolved blame. Also covered in this unit is the remedies available for breach of trust and in particular, the equitable remedies of injunction and tracing were treated. You should be able to apply what you’ve learnt in this unit to practical situations effectively. In the next Unit, you will learn about the retirement and removal or trustees.

TUTOR-MARKED ASSIGNMENT (TMA)

1. Discuss the remedies available for a breach of trust, paying particular attention to the equitable remedies of injunction and tracing
2. Discuss the extent of liabilities of co-trustees for a breach of trust committed by one of them and the instances when a trustee may be protected from liability

REFERENCES/FURTHER READINGS

Banire, Muiz. (2002). The Nigerian Law of Trusts. Lagos: Excel Publications. Fabunmi, J.O. (2006). Equity and Trusts in Nigeria. Ile-Ife: Obafemi Awolowo

University Press Ltd.

Hayton, D.J. (2001). Hayton & Marshall Commentary and Cases on The Law of Trusts and Equitable Remedies. London: Sweet & Maxwell.

Jegede, M.I. (1999). Law of Trusts, Bankruptcy and Administration of Estate.

Lagos: MIJ Professional Publishers Limited.

Limitation Act and Section 32(1) Cap. 118, Laws of Lagos State 1994. Trustee Law, Laws of Western Nigeria, 1959.