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Equity and Trust – Account of Profits
Case Scenario
Emma is a trustee of the Carter Family Trust. The trust contains £500,000 intended for the benefit of several minor beneficiaries.
Without authorisation, Emma secretly uses £200,000 of trust money to purchase an investment property in Manchester in her own name. Over the next three years, the property market rises significantly and the property increases in value to £450,000. Emma also receives rental income from tenants during that period.
The beneficiaries discover the misuse of trust money and bring a claim against Emma.
The issue is whether the beneficiaries can recover only the original £200,000 or whether they are entitled to the profits Emma made from using trust property.


Account of Profits
Definition
An account of profits is an equitable remedy requiring a defendant to surrender profits improperly obtained through breach of fiduciary duty.
The remedy commonly arises where:
  • trustees make unauthorised profits;
  • trustees misuse trust property;
  • trustees obtain secret benefits;
  • fiduciaries profit from their position without consent.
The purpose is to prevent trustees from benefiting personally from breaches of trust.


Key Principle
A trustee must not profit from their fiduciary position unless fully authorised by:
  • the trust instrument;
  • the beneficiaries;
  • or the court.
If a trustee improperly profits, equity requires the profit to be handed over to the beneficiaries.


Practical Application
Why is repayment of the original sum sometimes insufficient?
Simply repaying the original money may still leave the trustee with a personal gain obtained through breach of trust.
In the scenario:
  • Emma used £200,000 of trust money;
  • the property later became worth £450,000;
  • Emma also earned rental income.
If Emma only repaid £200,000, she would keep the increase in value and rental profits generated using trust assets.
That would unfairly benefit Emma at the beneficiaries’ expense.


What Can the Beneficiaries Claim?
The beneficiaries may seek:
  • repayment of the original trust money;
  • profits generated from the property;
  • increase in property value;
  • rental income earned;
  • any additional financial benefit linked to the breach.
The court may therefore require Emma to account for the full profits obtained from misuse of trust assets.


Why Equity Imposes This Remedy
Equity imposes strict fiduciary duties on trustees because trustees occupy positions of trust and confidence.
The remedy aims to:
  • deter fiduciary misconduct;
  • prevent unjust enrichment;
  • protect beneficiaries;
  • ensure trustees act loyally and honestly.
The trustee’s intention is often irrelevant.
Even if Emma acted in good faith, she may still be required to surrender the profits.


Difference Between Compensation and Account of Profits
Compensation
Compensation focuses on the beneficiaries’ loss.
The court asks:
  • “How much has the trust lost?”


Account of Profits
Account of profits focuses on the trustee’s gain.
The court asks:
  • “How much profit did the trustee make from the breach?”
The remedies therefore serve different purposes.


Practical Example
Example 1 – Account of Profits Granted
A trustee secretly uses trust funds to buy shares.
The shares double in value.
The beneficiaries may claim:
  • the original trust money;
  • the increase in share value;
  • dividends received.
The trustee cannot retain profits arising from misuse of trust property.


Example 2 – Secret Commission
A trustee receives a hidden payment from a company in exchange for investing trust money with that company.
Even if the trust itself suffers no loss, the trustee may still have to surrender the commission because it was obtained through fiduciary position.


Remedies the Court May Grant
The court may order:
  • repayment of profits;
  • transfer of property acquired with trust money;
  • tracing into substitute assets;
  • constructive trust over profits;
  • equitable compensation.
In some cases, beneficiaries may choose the remedy most advantageous to them.


Solving the Scenario
Emma clearly breached her fiduciary duties because she:
  • used trust money without authority;
  • placed herself in conflict with beneficiaries’ interests;
  • personally profited from trust property.
The beneficiaries would likely succeed in claiming:
  • the original £200,000;
  • the increase in property value;
  • rental income generated from the property.
The court may also impose a constructive trust over the property itself.
Emma would not be allowed to retain any profit obtained through misuse of trust assets.


Key SQE Principles
An account of profits:
  • is an equitable remedy;
  • applies mainly to fiduciaries and trustees;
  • prevents unauthorised personal gain;
  • focuses on defendant’s profit rather than claimant’s loss;
  • may exceed the original amount misappropriated.
Trustees are strictly prohibited from profiting from their fiduciary position without proper authority.


Conclusion
An account of profits ensures trustees and fiduciaries do not benefit from breaches of trust or misuse of trust property. Where trustees make unauthorised gains, equity requires them to surrender both the original assets and any profits derived from those assets.
The remedy protects beneficiaries, enforces fiduciary loyalty, and prevents unjust enrichment arising from abuse of trust.

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