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SQE – Equity and Trust – Assessing the Extent of Trustee Liability
Introduction
Once a trustee has been found liable for a breach of trust, the next question is:
How much must the trustee pay?
The courts assess liability by reference to two principal measures:
The Two Main Measures of Liability
1. Loss to the Trust Fund
The first measure focuses on:
✅ restoring the trust fund.
The court asks:
What position would the trust have been in if the breach had never occurred?
If the trustee’s actions caused loss, the trustee must compensate the trust accordingly.
2. Unauthorised Gain
The second measure focuses on:
✅ stripping profits from the trustee.
The court asks:
What benefit did the trustee obtain through the breach?
The trustee may be ordered to surrender those profits even if the trust itself suffered little or no loss.
Compensatory Liability
Where a breach causes financial loss, the trustee must restore the trust fund.
This principle was applied in:
Bartlett v Barclays Bank Trust Co Ltd (No 2).
The objective is to put the trust in the position it would have occupied had the breach not occurred.
Equity vs Common Law Damages
Although equitable compensation resembles damages, important differences exist.
Common Law
Focuses primarily on:
✅ the claimant’s loss.
Equity
Focuses on:
✅ restoring the trust fund;
✅ protecting beneficiaries;
✅ preventing trustees from benefiting from wrongdoing.
Equity therefore tends to favour beneficiaries where uncertainty exists.
Assessment Date
One of the most important differences is the timing of assessment.
Common Law
Loss is usually assessed at the:
❌ date of breach.
Equity
Loss is generally assessed at the:
✅ date of judgment,
using the full benefit of hindsight.
Target Holdings v Redferns
This principle was considered in:
Target Holdings Ltd v Redferns.
The court recognised that equitable compensation seeks to restore the trust fund rather than simply measure loss at the moment of breach.
Hulbert v Avens
The principle was subsequently applied in:
Hulbert v Avens.
Example 1 – Compensatory Liability
Facts
Daniel is trustee of a trust.
He should have sold trust shares in:
2020
when they were worth:
£500,000.
Instead, he improperly retains them.
By trial in:
2025
the shares are worth:
£150,000.
Loss
£500,000 − £150,000
= £350,000
Remedy
Daniel must compensate the trust:
£350,000.
Fry v Fry
The principle is illustrated by:
Fry v Fry.
A trustee who improperly retained investments was liable for the difference between:
Gain-Based Liability
Sometimes the trustee personally profits from the breach.
In these cases, equity may focus on:
✅ the trustee’s gain rather than the trust’s loss.
Purpose
The objective is to ensure:
fiduciaries must not profit from their position.
Example 2 – Unauthorised Profit
Facts
Daniel uses trust information to purchase land personally.
Purchase price:
£200,000.
Land later worth:
£1.5 million.
Profit
£1.3 million.
Remedy
The court may order:
Highest Value Rule
Historically, courts sometimes calculated profit liability by reference to:
✅ the highest value achieved before judgment.
This approach appeared in:
Nant-y-glo and Blaina Ironworks Co v Grave.
However, this authority has not been consistently followed.
Election Between Loss and Gain
A crucial rule is that beneficiaries cannot usually recover:
❌ both compensation for loss and the trustee’s profit.
These remedies are generally:
alternative rather than cumulative.
Tang Man Sit v Capacious Investments
The leading authority is:
Tang Man Sit v Capacious Investments Ltd.
Facts
Tang agreed to transfer certain properties to the claimant.
Instead, he rented them out and retained the rental income.
Consequences
His conduct caused:
Claim
The claimant sought:
Decision
The Privy Council refused.
The claimant had to choose.
Principle
A claimant may elect either:
✅ compensatory relief;
or
✅ gain-based relief.
But generally not both.
Example 3 – Election
Facts
Trust property should have produced:
£300,000
for beneficiaries.
Instead, Daniel generates:
£600,000
personal profit.
Choice
Option A
Compensation:
£300,000
Option B
Account of profits:
£600,000
Sensible Election
The claimant chooses:
✅ £600,000.
Ramzan v Brookwide
The election principle was reaffirmed in:
Ramzan v Brookwide Ltd.
The court described loss-based and gain-based remedies as:
alternative and inconsistent remedies.
The court may treat the claimant as having elected the larger award.
Interest on Trustee Liability
Interest is generally payable.
Honest Trustee
Usually:
✅ simple interest.
Fraudulent Trustee
Usually:
✅ compound interest.
Why?
Fraudulent trustees should not benefit from retaining trust money over time.
Example 4 – Interest
Facts
Daniel misappropriates:
£500,000
for ten years.
Result
The court may order:
Set-Off of Gains Against Losses
A further issue arises where trustees have produced:
General Rule
A trustee cannot usually say:
“I lost £500,000 here, but made £500,000 elsewhere.”
The gains and losses remain separate.
Dimes v Scott
The traditional rule appears in:
Dimes v Scott.
Facts
A trustee generated profits through one investment but losses through another.
Decision
The trustee could not offset gains against losses.
Each breach was assessed independently.
Bartlett v Barclays Bank
A more flexible approach emerged in:
Bartlett v Barclays Bank Trust Co Ltd (No 2).
Principle
Set-off may be permitted where:
✅ gain and loss arise from the same transaction;
or
✅ form part of the same wrongful course of conduct.
Example 5 – Same Transaction
Facts
Daniel improperly manages one property development project.
Part A generates:
£200,000 profit.
Part B causes:
£150,000 loss.
Result
The court may permit set-off.
Net gain:
£50,000.
Criticism
The Bartlett approach has been criticised because:
“same transaction”
is difficult to define.
The resulting uncertainty makes outcomes less predictable.
Comprehensive Case Study
Facts
Daniel is trustee of the Carter Family Trust.
He improperly uses:
£1 million
to purchase commercial property.
Outcome 1
Property rises to:
£3 million.
Outcome 2
Daniel earns:
£500,000
rental income.
Outcome 3
Trust would otherwise have earned:
£700,000
through authorised investments.
Beneficiary’s Options
Proprietary Remedy
Constructive trust over property worth:
£3 million.
Account of Profits
Claim:
£500,000 rental income.
Equitable Compensation
Claim:
£700,000 lost investment return.
Election
The beneficiary cannot usually recover all three.
They must choose the most advantageous remedy.
In practice:
✅ the £3 million proprietary claim is likely preferable.
Key SQE Principles
Trustee liability is assessed by reference to:
✅ loss to the trust;
or
✅ gain to the trustee.
Loss-based remedies include:
Gain-based remedies include:
Generally:
❌ no double recovery.
The claimant must elect between inconsistent remedies.
Conclusion
The assessment of trustee liability reflects equity’s dual objectives of restoring trust property and preventing fiduciaries from profiting from wrongdoing. Where a breach causes loss, trustees must compensate the trust so that it is restored to the position it would have occupied had the breach not occurred. Where trustees obtain unauthorised gains, equity may require those gains to be surrendered through an account of profits or proprietary remedies. Cases such as Bartlett v Barclays Bank, Target Holdings, Tang Man Sit, and Ramzan demonstrate that beneficiaries must generally choose between compensatory and gain-based remedies, with the court seeking to prevent both trustee enrichment and unjust double recovery.
Sources of Reference
Bartlett v Barclays Bank Trust Co Ltd (No 2) [1980] Ch 515.
Target Holdings Ltd v Redferns [1996] AC 421.
Hulbert v Avens [2003] EWHC 76 (Ch).
Fry v Fry (1859) 54 ER 56.
Nant-y-glo and Blaina Ironworks Co v Grave (1878) 12 Ch D 738.
Tang Man Sit v Capacious Investments Ltd [1996] AC 514.
Ramzan v Brookwide Ltd [2011] 2 P & CR 32.
Dimes v Scott (1828) 38 ER 778.
Introduction
Once a trustee has been found liable for a breach of trust, the next question is:
How much must the trustee pay?
The courts assess liability by reference to two principal measures:
- Loss caused to the trust fund (compensatory liability); and
- Unauthorised gain made by the trustee (gain-based liability).
The Two Main Measures of Liability
1. Loss to the Trust Fund
The first measure focuses on:
✅ restoring the trust fund.
The court asks:
What position would the trust have been in if the breach had never occurred?
If the trustee’s actions caused loss, the trustee must compensate the trust accordingly.
2. Unauthorised Gain
The second measure focuses on:
✅ stripping profits from the trustee.
The court asks:
What benefit did the trustee obtain through the breach?
The trustee may be ordered to surrender those profits even if the trust itself suffered little or no loss.
Compensatory Liability
Where a breach causes financial loss, the trustee must restore the trust fund.
This principle was applied in:
Bartlett v Barclays Bank Trust Co Ltd (No 2).
The objective is to put the trust in the position it would have occupied had the breach not occurred.
Equity vs Common Law Damages
Although equitable compensation resembles damages, important differences exist.
Common Law
Focuses primarily on:
✅ the claimant’s loss.
Equity
Focuses on:
✅ restoring the trust fund;
✅ protecting beneficiaries;
✅ preventing trustees from benefiting from wrongdoing.
Equity therefore tends to favour beneficiaries where uncertainty exists.
Assessment Date
One of the most important differences is the timing of assessment.
Common Law
Loss is usually assessed at the:
❌ date of breach.
Equity
Loss is generally assessed at the:
✅ date of judgment,
using the full benefit of hindsight.
Target Holdings v Redferns
This principle was considered in:
Target Holdings Ltd v Redferns.
The court recognised that equitable compensation seeks to restore the trust fund rather than simply measure loss at the moment of breach.
Hulbert v Avens
The principle was subsequently applied in:
Hulbert v Avens.
Example 1 – Compensatory Liability
Facts
Daniel is trustee of a trust.
He should have sold trust shares in:
2020
when they were worth:
£500,000.
Instead, he improperly retains them.
By trial in:
2025
the shares are worth:
£150,000.
Loss
£500,000 − £150,000
= £350,000
Remedy
Daniel must compensate the trust:
£350,000.
Fry v Fry
The principle is illustrated by:
Fry v Fry.
A trustee who improperly retained investments was liable for the difference between:
- the value when they should have been sold;
and - their value at judgment.
Gain-Based Liability
Sometimes the trustee personally profits from the breach.
In these cases, equity may focus on:
✅ the trustee’s gain rather than the trust’s loss.
Purpose
The objective is to ensure:
fiduciaries must not profit from their position.
Example 2 – Unauthorised Profit
Facts
Daniel uses trust information to purchase land personally.
Purchase price:
£200,000.
Land later worth:
£1.5 million.
Profit
£1.3 million.
Remedy
The court may order:
- an account of profits;
or - a constructive trust over the land.
Highest Value Rule
Historically, courts sometimes calculated profit liability by reference to:
✅ the highest value achieved before judgment.
This approach appeared in:
Nant-y-glo and Blaina Ironworks Co v Grave.
However, this authority has not been consistently followed.
Election Between Loss and Gain
A crucial rule is that beneficiaries cannot usually recover:
❌ both compensation for loss and the trustee’s profit.
These remedies are generally:
alternative rather than cumulative.
Tang Man Sit v Capacious Investments
The leading authority is:
Tang Man Sit v Capacious Investments Ltd.
Facts
Tang agreed to transfer certain properties to the claimant.
Instead, he rented them out and retained the rental income.
Consequences
His conduct caused:
- loss to the claimant;
and - profit to Tang.
Claim
The claimant sought:
- compensation for loss;
and - surrender of profits.
Decision
The Privy Council refused.
The claimant had to choose.
Principle
A claimant may elect either:
✅ compensatory relief;
or
✅ gain-based relief.
But generally not both.
Example 3 – Election
Facts
Trust property should have produced:
£300,000
for beneficiaries.
Instead, Daniel generates:
£600,000
personal profit.
Choice
Option A
Compensation:
£300,000
Option B
Account of profits:
£600,000
Sensible Election
The claimant chooses:
✅ £600,000.
Ramzan v Brookwide
The election principle was reaffirmed in:
Ramzan v Brookwide Ltd.
The court described loss-based and gain-based remedies as:
alternative and inconsistent remedies.
The court may treat the claimant as having elected the larger award.
Interest on Trustee Liability
Interest is generally payable.
Honest Trustee
Usually:
✅ simple interest.
Fraudulent Trustee
Usually:
✅ compound interest.
Why?
Fraudulent trustees should not benefit from retaining trust money over time.
Example 4 – Interest
Facts
Daniel misappropriates:
£500,000
for ten years.
Result
The court may order:
- repayment of £500,000;
plus - compound interest.
Set-Off of Gains Against Losses
A further issue arises where trustees have produced:
- gains in some transactions;
and - losses in others.
General Rule
A trustee cannot usually say:
“I lost £500,000 here, but made £500,000 elsewhere.”
The gains and losses remain separate.
Dimes v Scott
The traditional rule appears in:
Dimes v Scott.
Facts
A trustee generated profits through one investment but losses through another.
Decision
The trustee could not offset gains against losses.
Each breach was assessed independently.
Bartlett v Barclays Bank
A more flexible approach emerged in:
Bartlett v Barclays Bank Trust Co Ltd (No 2).
Principle
Set-off may be permitted where:
✅ gain and loss arise from the same transaction;
or
✅ form part of the same wrongful course of conduct.
Example 5 – Same Transaction
Facts
Daniel improperly manages one property development project.
Part A generates:
£200,000 profit.
Part B causes:
£150,000 loss.
Result
The court may permit set-off.
Net gain:
£50,000.
Criticism
The Bartlett approach has been criticised because:
“same transaction”
is difficult to define.
The resulting uncertainty makes outcomes less predictable.
Comprehensive Case Study
Facts
Daniel is trustee of the Carter Family Trust.
He improperly uses:
£1 million
to purchase commercial property.
Outcome 1
Property rises to:
£3 million.
Outcome 2
Daniel earns:
£500,000
rental income.
Outcome 3
Trust would otherwise have earned:
£700,000
through authorised investments.
Beneficiary’s Options
Proprietary Remedy
Constructive trust over property worth:
£3 million.
Account of Profits
Claim:
£500,000 rental income.
Equitable Compensation
Claim:
£700,000 lost investment return.
Election
The beneficiary cannot usually recover all three.
They must choose the most advantageous remedy.
In practice:
✅ the £3 million proprietary claim is likely preferable.
Key SQE Principles
Trustee liability is assessed by reference to:
✅ loss to the trust;
or
✅ gain to the trustee.
Loss-based remedies include:
- equitable compensation;
- restoration of trust property;
- interest.
Gain-based remedies include:
- account of profits;
- constructive trusts;
- proprietary claims.
Generally:
❌ no double recovery.
The claimant must elect between inconsistent remedies.
Conclusion
The assessment of trustee liability reflects equity’s dual objectives of restoring trust property and preventing fiduciaries from profiting from wrongdoing. Where a breach causes loss, trustees must compensate the trust so that it is restored to the position it would have occupied had the breach not occurred. Where trustees obtain unauthorised gains, equity may require those gains to be surrendered through an account of profits or proprietary remedies. Cases such as Bartlett v Barclays Bank, Target Holdings, Tang Man Sit, and Ramzan demonstrate that beneficiaries must generally choose between compensatory and gain-based remedies, with the court seeking to prevent both trustee enrichment and unjust double recovery.
Sources of Reference
Bartlett v Barclays Bank Trust Co Ltd (No 2) [1980] Ch 515.
Target Holdings Ltd v Redferns [1996] AC 421.
Hulbert v Avens [2003] EWHC 76 (Ch).
Fry v Fry (1859) 54 ER 56.
Nant-y-glo and Blaina Ironworks Co v Grave (1878) 12 Ch D 738.
Tang Man Sit v Capacious Investments Ltd [1996] AC 514.
Ramzan v Brookwide Ltd [2011] 2 P & CR 32.
Dimes v Scott (1828) 38 ER 778.
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