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SQE – Equity and Trust – Introduction to Breach of Trust, Liability and Remedies
Introduction
The law of trusts is fundamentally concerned with the protection of beneficiaries and the enforcement of fiduciary obligations. Throughout the study of equity and trusts, situations frequently arise in which trustees fail to comply with their duties, misuse trust property, exceed their powers, or otherwise act contrary to the interests of beneficiaries. Such conduct may give rise to a breach of trust and expose the trustee to personal or proprietary liability.
The availability of remedies is central to the operation of trust law. The beneficiary principle requires not only the existence of identifiable beneficiaries but also the existence of persons capable of enforcing the trust before the courts. Beneficiaries possess locus standi, meaning they have the legal right to bring proceedings against trustees who fail to perform their obligations. This reflects a broader principle within equity that rights must be capable of enforcement if they are to be meaningful.
Equity has long recognised that legal rights without remedies are of little practical value. This idea is reflected in the equitable maxim that:
“Equity will not act in vain.”
The courts are therefore reluctant to exercise equitable jurisdiction where no practical or enforceable remedy can be granted. Equally important are the related equitable maxims that:
“He who seeks equity must do equity”
and
“He who comes to equity must come with clean hands.”
These principles demonstrate that equitable remedies are discretionary and may be refused where the conduct of the claimant makes relief inappropriate.
Historical Origins of Equitable Remedies
The origins of equitable remedies can be traced to the early development of the Court of Chancery. Many claimants who sought justice from the Lord Chancellor were unable to obtain relief through the common law courts because their claims did not fit within the rigid forms of action recognised at common law.
Equity developed as a response to these deficiencies. The Lord Chancellor was empowered to intervene where strict adherence to common law rules produced injustice. As a result, equity created a range of flexible remedies designed to achieve fairness in individual cases.
The historical significance of these developments remains evident today. Modern trust law continues to rely heavily upon equitable remedies that originated in the Court of Chancery.
The Fusion of Law and Equity
The Judicature Acts of the nineteenth century merged the administration of the common law and equitable courts. As a result, all courts gained the ability to administer both legal and equitable remedies.
However, although the courts were merged institutionally, the principles governing equitable remedies remained distinct. Equitable remedies continue to operate according to equitable principles and remain largely discretionary.
Consequently, even where a claimant establishes a breach of trust, the court retains discretion regarding the nature and extent of the relief granted.
Personal and Proprietary Remedies
Traditionally, equity has been described through the maxim:
“Equity acts in personam.”
Historically, equity acted upon the conscience of the defendant rather than directly upon property. For this reason, many equitable remedies are personal remedies that require a particular individual to perform an obligation or compensate the claimant.
Examples include:
However, trust law also recognises proprietary remedies. In certain circumstances, beneficiaries possess equitable proprietary interests in trust property and may assert rights directly against assets themselves. These remedies operate in rem and can be particularly valuable where trustees become insolvent.
Examples include:
The Importance of Tracing
Where trust property has been misappropriated, beneficiaries often face the practical problem of locating the property.
Equity developed the process of tracing to address this issue.
Tracing is not itself a remedy. Rather, it is a process that enables a claimant to identify what has happened to their property and where it has gone. Once the property has been identified, the court can determine whether proprietary remedies should be granted.
Tracing may allow beneficiaries to:
As Lord Millett explained in Foskett v McKeown [2001] 1 AC 102, tracing is simply the process by which a claimant identifies their property and demonstrates why it should still be regarded as representing their proprietary interest.
Breach of Trust
The law relating to breach of trust is closely connected with the wider law governing trustees’ powers and duties.
A breach of trust occurs whenever a trustee fails to comply with obligations imposed by:
Key Issues Following a Breach of Trust
The existence of a breach does not automatically determine liability.
Several additional issues must be examined.
First, the court must identify whether the breach caused a loss to the trust fund or enabled the trustee to obtain an unauthorised profit.
Secondly, the court must determine who should be held liable. Liability may extend beyond the trustee to include dishonest assistants, knowing recipients, agents, co-trustees, or other third parties.
Thirdly, the court must consider whether any defences apply. Potential defences include:
Equitable and Common Law Remedies
Although this area focuses on breach of trust, many of the remedies encountered are not confined to trust law.
One of equity’s greatest contributions to modern law was the development of remedies that are now encountered across numerous legal disciplines, including contract, tort, property law, and fiduciary obligations.
Examples include:
Consequently, the law of remedies provides an important link between equity and many other areas of private law.
Civil and Criminal Consequences
Although this chapter focuses upon civil liability, breaches of trust may sometimes involve conduct that also gives rise to criminal liability.
For example, a trustee who:
The civil courts are primarily concerned with compensating beneficiaries and restoring trust property, whereas criminal proceedings focus upon punishment and public justice.
The two forms of liability may therefore operate simultaneously.
The Purpose of Trustee Liability
The law of breach of trust seeks to achieve several important objectives.
First, it protects beneficiaries by ensuring that trust property is properly administered.
Secondly, it enforces fiduciary standards by holding trustees accountable for misconduct.
Thirdly, it prevents trustees from retaining unauthorised profits obtained through breaches of duty.
Finally, it preserves confidence in the institution of the trust by ensuring that effective remedies are available whenever trust obligations are violated.
Conclusion
The law governing breach of trust lies at the heart of equity and trust law. It reflects equity’s historic commitment to providing effective remedies where the common law proved inadequate. Modern trust law combines personal and proprietary remedies to ensure that beneficiaries are protected and trustees remain accountable for their conduct. Once a breach of trust has been identified, the court must determine issues of causation, liability, defences, and remedies. In doing so, equity continues to fulfil its historic role of ensuring that justice is achieved where strict legal rules alone may be insufficient.
References
Foskett v McKeown [2001] 1 AC 102.
Target Holdings Ltd v Redferns [1996] AC 421.
AIB Group (UK) Plc v Mark Redler & Co Solicitors [2015] AC 1503.
Re Diplock [1941] Ch 253.
Chichester Diocesan Fund and Board of Finance (Incorporated) v Simpson [1944] AC 341.
Trustee Act 1925.
Trustee Act 2000.
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, Oxford University Press 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, Oxford University Press 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).
Introduction
The law of trusts is fundamentally concerned with the protection of beneficiaries and the enforcement of fiduciary obligations. Throughout the study of equity and trusts, situations frequently arise in which trustees fail to comply with their duties, misuse trust property, exceed their powers, or otherwise act contrary to the interests of beneficiaries. Such conduct may give rise to a breach of trust and expose the trustee to personal or proprietary liability.
The availability of remedies is central to the operation of trust law. The beneficiary principle requires not only the existence of identifiable beneficiaries but also the existence of persons capable of enforcing the trust before the courts. Beneficiaries possess locus standi, meaning they have the legal right to bring proceedings against trustees who fail to perform their obligations. This reflects a broader principle within equity that rights must be capable of enforcement if they are to be meaningful.
Equity has long recognised that legal rights without remedies are of little practical value. This idea is reflected in the equitable maxim that:
“Equity will not act in vain.”
The courts are therefore reluctant to exercise equitable jurisdiction where no practical or enforceable remedy can be granted. Equally important are the related equitable maxims that:
“He who seeks equity must do equity”
and
“He who comes to equity must come with clean hands.”
These principles demonstrate that equitable remedies are discretionary and may be refused where the conduct of the claimant makes relief inappropriate.
Historical Origins of Equitable Remedies
The origins of equitable remedies can be traced to the early development of the Court of Chancery. Many claimants who sought justice from the Lord Chancellor were unable to obtain relief through the common law courts because their claims did not fit within the rigid forms of action recognised at common law.
Equity developed as a response to these deficiencies. The Lord Chancellor was empowered to intervene where strict adherence to common law rules produced injustice. As a result, equity created a range of flexible remedies designed to achieve fairness in individual cases.
The historical significance of these developments remains evident today. Modern trust law continues to rely heavily upon equitable remedies that originated in the Court of Chancery.
The Fusion of Law and Equity
The Judicature Acts of the nineteenth century merged the administration of the common law and equitable courts. As a result, all courts gained the ability to administer both legal and equitable remedies.
However, although the courts were merged institutionally, the principles governing equitable remedies remained distinct. Equitable remedies continue to operate according to equitable principles and remain largely discretionary.
Consequently, even where a claimant establishes a breach of trust, the court retains discretion regarding the nature and extent of the relief granted.
Personal and Proprietary Remedies
Traditionally, equity has been described through the maxim:
“Equity acts in personam.”
Historically, equity acted upon the conscience of the defendant rather than directly upon property. For this reason, many equitable remedies are personal remedies that require a particular individual to perform an obligation or compensate the claimant.
Examples include:
- Equitable compensation;
- Account of profits;
- Injunctions;
- Specific performance;
- Rescission;
- Declarations.
However, trust law also recognises proprietary remedies. In certain circumstances, beneficiaries possess equitable proprietary interests in trust property and may assert rights directly against assets themselves. These remedies operate in rem and can be particularly valuable where trustees become insolvent.
Examples include:
- Constructive trusts;
- Equitable liens;
- Equitable charges;
- Tracing claims;
- Subrogation.
The Importance of Tracing
Where trust property has been misappropriated, beneficiaries often face the practical problem of locating the property.
Equity developed the process of tracing to address this issue.
Tracing is not itself a remedy. Rather, it is a process that enables a claimant to identify what has happened to their property and where it has gone. Once the property has been identified, the court can determine whether proprietary remedies should be granted.
Tracing may allow beneficiaries to:
- recover the original trust property;
- recover substituted property;
- obtain a constructive trust;
- obtain an equitable lien;
- assert rights against third parties.
As Lord Millett explained in Foskett v McKeown [2001] 1 AC 102, tracing is simply the process by which a claimant identifies their property and demonstrates why it should still be regarded as representing their proprietary interest.
Breach of Trust
The law relating to breach of trust is closely connected with the wider law governing trustees’ powers and duties.
A breach of trust occurs whenever a trustee fails to comply with obligations imposed by:
- the trust instrument;
- statute;
- fiduciary principles;
- general equitable duties.
- Does something they ought not to do; or
- Fails to do something they ought to do.
- making unauthorised investments;
- exceeding powers granted by the trust deed;
- failing to distribute trust property;
- failing to safeguard trust assets;
- acting in conflict with fiduciary duties.
Key Issues Following a Breach of Trust
The existence of a breach does not automatically determine liability.
Several additional issues must be examined.
First, the court must identify whether the breach caused a loss to the trust fund or enabled the trustee to obtain an unauthorised profit.
Secondly, the court must determine who should be held liable. Liability may extend beyond the trustee to include dishonest assistants, knowing recipients, agents, co-trustees, or other third parties.
Thirdly, the court must consider whether any defences apply. Potential defences include:
- beneficiary consent;
- exclusion clauses;
- statutory relief;
- limitation periods;
- laches.
Equitable and Common Law Remedies
Although this area focuses on breach of trust, many of the remedies encountered are not confined to trust law.
One of equity’s greatest contributions to modern law was the development of remedies that are now encountered across numerous legal disciplines, including contract, tort, property law, and fiduciary obligations.
Examples include:
- Injunctions;
- Specific performance;
- Equitable compensation;
- Account of profits;
- Rescission;
- Rectification;
- Declaratory relief.
Consequently, the law of remedies provides an important link between equity and many other areas of private law.
Civil and Criminal Consequences
Although this chapter focuses upon civil liability, breaches of trust may sometimes involve conduct that also gives rise to criminal liability.
For example, a trustee who:
- steals trust property;
- commits fraud;
- falsifies accounts;
- launders trust funds;
The civil courts are primarily concerned with compensating beneficiaries and restoring trust property, whereas criminal proceedings focus upon punishment and public justice.
The two forms of liability may therefore operate simultaneously.
The Purpose of Trustee Liability
The law of breach of trust seeks to achieve several important objectives.
First, it protects beneficiaries by ensuring that trust property is properly administered.
Secondly, it enforces fiduciary standards by holding trustees accountable for misconduct.
Thirdly, it prevents trustees from retaining unauthorised profits obtained through breaches of duty.
Finally, it preserves confidence in the institution of the trust by ensuring that effective remedies are available whenever trust obligations are violated.
Conclusion
The law governing breach of trust lies at the heart of equity and trust law. It reflects equity’s historic commitment to providing effective remedies where the common law proved inadequate. Modern trust law combines personal and proprietary remedies to ensure that beneficiaries are protected and trustees remain accountable for their conduct. Once a breach of trust has been identified, the court must determine issues of causation, liability, defences, and remedies. In doing so, equity continues to fulfil its historic role of ensuring that justice is achieved where strict legal rules alone may be insufficient.
References
Foskett v McKeown [2001] 1 AC 102.
Target Holdings Ltd v Redferns [1996] AC 421.
AIB Group (UK) Plc v Mark Redler & Co Solicitors [2015] AC 1503.
Re Diplock [1941] Ch 253.
Chichester Diocesan Fund and Board of Finance (Incorporated) v Simpson [1944] AC 341.
Trustee Act 1925.
Trustee Act 2000.
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, Oxford University Press 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, Oxford University Press 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).
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