​SQE – Equity and Trust – The Power of Maintenance


Introduction


The power of maintenance is an important statutory power that enables trustees to use trust income for the benefit of beneficiaries before they become fully entitled to receive it. The power is particularly relevant where the beneficiary is a child and requires financial support for living expenses, education, healthcare, or general welfare.


The purpose of the power is to ensure that trust property can be used to support beneficiaries during their minority rather than requiring them to wait until they become absolutely entitled to the trust fund. In modern trust administration, the power provides trustees with flexibility to respond to the changing needs of young beneficiaries while preserving the long-term purpose of the trust.


The power is governed by section 31 of the Trustee Act 1925, as amended by the Inheritance and Trustees’ Powers Act 2014.


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Nature of the Power


The power of maintenance is a discretionary power rather than a legal entitlement.


This means that trustees are permitted, but not obliged, to apply trust income for the benefit of an infant beneficiary.


The trustees must consider the circumstances of the beneficiary and determine whether maintenance payments are appropriate. Beneficiaries cannot compel trustees to exercise the power while they remain minors unless the trust instrument provides otherwise.


The discretion allows trustees to balance the immediate needs of beneficiaries against the long-term preservation of trust assets.


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Statutory Basis


Section 31 of the Trustee Act 1925 authorises trustees to apply trust income for the maintenance, education, or benefit of a beneficiary who has not yet become absolutely entitled.


The power operates automatically unless expressly excluded or modified by the trust instrument.


The provision reflects Parliament’s recognition that young beneficiaries often require financial support before they become entitled to receive trust capital.


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Use of Trust Income


The maintenance power applies only to income generated by the trust fund.


Examples of trust income include:

• interest earned on investments;

• rental income from trust property;

• dividends from shares;

• distributions from investment funds.

Trustees may use this income to support eligible beneficiaries while preserving the capital of the trust.


The distinction between income and capital is important because the power of maintenance concerns income, whereas the power of advancement concerns capital.


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Maintenance, Education and Benefit


Section 31 permits trustees to apply income for the maintenance, education, or benefit of the beneficiary.


The courts have interpreted these terms broadly.


Maintenance extends beyond basic necessities such as food, clothing, and shelter. It may include expenditure that improves the beneficiary’s welfare and overall standard of living.


Education includes school fees, university tuition, books, accommodation, training courses, and professional qualifications.


Benefit is interpreted most widely and may encompass almost any expenditure that improves the beneficiary’s personal, educational, social, or financial circumstances.


This flexible interpretation enables trustees to respond to the individual needs of beneficiaries.


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Examples of Permitted Maintenance Payments


Trustees may properly use the maintenance power to pay for:

• school fees;

• university tuition;

• textbooks and educational materials;

• medical treatment;

• accommodation costs;

• living expenses;

• extracurricular activities;

• professional training.

The key consideration is whether the expenditure benefits the beneficiary.


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Who Receives the Payment?


Maintenance payments are not always paid directly to the beneficiary.


In practice, trustees commonly make payments to:

• parents;

• guardians;

• schools;

• universities;

• healthcare providers;

• other third parties providing services to the beneficiary.

Trustees should maintain accurate records and obtain receipts wherever possible.


Proper documentation protects trustees if their decisions are later questioned.


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Age Requirement


Under section 31, the power generally applies while the beneficiary is under the age of 18.


During this period, the trustees retain discretion over whether income should be distributed and how much should be paid.


However, the trust instrument may alter this age limit by expressly extending or restricting the operation of the power.


The terms of the trust deed therefore remain highly significant.


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Position at Age 18


Once the beneficiary reaches the age of 18, the position changes substantially.


At that point, the beneficiary becomes entitled to the income arising from their share of the trust fund.


The trustees’ discretion under the maintenance power ceases in relation to that income.


The beneficiary can therefore demand payment of income generated by their share of the trust property.


This reflects the general principle that adults are entitled to control their own financial affairs.


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The Original Requirement of Reasonableness


Before the reforms introduced by the Inheritance and Trustees’ Powers Act 2014, section 31 required trustees to distribute only such amounts as were reasonable in the circumstances.


This limitation meant that trustee decisions could potentially be challenged by beneficiaries on the basis that payments were excessive or insufficient.


The reasonableness requirement therefore imposed a significant restriction upon trustee discretion.


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Trustee Responses to the Reasonableness Requirement


Because of concerns about potential challenges, it became common drafting practice to modify section 31 within trust instruments.


Trust deeds frequently removed the requirement of reasonableness and instead granted trustees broader discretion regarding:

• whether to make maintenance payments;

• the amount to be paid;

• the manner in which payments should be made.

This drafting practice was so widespread that Parliament ultimately reformed the statutory provision itself.


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Reform Under the Inheritance and Trustees’ Powers Act 2014


The Inheritance and Trustees’ Powers Act 2014 significantly amended section 31.


For trusts created or interests arising on or after 1 October 2014, trustees now enjoy an unfettered discretion regarding the exercise of the maintenance power.


The statutory requirement of reasonableness was removed.


Consequently, trustees have greater flexibility when deciding whether to distribute income and in determining the amount to be paid.


The reform reflects the reality that most professionally drafted trust instruments had already removed the reasonableness restriction.


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Older Trusts


The reforms introduced in 2014 do not apply retrospectively.


Trusts created before 1 October 2014 remain subject to the original statutory provisions unless the trust instrument expressly modifies them.


Consequently, practitioners must always determine:

• when the trust was created;

• whether any amendments have been made;

• whether the trust deed modifies section 31.

Failure to do so may result in the incorrect application of the maintenance power.


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Accumulation of Undistributed Income


Where trustees choose not to distribute income under the maintenance power, the income must generally be accumulated within the trust.


Accumulated income becomes part of the trust fund and is preserved for future distribution.


Once the beneficiary becomes entitled to the trust capital, the accumulated income is ordinarily paid to them together with their share of the trust property.


This ensures that beneficiaries do not permanently lose the benefit of undistributed income.


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Relationship with the Power of Advancement


The power of maintenance should be distinguished from the power of advancement.


The maintenance power concerns the use of trust income.


The advancement power concerns the use of trust capital.


Both powers are designed to benefit beneficiaries before they become fully entitled, but they operate in different ways and are governed by separate statutory provisions.


Trustees often consider both powers together when deciding how best to assist beneficiaries.


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Case Study


Facts


A trust fund worth £2 million is held for Olivia, who will become entitled to the capital at age 25.


The trust generates annual income of £40,000.


Olivia is currently 16 years old and attends a private school. Her parents request assistance with tuition fees and educational expenses.


The trustees decide to apply £25,000 of trust income towards her school fees and retain the remaining income within the trust.


Analysis


The payment falls squarely within section 31 because it is applied for Olivia’s education and benefit.


The trustees are entitled to use trust income for this purpose while Olivia remains under 18.


The undistributed income may be accumulated within the trust for future benefit.


Outcome


The maintenance payment is valid and represents a proper exercise of the trustees’ discretion.


The accumulated income will remain within the trust and may ultimately be distributed when Olivia becomes entitled to the trust capital.


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Practical Importance


The maintenance power is one of the most frequently exercised trustee powers in family trusts.


It enables trustees to:

• fund education;

• support children financially;

• meet unexpected expenses;

• improve beneficiaries’ welfare;

• preserve trust capital for future distribution.

The flexibility introduced by the 2014 reforms has further enhanced the usefulness of the power in modern trust administration.


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Conclusion


The power of maintenance under section 31 of the Trustee Act 1925 enables trustees to use trust income for the maintenance, education, and benefit of infant beneficiaries. The courts have interpreted these concepts broadly, allowing trustees considerable flexibility in supporting beneficiaries during their minority. Historically, trustee discretion was constrained by a statutory requirement of reasonableness, but the Inheritance and Trustees’ Powers Act 2014 removed this restriction for newer trusts and granted trustees a largely unfettered discretion. Where income is not distributed, it must generally be accumulated for future benefit. Together with the power of advancement, the maintenance power forms an essential part of modern trust administration by allowing trustees to balance the immediate needs of beneficiaries with the long-term preservation of trust assets.


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References


Trustee Act 1925, s 31.


Inheritance and Trustees’ Powers Act 2014.


Re Pauling’s Settlement Trusts (No 1) [1964] Ch 303.


Speight v Gaunt (1883) 9 App Cas 1.


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).

SQE – Equity and Trust – The Power of Advancement
Introduction
The power of advancement is one of the most important statutory powers available to trustees. It allows trustees to distribute trust capital to a beneficiary before the date on which that beneficiary becomes absolutely entitled under the trust. The purpose of the power is to provide flexibility in trust administration and to enable trustees to respond to the changing needs and circumstances of beneficiaries.
For example, a trust may provide that beneficiaries receive their inheritance at the age of 25. However, a beneficiary may require financial assistance at age 20 to fund university education, purchase a home, or establish a business. Rather than requiring the beneficiary to wait until the vesting date, trustees may exercise the power of advancement to release part or all of the beneficiary’s future entitlement in advance.
The power is principally governed by section 32 of the Trustee Act 1925, as amended by the Inheritance and Trustees’ Powers Act 2014.


Nature of the Power
The power of advancement is a discretionary power rather than a right belonging to the beneficiary.
This means that beneficiaries cannot demand an advancement simply because they would like early access to trust capital. The decision remains entirely within the discretion of the trustees, who must consider whether exercising the power would be appropriate in the circumstances.
When exercising the power, trustees must act in good faith, consider relevant factors, disregard irrelevant considerations, and act in the best interests of the beneficiaries and the trust as a whole.


Statutory Basis
Section 32 of the Trustee Act 1925 authorises trustees to apply capital belonging to a beneficiary before the beneficiary becomes absolutely entitled to receive it.
The power allows trustees to:

• pay trust capital directly to the beneficiary;
• transfer trust assets to the beneficiary;
• apply trust capital for the beneficiary’s benefit indirectly.

The power therefore provides considerable flexibility in assisting beneficiaries before their entitlement becomes fully vested in possession.


Advancement Must Be for the Beneficiary’s Benefit
A fundamental requirement of section 32 is that any advancement must be made for the advancement or benefit of the beneficiary.
The courts have adopted a broad interpretation of this requirement.
Advancement does not merely refer to financial gain. It encompasses any arrangement that improves the beneficiary’s overall material, social, educational, professional, or personal circumstances.
Consequently, trustees enjoy considerable flexibility when determining whether a proposed advancement satisfies the statutory requirement.


Re Pilkington’s Will Trusts [1964] AC 612
The leading authority on the meaning of “advancement or benefit” is Re Pilkington’s Will Trusts.
In this case, the House of Lords adopted a broad interpretation of the concept of benefit. The court held that advancement is not limited to situations involving immediate financial improvement.
Instead, the term includes arrangements that improve the beneficiary’s overall situation or future prospects.
The decision reflects the courts’ willingness to recognise a wide range of benefits capable of justifying an advancement.


Example – Educational Advancement
Suppose trustees hold a trust fund for a beneficiary who will become entitled at age 25.
At age 19, the beneficiary wishes to study medicine overseas and requires £100,000 to cover tuition fees and living expenses.
The trustees conclude that the education will improve the beneficiary’s future prospects and career opportunities.
Applying Re Pilkington, the advancement would almost certainly be regarded as beneficial and therefore fall within section 32.


Moral Obligations and Advancement
The courts have recognised that benefit may include the discharge of moral obligations.
This principle was demonstrated in Re Clore’s Settlement Trusts [1966] 1 WLR 955.
The trustees sought to advance trust funds to charities established by the settlor. The court accepted that satisfying the settlor’s moral wishes could constitute a benefit to the beneficiaries and approved the advancement.
The decision illustrates the broad and flexible approach adopted by the courts.


Limits to the Concept of Benefit
Despite the broad interpretation of benefit, there are limits.
In X v A [2005] EWHC 2706 (Ch), trustees sought to advance trust funds to a beneficiary who intended to donate the money to charity.
The court refused to authorise the advancement.
Unlike Re Clore’s Settlement Trusts, the proposed transaction offered no genuine benefit to the beneficiary herself. The advancement would simply transfer value away from the trust without improving the beneficiary’s circumstances.
The case demonstrates that the beneficiary must receive a real benefit from the advancement.


Bringing Advancements into Account
A beneficiary who receives an advancement is generally required to bring that advancement into account when the trust is finally distributed.
This means that the value of the advancement is deducted from the beneficiary’s eventual entitlement.
The purpose of this rule is to ensure fairness among beneficiaries and prevent double recovery.


Example
Assume Sarah is entitled to £400,000 from a trust when she reaches age 25.
At age 20, trustees advance £100,000 to assist her in purchasing a home.
When Sarah reaches age 25, the advancement will ordinarily be deducted from her entitlement.
Instead of receiving £400,000, she will receive £300,000, reflecting the earlier distribution.


Consent of Prior Interest Holders
Where another person holds a prior interest in possession, trustees must obtain consent before exercising the power of advancement.
This requirement protects individuals whose existing rights could be adversely affected by an advancement of trust capital.
Failure to obtain the necessary consent may render the advancement invalid and expose trustees to liability for breach of trust.


Historical Limits on Advancements
Before the reforms introduced by the Inheritance and Trustees’ Powers Act 2014, section 32 limited trustees to advancing no more than one-half of the beneficiary’s vested or presumptive share.
This restriction often created practical difficulties because trustees were unable to advance sufficient capital to achieve the desired objective.
Consequently, trust instruments frequently included express provisions removing or modifying the statutory limitation.


Reform Under the Inheritance and Trustees’ Powers Act 2014
The Inheritance and Trustees’ Powers Act 2014 substantially reformed section 32.
The most significant change was the removal of the one-half restriction.
For trusts created, or interests arising, on or after 1 October 2014, trustees may now advance the entire share of a beneficiary if appropriate.
This reform greatly increased trustee flexibility and reflected modern approaches to trust administration.


Advancement of Assets
The 2014 reforms also clarified that trustees may advance assets as well as cash.
Consequently, trustees may transfer:

• shares;
• land;
• investment portfolios;
• business interests;
• other trust property.

This avoids the need to liquidate assets unnecessarily and allows trustees to structure advancements in a way that best serves the beneficiary’s interests.


Bringing Trusts to an End Early
The removal of the one-half restriction has practical significance where all parties wish to terminate a trust before the vesting date.
Historically, trustees could not generally bring a trust to an end through the advancement power alone because only half of the beneficiary’s share could be distributed.
Following the 2014 reforms, trustees may be able to advance the entirety of a beneficiary’s entitlement, thereby effectively terminating the trust before the original vesting date.
This can be particularly useful where the trust has become uneconomic to administer.


Relationship with the Rule in Saunders v Vautier
Before the 2014 reforms, early termination often depended upon the rule in Saunders v Vautier (1841) 49 ER 282.
Under that rule, beneficiaries could collectively terminate a trust if they:

• were all adults;
• possessed full capacity;
• were absolutely entitled to the beneficial interest.

The expanded advancement power now provides an alternative mechanism for achieving early distribution without necessarily relying on Saunders v Vautier.


Case Study
Facts
A trust provides that Emma will receive £600,000 at age 25.
At age 21, Emma wishes to establish a professional architectural practice and requests financial assistance from the trustees.
The trustees investigate her business proposal and conclude that it is realistic and likely to improve her future financial position.
They decide to advance £250,000 from the trust fund.
Analysis
The advancement is for Emma’s benefit because it improves her professional and financial prospects.
Applying Re Pilkington’s Will Trusts, the proposed business venture constitutes a sufficient benefit.
The trustees have exercised their discretion appropriately and have made reasonable enquiries regarding the proposed use of the funds.
Outcome
The advancement would likely be valid under section 32 of the Trustee Act 1925.
When Emma ultimately receives her remaining entitlement, the value of the advancement will ordinarily be brought into account and deducted from her final share.


Conclusion
The power of advancement provides trustees with valuable flexibility in responding to beneficiaries’ changing needs. Section 32 of the Trustee Act 1925 permits trustees to distribute trust capital before the vesting date where doing so advances or benefits the beneficiary. The courts have interpreted benefit broadly, encompassing educational, professional, social, and personal advantages, as demonstrated in Re Pilkington’s Will Trusts and Re Clore’s Settlement Trusts. The Inheritance and Trustees’ Powers Act 2014 significantly expanded the usefulness of the power by removing the former one-half limitation and permitting the advancement of assets as well as cash. As a result, the power of advancement has become an increasingly important tool in modern trust administration, allowing trustees to balance flexibility with the protection of beneficiaries’ long-term interests.


References
Re Pilkington’s Will Trusts [1964] AC 612.
Re Clore’s Settlement Trusts [1966] 1 WLR 955.
X v A [2005] EWHC 2706 (Ch).
Saunders v Vautier (1841) 49 ER 282.
Trustee Act 1925, s 32.
Inheritance and Trustees’ Powers Act 2014.
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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SQE – Equity and Trust – Nominees and Custodians
Introduction
Modern trust administration frequently involves the management of complex investments and valuable assets. Trustees are ultimately responsible for safeguarding trust property, but practical considerations often make it necessary to involve third parties in the administration of the trust. Recognising this reality, the Trustee Act 2000 introduced specific powers enabling trustees to appoint nominees and custodians.
Sections 16 and 17 of the Trustee Act 2000 provide trustees with statutory authority to appoint nominees and custodians respectively. These provisions were introduced to facilitate the efficient management of trust assets while ensuring that trustees retain overall responsibility for the proper administration of the trust.
Although nominees and custodians perform different functions, both play an important role in modern trust management by assisting trustees in dealing with investments, documents, and valuable trust property.


The Appointment of Nominees
Statutory Authority
Section 16 of the Trustee Act 2000 permits trustees to appoint nominees.
Prior to the enactment of the Trustee Act 2000, trustees had more limited powers to allow third parties to hold legal title to trust assets. The introduction of section 16 modernised trust administration by recognising the widespread use of nominee arrangements in financial and investment markets.
Under this provision, trustees may appoint a nominee to hold legal title to trust assets on behalf of the trustees.
The beneficial ownership of the property remains unaffected and continues to belong to the trust.


What is a Nominee?
A nominee is a person or organisation that holds legal title to property on behalf of another person.
In the trust context, the nominee holds legal ownership of the asset while the trustees retain control and responsibility for its management.
The nominee has no beneficial interest in the asset and merely acts as a legal holder of title.
The arrangement allows transactions involving trust property to be carried out more efficiently.


Purpose of Using Nominees
The principal purpose of appointing a nominee is to facilitate the quick and efficient management of trust investments.
Financial markets often require rapid decision-making. If trustees were required personally to execute every transaction involving trust assets, administration could become cumbersome and inefficient.
By appointing a nominee, trustees enable transactions to occur without the need for constant formal transfers of legal title.
This is particularly important in relation to investment portfolios containing shares and securities.


Example – Nominee Shareholding
Suppose trustees manage a trust containing a large portfolio of shares.
Rather than registering every shareholding in the names of the trustees personally, the shares may be held through a nominee account operated by a stockbroker.
The nominee becomes the registered legal owner of the shares.
However, the trustees remain responsible for investment decisions and continue to hold the beneficial interest on behalf of the beneficiaries.
The arrangement enables shares to be bought and sold quickly without repeated changes to the register of ownership.


Nominee Accounts in Modern Practice
Nominee accounts are extremely common in modern investment management.
Most stockbrokers and investment platforms offer nominee services whereby investments are held electronically on behalf of clients.
The use of nominee accounts reduces administrative costs, simplifies transactions, and allows assets to be transferred efficiently.
For trustees managing substantial investment portfolios, nominee arrangements are often indispensable.


The Appointment of Custodians
Statutory Authority
Section 17 of the Trustee Act 2000 grants trustees the power to appoint custodians.
Like the nominee power, this provision was introduced as part of the broader modernisation of trustee powers under the 2000 Act.
The power recognises that trustees may require specialist assistance in safeguarding valuable trust assets.


What is a Custodian?
A custodian is a person or institution responsible for the safe keeping of trust property or documents relating to trust property.
Unlike a nominee, whose primary function is to hold legal title, a custodian’s primary role is the protection and preservation of assets.
Custodians do not usually exercise management powers over the assets entrusted to them.
Their function is essentially protective rather than administrative.


Purpose of Using Custodians
Trust property may include valuable items that require specialist storage, protection, or security arrangements.
Examples include:

• jewellery;
• works of art;
• antiques;
• title deeds;
• share certificates;
• important legal documents;
• family heirlooms.

In such cases, trustees may lack the facilities necessary to safeguard these assets adequately.
The appointment of a professional custodian ensures that trust property is stored securely and preserved for the benefit of beneficiaries.


Example – Custody of Valuable Artwork
Suppose a trust owns a collection of valuable paintings worth several million pounds.
The trustees do not possess appropriate facilities for secure storage or climate-controlled preservation.
They appoint a specialist art storage company as custodian under section 17.
The custodian stores the artwork securely while the trustees retain responsibility for decisions concerning ownership, insurance, exhibition, or eventual sale.
This arrangement protects the trust property while preserving trustee control.


Solicitors as Custodians
Solicitors frequently act as custodians for clients.
Many law firms maintain secure facilities for the storage of:

• wills;
• trust deeds;
• share certificates;
• title deeds;
• jewellery;
• valuable documents.

The appointment of solicitors as custodians is a common and practical method of safeguarding important trust property.


Differences Between Nominees and Custodians
Although nominees and custodians are often discussed together, their functions differ significantly.
A nominee primarily holds legal title to trust assets and facilitates transactions involving those assets.
A custodian primarily safeguards assets and documents without necessarily holding legal ownership.
In practice, the same institution may perform both functions, particularly in the context of investment management.
However, the legal distinction remains important because different statutory provisions govern each role.


Restrictions Under Section 19
The powers to appoint nominees and custodians are subject to important statutory limitations.
Section 19 of the Trustee Act 2000 restricts the categories of persons who may be appointed.
Unlike agents under section 11, who may come from a wide range of backgrounds, nominees and custodians must generally be persons carrying on a business that includes acting as a nominee or custodian.
This restriction reflects the specialised nature of these functions.
The legislation seeks to ensure that individuals entrusted with holding or safeguarding trust property possess appropriate expertise and professional competence.


Contrast with Agents Under Section 11
The restrictions imposed by section 19 stand in marked contrast to the broad delegation powers available under section 11 of the Trustee Act 2000.
Under section 11, trustees may appoint a wide variety of agents to perform functions on their behalf, provided that delegation is appropriate.
By contrast, nominees and custodians perform specialised functions involving the direct holding or protection of trust assets.
Consequently, Parliament considered it necessary to impose stricter eligibility requirements.


Trustee Responsibility
The appointment of a nominee or custodian does not relieve trustees of their overall responsibilities.
Trustees must continue to exercise reasonable care when:

• selecting nominees and custodians;
• reviewing their performance;
• monitoring the arrangements;
• protecting trust property.

Failure to supervise appropriately may expose trustees to liability if losses occur.
The appointment powers therefore provide flexibility but do not eliminate trustee accountability.


Case Study
Facts
A family trust owns a valuable collection of paintings, jewellery, and investment securities worth £15 million.
The trustees lack secure facilities for storing the artwork and do not wish to hold the securities directly.
The trustees appoint:

• a specialist art storage company as custodian under section 17; and
• an investment platform operating nominee accounts under section 16.

Analysis
The appointments fall within the statutory powers provided by the Trustee Act 2000.
The custodian safeguards the artwork and jewellery, while the nominee holds legal title to the investment portfolio and facilitates transactions.
The trustees retain ultimate responsibility for overseeing both arrangements.
Outcome
The appointments are valid and represent prudent trust administration. The trust assets are protected while investment management can be conducted efficiently.


Conclusion
Sections 16 and 17 of the Trustee Act 2000 introduced important modern powers enabling trustees to appoint nominees and custodians. Nominees facilitate the efficient management of trust assets by holding legal title on behalf of trustees, while custodians provide secure storage and protection for valuable property and documents. These powers reflect the practical realities of contemporary trust administration and allow trustees to utilise specialist expertise where appropriate. However, trustees remain responsible for selecting suitable nominees and custodians and must continue to supervise their activities carefully. The restrictions imposed by section 19 further ensure that only appropriately qualified and experienced persons may undertake these important roles.


References
Trustee Act 2000, ss 16–19.
Law Commission, Trustee Powers and Duties (Law Com No 260, 1999).
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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​SQE – Equity and Trust – Collective Delegation by Trustees


Introduction


Modern trust administration often involves managing complex investments, businesses, real estate portfolios, and other specialised assets. Trustees may not always possess the expertise necessary to carry out every aspect of trust administration personally. Consequently, the law permits trustees to delegate certain functions to agents who possess the required knowledge, skills, or professional qualifications.


The power of collective delegation is one of the most significant reforms introduced by the Trustee Act 2000. Prior to the Act, trustees faced considerable restrictions on delegation, particularly in relation to discretionary and investment functions. The modern statutory framework now provides trustees with greater flexibility while simultaneously imposing duties designed to ensure that delegation is carried out responsibly.


The principal provisions governing collective delegation are found in sections 11–23 of the Trustee Act 2000.


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Historical Position Before the Trustee Act 2000


Before the Trustee Act 2000, the delegation powers of trustees were extremely limited.


Section 23 of the Trustee Act 1925 permitted delegation of administrative functions only. Trustees were generally prohibited from delegating discretionary powers, including the crucial power to make investment decisions.


This restrictive approach was illustrated in Rowland v Witherden (1851) 3 Mac & G 568, where the courts emphasised that trustees were expected personally to exercise their fiduciary responsibilities.


As investment management became increasingly specialised during the twentieth century, these restrictions created practical difficulties for trustees.


The Law Commission criticised the old rules in its Report No 260, describing them as:


“A serious impediment to the administration of trusts.”


The Commission recognised that modern trusteeship frequently requires expertise that lay trustees may not possess.


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Reform Under the Trustee Act 2000


The Trustee Act 2000 fundamentally reformed the law of delegation.


Section 11 now permits trustees of non-charitable trusts to delegate many of their functions to agents.


This reform acknowledges the reality that professional expertise is often necessary for the effective administration of trust assets.


Most importantly, trustees may now delegate investment functions to suitably qualified agents, a power that was previously unavailable under the default statutory rules.


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Functions That May Be Delegated


Section 11(1) allows trustees to delegate a wide range of administrative and management functions.


Examples include:

• investment management;

• management of trust property;

• acquisition of investments;

• disposal of trust assets;

• administrative functions;

• management of business interests held by the trust.

The ability to delegate these functions enables trustees to obtain professional assistance where specialist knowledge is required.


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Functions That Cannot Be Delegated


Despite the broad power granted by section 11, certain core trustee functions remain non-delegable.


Section 11(2) identifies functions that must continue to be exercised personally by the trustees.


These include:

• decisions concerning the distribution of trust assets to beneficiaries;

• decisions regarding the appointment of new trustees;

• decisions relating to the delegation itself;

• certain powers specifically excluded by statute.

These restrictions preserve the fundamental fiduciary responsibilities of trustees.


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Delegation of Investment Functions


One of the most significant reforms introduced by the Trustee Act 2000 is the ability to delegate investment management.


Trustees are no longer expected to possess specialist investment expertise.


Instead, they may appoint professional investment managers to make investment decisions on behalf of the trust.


This reflects modern commercial reality and enables trust funds to be managed more effectively.


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Who May Be Appointed as an Agent?


Section 12 of the Trustee Act 2000 specifies who may be appointed as an agent.


Trustees may appoint:

• one or more third parties;

• one or more of their own number.

Consequently, if one trustee possesses specialist expertise, that trustee may act as the agent for the others.


However, a beneficiary may not be appointed as an agent.


This restriction helps prevent conflicts of interest and protects the integrity of trust administration.


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Absence of Professional Qualification Requirements


Unlike the provisions relating to nominees and custodians, section 12 does not require agents to possess professional qualifications.


The statute does not state that an agent must:

• act in the course of a business;

• hold professional accreditation;

• possess specific expertise.

However, trustees remain subject to the statutory duty of care when selecting agents.


Consequently, appointing an unsuitable individual could expose trustees to liability.


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The Earlier Common Law Approach – Re Vickery


Before the Trustee Act 2000, guidance regarding the selection of agents came largely from Re Vickery [1931] 1 Ch 572.


The case established three key principles:

1. Trustees must act in good faith.

1. Trustees must exercise their own discretion when selecting an agent.

1. Agents should only be appointed to perform functions within the ordinary course of their business.

Under Re Vickery, trustees would only be liable for an agent’s actions where they were guilty of wilful default.


The Trustee Act 2000 replaced this relatively lenient approach with a more demanding statutory framework based upon reasonable care.


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The Statutory Duty of Care


The general duty of care contained in section 1 of the Trustee Act 2000 applies to delegation decisions.


Trustees must exercise such care and skill as is reasonable in the circumstances when:

• selecting agents;

• negotiating delegation arrangements;

• supervising agents;

• reviewing delegated functions.

Professional trustees are expected to satisfy a higher standard because of their specialist expertise.


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Asset Management Functions and Section 15


Special requirements apply when trustees delegate asset management functions.


Section 15 requires trustees to prepare a written policy statement for the agent.


The policy statement must provide guidance concerning:

• investment objectives;

• risk tolerance;

• income requirements;

• capital growth objectives;

• restrictions contained in the trust deed.

The purpose of the statement is to ensure that the agent understands how trust assets should be managed.


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Example of a Policy Statement


A trust may contain elderly beneficiaries who depend upon income distributions.


The trustees could prepare a policy statement instructing the investment manager to:

• prioritise income generation;

• avoid highly speculative investments;

• maintain a diversified portfolio;

• preserve capital where possible.

The agent must then manage the investments consistently with those instructions.


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Duty to Review the Policy Statement


Section 22(2) requires trustees to review the policy statement regularly.


Trustees must:

• monitor changing circumstances;

• revise objectives where necessary;

• replace outdated instructions.

The trustees cannot simply prepare the statement and then ignore the delegation arrangement.


Active supervision remains essential.


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Monitoring the Agent


Trustees must also ensure that the agent complies with the policy statement.


Delegation does not permit trustees to abandon responsibility for trust administration.


They must monitor:

• investment performance;

• compliance with restrictions;

• adherence to trust objectives;

• the continuing suitability of the agent.

Failure to supervise adequately may constitute a breach of trust.


⸻


Liability for the Acts of Agents


One of the most important issues concerns trustee liability when an agent makes mistakes.


Unlike individual delegation under section 25 of the Trustee Act 1925, collective delegation under the Trustee Act 2000 does not impose strict liability.


Section 23 provides that trustees are not automatically liable for the acts or defaults of their agents.


This represents a significant protection for trustees.


⸻


When Trustees May Be Liable


Trustees may nevertheless incur liability where they fail to comply with their statutory duties.


Liability may arise where trustees:

• appoint an unsuitable agent;

• fail to exercise reasonable care during selection;

• fail to prepare an appropriate policy statement;

• neglect to monitor performance;

• ignore warning signs of misconduct or incompetence.

The focus is therefore on the conduct of the trustees rather than the conduct of the agent.


⸻


Practical Importance of Policy Agreements


In practice, written policy agreements are essential.


For example, if trustees appoint an estate manager to administer a large rural estate, they should provide written guidance regarding:

• maintenance responsibilities;

• expenditure limits;

• reporting requirements;

• strategic objectives.

Performance should then be reviewed regularly.


The same principle applies to investment management arrangements.


⸻


STEP Guidance


The Society of Trust and Estate Practitioners (STEP) provides guidance and model documents for trustees using delegation arrangements.


These materials assist trustees in preparing suitable policy statements and monitoring performance effectively.


The availability of such guidance reflects the increasing professionalism of modern trust administration.


⸻


Case Study


Facts


A trust worth £20 million contains a diversified investment portfolio.


The trustees lack investment expertise and appoint a professional investment management firm under section 11 of the Trustee Act 2000.


They prepare a detailed policy statement requiring moderate-risk investments and regular income generation for beneficiaries.


The trustees review investment reports quarterly.


Several years later, market conditions result in losses.


Analysis


The trustees exercised reasonable care when selecting the investment manager.


They complied with section 15 by preparing a policy statement and fulfilled their monitoring duties under section 22.


The losses resulted from market fluctuations rather than trustee misconduct.


Outcome


Under section 23, the trustees would not normally be liable because they complied with their statutory duties and exercised reasonable care throughout the delegation process.


⸻


Conclusion


The Trustee Act 2000 transformed the law governing delegation by trustees. Sections 11–23 now permit trustees to delegate a wide range of functions, including investment management, while preserving certain core fiduciary responsibilities that must remain with the trustees themselves. The reforms recognise the increasingly specialised nature of trust administration and enable trustees to obtain professional assistance where necessary. However, delegation does not eliminate trustee responsibility. Trustees remain subject to the statutory duty of care and must carefully select, instruct, and supervise their agents. Through the use of policy statements, ongoing monitoring, and regular review, trustees can delegate effectively while continuing to fulfil their fiduciary obligations.


⸻


References


Rowland v Witherden (1851) 3 Mac & G 568.


Re Vickery [1931] 1 Ch 572.


Trustee Act 1925, s 23.


Trustee Act 2000, ss 1, 11–23.


Law Commission, Trustee Powers and Duties (Law Com No 260, 1999).


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).

SQE – Equity and Trust – Individual Delegation by Trustees
Introduction
While the Trustee Act 2000 introduced extensive powers of collective delegation, trustees may also delegate their functions individually under a separate statutory mechanism. Individual delegation is governed by section 25 of the Trustee Act 1925, as amended by the Trustee Delegation Act 1999. Unlike collective delegation, which involves all trustees acting together to appoint an agent, individual delegation allows a single trustee to appoint another person to act on their behalf through a power of attorney.
This form of delegation is intended to address temporary situations where a trustee is unable to perform their duties personally. However, despite its practical utility, individual delegation carries a significant disadvantage because the trustee remains strictly liable for the acts and defaults of the appointed attorney. Consequently, it is generally used only where absolutely necessary.


Statutory Basis
Section 25 of the Trustee Act 1925 permits an individual trustee to delegate all of their trustee functions to another person by executing a power of attorney.
The provision was substantially modernised by the Trustee Delegation Act 1999, although it was not amended by the Trustee Act 2000.
The delegation operates by granting legal authority to another person, known as the attorney, to perform trustee functions on behalf of the delegating trustee.
The arrangement allows trust administration to continue uninterrupted during periods when the trustee is temporarily unavailable.


Duration of Delegation
A delegation under section 25 is temporary.
The maximum period for which the power of attorney may operate is 12 months.
After this period expires, the delegation automatically ceases unless a new power of attorney is executed in accordance with the statutory requirements.
The temporary nature of the power reflects Parliament’s intention that trustees should ordinarily perform their duties personally rather than permanently transferring responsibility to others.


Purpose of Individual Delegation
Individual delegation is designed to accommodate situations where a trustee is temporarily unable to participate in trust administration.
Common examples include:

• serious illness;
• hospitalisation;
• temporary incapacity;
• extended holidays;
• short-term overseas travel;
• family emergencies.

In these circumstances, the power of attorney allows trust business to continue without requiring the trustee to resign.


Example – Trustee Hospitalisation
Suppose a trust is engaged in the sale of a valuable property requiring the signatures of all trustees.
One trustee is unexpectedly admitted to hospital and is unable to participate in the transaction for several months.
The trustee may execute a power of attorney under section 25 appointing another individual to act on their behalf.
The attorney can then sign documents and carry out trustee functions during the trustee’s absence.
This enables the transaction to proceed without delay.


Example – Temporary Overseas Travel
A trustee plans to spend six months abroad undertaking a work assignment.
During this period, the trust is expected to make several investment decisions and complete a property transaction.
Rather than disrupting trust administration, the trustee may delegate their functions through a power of attorney.
The attorney can then participate in trustee decision-making while the trustee remains overseas.


The Major Disadvantage – Strict Liability
The principal disadvantage of individual delegation is that the delegating trustee remains strictly liable for the acts and defaults of the attorney.
This is a much harsher rule than the position under collective delegation in the Trustee Act 2000.
Under section 25, liability arises regardless of whether the trustee acted reasonably when selecting the attorney.
The trustee cannot avoid responsibility simply by demonstrating that they exercised care in making the appointment.
Consequently, the trustee effectively bears the risk of any mistakes, negligence, or misconduct committed by the attorney.


Comparison with Collective Delegation
The distinction between individual and collective delegation is significant.
Under collective delegation governed by sections 11–23 of the Trustee Act 2000, trustees are not automatically liable for the acts of agents.
Instead, liability generally arises only if trustees fail to:

• exercise reasonable care in selecting the agent;
• prepare appropriate policy statements;
• monitor the agent adequately.

By contrast, section 25 imposes strict liability regardless of the care taken by the trustee.
This makes individual delegation considerably less attractive.


Why Strict Liability Exists
The rationale for strict liability is that the delegation is made solely for the personal convenience or circumstances of the individual trustee.
Since the trustee voluntarily chooses to appoint an attorney to act in their place, it is considered appropriate that they bear the consequences of the attorney’s actions.
The beneficiaries should not suffer losses because a trustee chose to delegate responsibilities due to personal circumstances.
This approach reinforces the fundamental principle that trustees remain personally responsible for the administration of the trust.


Practical Consequences
Because of the strict liability imposed by section 25, trustees are generally reluctant to rely upon individual delegation.
A prudent trustee will carefully consider:

• the reliability of the proposed attorney;
• the complexity of the trust administration;
• the duration of the delegation;
• alternative options available.

In practice, section 25 is used only where genuinely necessary.


Long-Term Absence and Retirement
Where a trustee intends to be absent for an extended period, the use of a power of attorney may be inappropriate.
For example, if a trustee intends to:

• emigrate permanently;
• work abroad indefinitely;
• cease active involvement in trust administration;

the preferred solution is usually retirement from the trusteeship.
This ensures that the trust is administered by individuals who are available to fulfil their responsibilities directly.
Continued reliance upon a temporary power of attorney in such circumstances may expose both the trust and the trustee to unnecessary risks.


Trustee Retirement as an Alternative
Retirement is often the preferred option where a trustee’s absence is likely to be prolonged.
Retirement allows a replacement trustee to be appointed and ensures that the trust benefits from active supervision and participation.
It also eliminates the strict liability risks associated with section 25 delegation.
For this reason, professional advisers frequently recommend retirement rather than long-term delegation where a trustee is unlikely to return to active administration.


Case Study
Facts
A trust owns several investment properties and is in the process of purchasing additional commercial premises.
One of the trustees is required to undergo major surgery and is expected to spend nine months recovering.
The trustee executes a power of attorney under section 25 appointing a trusted solicitor to act on their behalf.
During the recovery period, the solicitor negligently fails to complete essential due diligence, causing the trust to suffer substantial financial losses.
Analysis
The solicitor acted as the trustee’s attorney under section 25.
Although the trustee selected the solicitor carefully and acted reasonably, section 25 imposes strict liability for the attorney’s defaults.
The trustee remains responsible for the losses caused by the attorney.
Outcome
The beneficiaries may pursue the trustee for compensation arising from the attorney’s negligence. The trustee may then seek recovery from the attorney separately, but liability to the beneficiaries remains.


Practical Guidance for Trustees
Before using a section 25 power of attorney, trustees should:

• consider whether delegation is genuinely necessary;
• appoint a trustworthy and competent attorney;
• limit the duration of the delegation where possible;
• monitor the attorney’s activities;
• obtain professional advice regarding the risks involved.

Given the strict liability imposed by the statute, careful consideration should always be given to alternative arrangements.


Conclusion
Individual delegation under section 25 of the Trustee Act 1925 provides a useful mechanism for trustees who are temporarily unable to perform their duties. Through a power of attorney, a trustee may delegate all trustee functions for a period of up to 12 months. However, unlike collective delegation under the Trustee Act 2000, individual delegation carries the significant disadvantage of strict liability. The delegating trustee remains responsible for the acts and defaults of the attorney regardless of the care exercised in making the appointment. As a result, section 25 is generally regarded as a measure of last resort, appropriate only for temporary absences or emergencies. Where a trustee’s absence is likely to be long-term or permanent, retirement from the trusteeship is usually the preferable course of action.


References
Trustee Act 1925, s 25.
Trustee Delegation Act 1999.
Trustee Act 2000, ss 11–23.
Law Commission, Trustee Powers and Duties (Law Com No 260, 1999).
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).

​

SQE – Equity and Trust – The Trustee’s Duty to Take Advice Before Investing
Introduction
One of the most important responsibilities of trustees is the management and investment of trust assets. Modern trust funds frequently contain substantial investments, and poor investment decisions can significantly prejudice the interests of beneficiaries. Recognising the complexity of modern financial markets, the Trustee Act 2000 imposes a specific obligation on trustees to obtain and consider proper advice before exercising investment powers.
The duty to take advice forms part of the wider framework governing trustee investment decisions and complements the statutory duty of care under section 1 of the Trustee Act 2000 and the standard investment criteria contained in section 4. Together, these provisions seek to ensure that trustees make informed and prudent investment decisions in the best interests of beneficiaries.
The primary statutory authority governing this duty is section 5 of the Trustee Act 2000.


Statutory Basis
Section 5 of the Trustee Act 2000 provides that trustees must obtain and consider proper advice before exercising any power of investment.
The duty applies whenever trustees are making decisions regarding:

• the acquisition of investments;
• the disposal of investments;
• investment strategy;
• portfolio restructuring;
• significant changes to trust assets.

The purpose of the provision is to ensure that trustees do not make investment decisions without appropriate knowledge or expertise.


Relationship with the Standard Investment Criteria
The duty to obtain advice is closely linked to the standard investment criteria contained in section 4 of the Trustee Act 2000.
Before making investment decisions, trustees must consider:

1. The suitability of the proposed investment.
2. The need for diversification of trust investments.

Professional advice assists trustees in evaluating these factors and enables them to make informed decisions consistent with their fiduciary obligations.


Daniel v Tee
The importance of obtaining appropriate advice was reinforced in Daniel v Tee [2016] EWHC 1538 (Ch).
The court emphasised that trustees must have a coherent investment strategy and should obtain advice from suitably qualified individuals before making significant investment decisions.
The case also highlighted the importance of conducting regular reviews of investment performance and ensuring continued compliance with the statutory investment framework.
The decision demonstrates that obtaining advice is not a one-off exercise but forms part of an ongoing process of prudent trust management.


Exceptions to the Duty
The duty to obtain advice is not absolute.
Section 5(3) provides that trustees need not obtain advice where they reasonably conclude that, in all the circumstances, it is unnecessary or inappropriate to do so.
The key requirement is that the trustees’ conclusion must itself be reasonable.
Trustees who decide not to obtain advice must therefore be able to justify that decision objectively.


Situations Where Advice May Be Unnecessary
The Explanatory Notes to the Trustee Act 2000 provide examples of situations where obtaining advice may be unnecessary.
One example is where the trustees themselves possess sufficient expertise to make the decision without external assistance.
For instance, a trustee who is an experienced investment professional may already possess the necessary knowledge and practical experience.
However, trustees should be cautious before relying on their own expertise and should ensure that they genuinely possess the relevant specialist knowledge.


Example – Trustee with Investment Expertise
Suppose one trustee is a chartered financial analyst with twenty years of experience managing investment portfolios.
The trust wishes to invest a modest sum in a diversified portfolio of government bonds.
The trustees may reasonably conclude that external advice is unnecessary because the trustee already possesses sufficient expertise.
Provided this conclusion is reasonable, section 5(3) permits the trustees to proceed without obtaining independent advice.


Situations Where Advice May Be Inappropriate
The Explanatory Notes also recognise situations where obtaining advice may be inappropriate.
For example, where the value of the investment is very small, the cost of obtaining professional advice may be disproportionate to the value of the transaction itself.
In such circumstances, requiring formal advice could unnecessarily deplete the trust fund.
Trustees must nevertheless act prudently and document their reasons for proceeding without external advice.


Example – Small Investment Decision
A trust contains £5,000 of surplus cash that trustees wish to place in a low-risk savings account.
The cost of obtaining professional financial advice would exceed any likely benefit.
The trustees may reasonably conclude that obtaining advice would be disproportionate and unnecessary.
Their decision would likely fall within the exception provided by section 5(3).


Meaning of “Proper Advice”
Section 5(4) defines proper advice as:
“The advice of a person who is reasonably believed by the trustees to be qualified to give it by virtue of his ability in and practical experience of financial matters relating to the proposed investment.”
This definition focuses on practical expertise rather than formal qualifications alone.
The emphasis is on whether the adviser is reasonably believed to possess the necessary knowledge and experience.


No Requirement for Professional Qualifications
Interestingly, section 5(4) does not expressly require advisers to:

• hold professional qualifications;
• belong to a professional body;
• act in the course of a business.

Instead, the focus is on practical competence and experience.
However, trustees must still act reasonably when selecting advisers, and professional qualifications may provide important evidence of competence.


Selecting the Appropriate Adviser
The nature of the proposed investment will often determine the type of adviser that should be consulted.
Different investments require different forms of expertise.
For example:

• land investments may require advice from a land agent or surveyor;
• works of art may require advice from auction houses or specialist valuers;
• heritage assets may require specialist conservation advice;
• stocks and shares may require advice from an investment manager or stockbroker.

Trustees should ensure that the adviser possesses expertise directly relevant to the proposed transaction.


Example – Heritage Assets
A trust owns a valuable collection of rare paintings and is considering selling part of the collection.
The trustees seek advice from an internationally recognised art valuation specialist.
This would likely constitute proper advice because the adviser possesses practical experience and specialist knowledge relating to the assets in question.


Financial Services and Markets Act 2000
Although section 5 does not expressly require professional qualifications, trustees should also consider section 19 of the Financial Services and Markets Act 2000.
Section 19 generally provides that persons carrying on regulated investment activities must be authorised or exempt.
This requirement applies primarily to the adviser rather than to the trustees.
Nevertheless, prudent trustees would normally seek advice from an appropriately authorised individual where investment business is involved.
Doing so helps demonstrate compliance with both the statutory duty of care and the duty to act in beneficiaries’ best interests.


Relationship with the Duty of Care
The duty to obtain advice operates alongside the statutory duty of care contained in section 1 of the Trustee Act 2000.
Trustees must exercise reasonable care when:

• deciding whether advice is required;
• selecting advisers;
• evaluating advice received;
• implementing recommendations.

Obtaining advice does not relieve trustees of responsibility for the ultimate investment decision.
Trustees must still exercise independent judgment.


Ongoing Investment Reviews
The obligation to act prudently does not end once an investment has been made.
Section 4 requires trustees to review investments periodically.
As emphasised in Daniel v Tee, trustees should regularly reassess:

• investment performance;
• changing market conditions;
• suitability of investments;
• diversification of the portfolio.

Where appropriate, fresh advice should be obtained during these reviews.


Case Study
Facts
A trust worth £8 million holds a diversified investment portfolio.
The trustees wish to invest £2 million in a private technology company.
None of the trustees possesses specialist knowledge of venture capital investments.
The trustees seek advice from an experienced corporate finance adviser with extensive expertise in technology investments.
The adviser provides a detailed report assessing the risks and opportunities.
The trustees carefully consider the report before making their decision.
Analysis
The trustees have complied with section 5 by obtaining and considering proper advice.
The adviser possesses relevant practical experience and expertise.
The trustees have also fulfilled their duty of care by carefully evaluating the advice before proceeding.
Outcome
The trustees are likely to satisfy their statutory obligations even if the investment subsequently performs poorly, provided their decision-making process was reasonable and prudent.


Conclusion
The duty to obtain proper advice under section 5 of the Trustee Act 2000 is a fundamental component of modern trust investment law. It reflects Parliament’s recognition that investment decisions often require specialist expertise beyond the knowledge of many trustees. While trustees may dispense with advice where it is reasonably unnecessary or inappropriate, they must be able to justify that decision. Proper advice must come from a person reasonably believed to possess relevant expertise and practical experience, and trustees must continue to exercise independent judgment after receiving it. Together with the statutory duty of care and the standard investment criteria, the duty to take advice promotes prudent investment management and helps ensure that trust assets are administered in the best interests of beneficiaries.


References
Daniel v Tee [2016] EWHC 1538 (Ch).
Trustee Act 2000, ss 1, 4 and 5.
Financial Services and Markets Act 2000, s 19.
Law Commission, Trustee Powers and Duties (Law Com No 260, 1999).
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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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:

• Equitable compensation;
• Account of profits;
• Injunctions;
• Specific performance;
• Rescission;
• Declarations.

These remedies operate against identified individuals and are therefore described as remedies in personam.
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 distinction between personal and proprietary remedies is one of the most important features of modern trust law because proprietary remedies frequently provide stronger protection for beneficiaries.


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.

Tracing therefore acts as a bridge between the beneficiary’s equitable interest and the remedies ultimately awarded by the court.
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.

Broadly speaking, a breach may arise where a trustee:

1. Does something they ought not to do; or
2. Fails to do something they ought to do.

Examples include:

• 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.

Once a breach has been established, the court must consider a number of further questions.


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.

Finally, the court must determine the most appropriate remedy.


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.

Trust law also makes extensive use of proprietary remedies such as tracing, constructive trusts, equitable liens, and subrogation.
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;

may face both civil proceedings and criminal prosecution.
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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SQE – Equity and Trust – Exclusion from Liability Clauses
Introduction
A common feature of modern trust instruments is the inclusion of an exclusion from liability clause, sometimes referred to as an exemption clause. Such clauses are designed to protect trustees from personal liability arising from mistakes made during the administration of the trust. They are particularly significant because trustees frequently exercise wide discretionary powers and must make difficult judgments regarding investments, distributions, and trust management.
Exclusion clauses are especially important in the context of professional trustees, who often insist upon their inclusion before accepting appointment. Although these clauses may substantially reduce a trustee’s exposure to liability, they are not unlimited. Equity imposes important restrictions on the extent to which trustees can exempt themselves from responsibility.
The modern law concerning exclusion clauses is largely derived from the Court of Appeal’s decision in Armitage v Nurse, which remains the leading authority on the subject.


The Nature and Purpose of Exclusion Clauses
An exclusion clause is a provision contained within a trust instrument that seeks to excuse trustees from liability for certain breaches of trust.
The primary purpose of such clauses is to protect trustees from claims arising out of honest mistakes, errors of judgment, negligence, or failures in administration. Trust administration often involves complex decisions, particularly in relation to investments and asset management. Consequently, trustees may be reluctant to accept office unless afforded some protection from personal liability.
Professional trustees, such as solicitors, accountants, and trust corporations, frequently require exclusion clauses because of the increasing risk of litigation in modern trust administration.


Barnsley v Noble [2016] EWCA Civ 799
The existence and interpretation of exclusion clauses were considered by the Court of Appeal in Barnsley v Noble.
The case concerned a standard-form exemption clause contained within a will trust. The claimant argued that the clause should be interpreted narrowly and should not protect the trustees from liability.
The Court of Appeal rejected this argument and upheld the protection provided by the clause. The decision demonstrated the courts’ willingness to respect exclusion clauses where their wording is clear and where the trustees have acted honestly.
The case also illustrates the courts’ recognition that trustees, particularly non-professional trustees, should not automatically be exposed to personal liability for every mistake made during trust administration.


Armitage v Nurse [1998] Ch 241
The leading authority on trustee exclusion clauses is Armitage v Nurse.
In this case, the trust instrument contained a clause excluding liability for all breaches of trust except those involving actual fraud.
The claimant argued that such a broad clause was invalid because it undermined the fundamental obligations owed by trustees to beneficiaries.
The Court of Appeal rejected this argument.
Millett LJ held that trustees could validly exclude liability for negligence, gross negligence, carelessness, imprudence, and even deliberate breaches of trust, provided that the trustees acted honestly and in good faith.
The only liability that could not be excluded was liability arising from fraud.


The Fraud Exception
The most important limitation on exclusion clauses is that they cannot exclude liability for fraud or dishonesty.
A trustee who acts dishonestly cannot rely upon an exemption clause to escape liability.
Millett LJ explained that a trustee commits fraud when they deliberately act dishonestly or intentionally disregard the interests of beneficiaries for improper purposes.
Accordingly, exclusion clauses cannot protect trustees who knowingly misuse trust property, intentionally deceive beneficiaries, or act with fraudulent intent.
This principle preserves what the courts regard as the irreducible core of trustee obligations.


Honest but Deliberate Breaches
One of the most controversial aspects of Armitage v Nurse is its treatment of deliberate breaches of trust.
The Court of Appeal held that a trustee may still rely upon an exclusion clause even where the trustee intentionally commits a breach of trust, provided the trustee honestly believes that their actions are in the best interests of the beneficiaries.
Therefore, a deliberate breach is not necessarily fraudulent.
The distinction lies in the trustee’s state of mind. Honest mistakes, however serious, may be protected. Dishonest conduct may not.
This approach significantly broadens the protection available to trustees.


Example – Exclusion Clause Successfully Protects a Trustee
Suppose a trustee decides to retain a risky investment despite receiving advice suggesting that the investment should be sold.
The trustee genuinely believes that holding the investment will ultimately benefit the beneficiaries.
The investment later collapses, causing substantial losses.
If the trust instrument contains a suitably drafted exclusion clause, the trustee may avoid liability because the decision, although imprudent, was made honestly and in good faith.


Example – Exclusion Clause Does Not Apply
Suppose a trustee transfers trust funds into a personal bank account and conceals the transaction from the beneficiaries.
The trustee knows that the transfer is unauthorised and intends to benefit personally.
Even if the trust instrument contains a broad exclusion clause, the trustee will not be protected because the conduct amounts to fraud and dishonesty.
The beneficiaries may bring claims for equitable compensation, tracing, constructive trusts, and account of profits.


Interaction with the Trustee Act 2000
The Trustee Act 2000 introduced a statutory duty of care that applies to trustees when exercising various powers and functions.
Section 1 requires trustees to exercise such care and skill as is reasonable in the circumstances, taking account of any special knowledge or expertise possessed by the trustee.
However, the practical significance of this duty may be substantially reduced where a trust instrument contains an effective exclusion clause.
As a result, trustees may be exempt from liability for conduct that would otherwise constitute a breach of the statutory duty of care.
This has generated significant debate regarding the effectiveness of statutory protections for beneficiaries.


Academic Criticism
Exclusion clauses have attracted considerable criticism from academics and practitioners.
Critics argue that allowing trustees to exclude liability for negligence undermines beneficiary protection and weakens trustee accountability.
Some commentators contend that broad exemption clauses effectively permit trustees to escape responsibility for conduct that would ordinarily amount to serious breaches of trust.
Others argue that beneficiaries are often unaware of such clauses and therefore receive less protection than they might reasonably expect.
The criticism is particularly strong where professional trustees seek protection from liability despite charging fees for their services.


The Law Commission’s Position
The Law Commission has considered trustee exemption clauses on several occasions, both before and after the enactment of the Trustee Act 2000.
Despite recognising concerns regarding their use, the Law Commission ultimately declined to recommend legislative restrictions.
The Commission accepted that professional trustees may be unwilling to accept appointments if exposed to unlimited personal liability.
Instead, the Law Commission favoured greater transparency, recommending that settlors should be made fully aware of the implications of exemption clauses before creating trusts.
No statutory reforms were introduced, and the Trustee Act 2000 remains largely silent on the issue.


Professional Trustees and Modern Practice
In modern practice, exclusion clauses are extremely common.
Professional trustees generally regard them as essential risk-management tools.
The increasing complexity of trust administration, together with the growth of litigation against trustees, has encouraged professionals to insist upon contractual protection before accepting appointment.
This does not necessarily indicate an intention to act carelessly. Rather, professional trustees recognise that many decisions involve subjective judgments and that courts may later disagree with decisions that appeared reasonable at the time.
Exclusion clauses therefore provide a degree of certainty and protection against hindsight-based litigation.


Comprehensive Case Study
Facts
A solicitor-trustee administers a family trust containing £10 million in investments.
The trust deed contains a clause excluding liability for all breaches of trust except fraud.
The trustee decides to retain a large holding in a technology company despite warnings from financial advisers that the shares are highly volatile.
The trustee genuinely believes the investment will produce substantial long-term gains.
The company’s value subsequently collapses, causing losses of £4 million.
The beneficiaries bring proceedings alleging negligence and breach of trust.
Analysis
The trustee may have acted imprudently and may have failed to satisfy the statutory duty of care under section 1 of the Trustee Act 2000.
However, the exclusion clause expressly protects the trustee from liability for negligent breaches of trust.
There is no evidence that the trustee acted dishonestly or fraudulently.
The trustee genuinely believed that retaining the investment was in the beneficiaries’ interests.
Applying Armitage v Nurse, the exclusion clause is likely to protect the trustee from liability.
Outcome
The beneficiaries are unlikely to recover compensation because the exclusion clause effectively excludes liability for negligence and poor judgment, provided that the trustee acted honestly and in good faith.


Conclusion
Exclusion clauses represent one of the most significant protections available to trustees. Modern trust law permits trustees to exclude liability for negligence, carelessness, imprudence, and even deliberate breaches of trust committed honestly and in good faith. The leading authority of Armitage v Nurse confirms that the only absolute limitation is fraud or dishonesty. While these clauses remain controversial because they reduce beneficiary protection, they continue to play a central role in trust administration, particularly in the context of professional trustees. Despite academic criticism and Law Commission scrutiny, English law continues to uphold broad exclusion clauses, reflecting a balance between trustee accountability and the practical realities of modern trust management.


References
Armitage v Nurse [1998] Ch 241.
Barnsley v Noble [2016] EWCA Civ 799.
Trustee Act 2000, s 1.
Law Commission, Trustee Exemption Clauses (Law Com No 301, 2006).
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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SQE – Equity and Trust – Identifying a Breach of Trust
Introduction
Before a trustee can be held liable and before any remedy can be awarded, the court must first identify whether a breach of trust has occurred. The existence of a breach is the foundation of any claim against a trustee. Without a breach, there can be no liability and therefore no need to consider issues such as causation, remoteness, equitable compensation, tracing, or proprietary remedies.
A breach of trust occurs whenever a trustee fails to comply with the obligations imposed by the trust instrument, statute, or general principles of equity. Broadly speaking, breaches of trust fall into two categories. First, a trustee may do something that they are not authorised to do. Secondly, a trustee may fail to do something that they are under a duty to perform.


Acts That a Trustee Ought Not to Do
The first category of breach occurs where a trustee performs an act that exceeds their authority. Trustees derive their powers from the trust instrument and from legislation. If they act outside those powers, they commit a breach of trust.
This type of breach is often described as an ultra vires act because it falls outside the trustee’s lawful authority.
A trustee may exceed their powers by making unauthorised investments, disposing of trust property improperly, exercising powers for improper purposes, or entering into transactions prohibited by the trust deed.


Breach of Statutory Powers
Trustees are frequently granted powers by statute. If they exercise those powers beyond the limits established by legislation, they may become personally liable.
For example, section 8 of the Trustee Act 2000 gives trustees a broad power to acquire freehold or leasehold land. However, if trustees use trust money to purchase property in circumstances not authorised by statute or contrary to the trust’s purposes, they may commit a breach of trust.
The fact that trustees believed they were acting in the trust’s best interests will not necessarily excuse the breach.


Example – Acting Beyond Statutory Powers
Suppose a trust was established to provide income for a beneficiary through conservative investments.
The trustees decide to use the trust fund to purchase speculative overseas real estate that falls outside the powers granted by the trust instrument and is inconsistent with the trust’s investment objectives.
Even if the trustees genuinely believe that the investment will generate substantial profits, they may be liable because they have acted beyond their authorised powers.


Breach of the Trust Instrument
Trustees must also comply with the specific provisions contained in the trust deed.
Many trust instruments impose restrictions on how trust property may be managed. These restrictions are legally binding and must be followed.
A trustee who ignores those restrictions commits a breach of trust regardless of whether the transaction ultimately benefits the trust.


Example – Acting Contrary to the Trust Deed
Assume a trust deed expressly prohibits investment in oil and gas companies for ethical reasons.
The trustees nevertheless invest £1 million of trust funds in a multinational oil corporation because they believe the shares will increase in value.
Even if the investment proves profitable, the trustees have acted outside the powers granted by the trust deed and have therefore committed a breach of trust.


Innocent Breaches of Trust
Not all breaches involve dishonesty or bad faith. A trustee may commit a breach entirely innocently while genuinely attempting to administer the trust correctly.
Equity distinguishes between the existence of a breach and the trustee’s state of mind. Liability may arise even where the trustee acted honestly and reasonably.


Re Diplock [1941] Ch 253
An important example is Re Diplock.
The executors of a deceased person’s estate distributed approximately £250,000 among numerous charitable institutions. They believed that the relevant clause in the will was valid and authorised the distribution.
However, the clause directed the executors to distribute the residue of the estate among “charitable or benevolent objects.” Because the purposes were not exclusively charitable, the gift was void.
As a result, the executors had distributed property to the wrong recipients and committed a breach of trust despite acting honestly and in good faith.
The decision was subsequently affirmed by the House of Lords in Chichester Diocesan Fund and Board of Finance (Incorporated) v Simpson [1944] AC 341.


Failures to Perform Trustee Duties
The second major category of breach occurs where trustees fail to do something that they are legally required to do.
Trustees owe numerous duties arising under the trust instrument, statute, and equitable principles. Failure to perform those duties may result in liability.
Unlike the first category, these breaches involve omissions rather than positive acts.


Failure to Distribute Trust Property
One common example is a failure to distribute trust property when distribution is required.
If trustees unreasonably delay the distribution of trust assets after a beneficiary becomes entitled to them, they may be liable for breach of trust.
The beneficiaries may seek equitable compensation for losses resulting from the delay.


Failure to Manage Investments Properly
Trustees also owe duties concerning investment management.
They must exercise reasonable care, diversify investments where appropriate, and periodically review the trust portfolio.
A failure to maintain a balanced and suitable portfolio may constitute a breach of trust, particularly where losses result from excessive concentration of investments or a failure to review changing market conditions.


Example – Failure to Review Investments
Suppose trustees invest the entire trust fund in a single company and then fail to review the investment for ten years.
During that period, the company experiences financial difficulties and eventually collapses.
The trustees may be liable for breach of trust because they failed to exercise the degree of care and supervision required of prudent trustees.


Consent and Condonation by Beneficiaries
A trustee will not always be liable for conduct that would otherwise constitute a breach of trust.
Beneficiaries who possess full legal capacity may consent to, authorise, or subsequently approve a breach of trust.
Where valid consent is given, the trustee will generally be protected from liability because the beneficiaries have agreed to the conduct in question.
This principle recognises that beneficiaries are entitled to determine how their interests should be managed.


Requirements for Valid Consent
For consent to be effective, several conditions must be satisfied.
The beneficiaries must have full legal capacity, meaning they must be adults and possess the necessary mental capacity.
The beneficiaries must also act freely and voluntarily.
Furthermore, they must possess full knowledge of all material facts surrounding the proposed transaction.
If any of these requirements are absent, the consent may be ineffective.


Circumstances Where Consent Will Not Protect the Trustee
Consent will not excuse a breach where it has been obtained through inequitable conduct.
Examples include:

• fraud;
• misrepresentation;
• undue influence;
• concealment of material facts;
• abuse of a fiduciary position.

In such circumstances, equity will disregard the purported consent and the trustee may remain liable for breach of trust.


Example – Valid Consent
Suppose all adult beneficiaries of a trust agree that trustees may retain a high-risk investment that would otherwise be inconsistent with the trust’s investment strategy.
The trustees fully explain the risks and provide complete information.
If the investment subsequently performs poorly, the beneficiaries may be unable to sue because they knowingly consented to the transaction.


Example – Invalid Consent
Suppose trustees persuade beneficiaries to approve a speculative investment by falsely stating that independent financial advisers have guaranteed success.
The beneficiaries rely on that representation and consent to the investment.
Because the consent was obtained through misrepresentation, it will not protect the trustees from liability if losses occur.


Relationship with Trustee Liability
Identifying a breach is only the first stage in establishing trustee liability.
Once a breach has been identified, the court must then consider:

1. Whether the breach caused loss to the trust;
2. Whether the trustee obtained an unauthorised profit;
3. Whether any defences apply;
4. The appropriate remedy.

Consequently, identifying the breach serves as the foundation for the wider analysis of trustee liability and equitable remedies.


Comprehensive Case Study
Facts
A trust deed prohibits investments in fossil fuel companies and requires trustees to maintain a diversified investment portfolio.
The trustees invest 80% of the trust fund in a single oil company because they believe oil prices will rise significantly.
The beneficiaries are not informed.
Two years later, the company’s share price collapses and the trust loses £3 million.
Analysis
The trustees have committed two separate breaches of trust.
First, they acted outside the powers granted by the trust deed by investing in a prohibited industry.
Secondly, they failed to maintain a diversified investment portfolio and therefore breached their investment duties.
The beneficiaries did not consent to the transaction and therefore cannot be said to have authorised the conduct.
Outcome
The trustees are likely to be liable for breach of trust and may be required to pay equitable compensation to restore the trust fund.


Conclusion
Identifying a breach of trust is the essential first step in any claim against a trustee. A breach may arise either because a trustee performs an unauthorised act or because the trustee fails to perform a required duty. Cases such as Re Diplock demonstrate that liability may arise even where trustees act honestly and in good faith. However, beneficiaries who possess full capacity may authorise or condone conduct that would otherwise constitute a breach, provided that their consent is fully informed and free from improper influence. Once a breach has been established, the court may then proceed to consider causation, loss, available defences, and the appropriate equitable remedies.


References
Re Diplock [1941] Ch 253.
Chichester Diocesan Fund and Board of Finance (Incorporated) v Simpson [1944] AC 341.
Trustee Act 2000, ss 1–8.
Boardman v Phipps [1967] 2 AC 46.
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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SQE – Equity and Trust – Causation in Breach of Trust Claims
Introduction
Once a breach of trust has been established, the court must determine whether that breach actually caused a loss to the trust fund or enabled the trustee to obtain an unauthorised profit. This requirement is known as causation. A trustee will not automatically be liable simply because a breach of trust has occurred. There must be a sufficient causal connection between the breach and the loss suffered by the beneficiaries. Without such a connection, liability will generally not arise.
The law of trusts therefore requires beneficiaries to demonstrate not only that a trustee acted improperly, but also that the breach caused the loss complained of. This principle ensures that trustees are held responsible only for the consequences of their own wrongdoing and not for losses that would have occurred regardless of the breach.


The “But For” Test
The principal test used to establish causation in breach of trust claims is the “but for” test.
The court asks the following question:
Would the loss have occurred but for the trustee’s breach of trust?
If the answer is no, the trustee’s breach caused the loss and liability will generally follow.
If the answer is yes, the loss would have occurred even if the trustee had performed their duties properly, and therefore the trustee will not be liable for that loss.
This approach is familiar from other areas of private law, particularly tort law, but it has been firmly incorporated into equitable compensation claims involving breaches of trust.


Target Holdings Ltd v Redferns [1996] AC 421
The leading authority on causation in breach of trust cases is Target Holdings Ltd v Redferns.
The claimant company agreed to lend approximately £1.5 million to finance the purchase of two properties. The properties were represented as having a value of approximately £2 million. In reality, however, they were worth only around £775,000, meaning that the lender’s security was substantially inadequate.
The defendants were solicitors who acted for both the lender and the purchasers. The lender transferred the mortgage funds to the solicitors before completion of the transaction. Under the terms of the arrangement, the money was not to be released until completion occurred.
The solicitors nevertheless released the money prematurely, thereby committing a breach of trust.
The property transaction later completed as planned. Subsequently, the purchasers defaulted on the mortgage repayments. When the lender enforced its security and sold the properties, it discovered the true value of the properties and suffered a substantial shortfall.
The lender therefore sued the solicitors for breach of trust and sought compensation equal to the loss suffered.


Decision in Target Holdings
The House of Lords accepted that the solicitors had committed a breach of trust by releasing the funds prematurely. However, the court held that the solicitors were not liable for the lender’s loss.
The crucial issue was causation.
The evidence demonstrated that even if the solicitors had complied with their instructions and released the funds only upon completion, the transaction would still have proceeded exactly as it did. The lender would still have received inadequate security and would still have suffered the same loss when the borrowers defaulted.
Consequently, the breach of trust did not cause the loss.
Applying the “but for” test, the court concluded that the loss would have occurred regardless of the breach. Therefore, although a breach had occurred, there was no causal connection between the breach and the claimant’s loss.


Significance of Target Holdings
Target Holdings established that equitable compensation is not automatically available whenever a trustee commits a breach of trust.
Instead, beneficiaries must demonstrate that the breach actually caused the loss suffered by the trust.
The case rejected the notion that trustees should be liable for every loss associated with trust property simply because a breach occurred at some stage during the transaction.
Rather, equitable compensation should restore losses that flow from the breach itself and not losses that would have arisen in any event.
This approach aligns equitable compensation with principles of causation while preserving the distinctive objectives of trust law.


Example Applying the “But For” Test
Suppose a trustee is instructed not to release £500,000 from a trust account until certain legal documents have been signed.
The trustee ignores the instructions and releases the money immediately. The recipient absconds with the funds and disappears.
Had the trustee waited until the documents were signed, the money would have remained protected and the loss would not have occurred.
Applying the “but for” test, the trustee’s breach clearly caused the loss. The beneficiaries would therefore be entitled to equitable compensation.


Example Where Causation Is Absent
Suppose a trustee releases funds one day earlier than authorised, thereby committing a technical breach of trust.
The transaction subsequently completes successfully exactly as intended. Several years later, an economic downturn causes the investment to fail.
The beneficiaries argue that the trustee should compensate them because a breach of trust occurred.
Although the trustee acted improperly, the loss was caused by market conditions rather than the premature release of funds. The same loss would have occurred even if the trustee had complied fully with their obligations.
Applying the “but for” test, causation is not established and compensation would not be awarded.


AIB Group (UK) Plc v Mark Redler & Co Solicitors [2015] AC 1503
The Supreme Court reaffirmed the principles established in Target Holdings in AIB Group (UK) Plc v Mark Redler & Co Solicitors.
The case involved solicitors acting as trustees who improperly distributed mortgage funds during a refinancing transaction. The claimant argued that the solicitors should be responsible for all losses associated with the transaction.
The Supreme Court rejected this argument and confirmed that equitable compensation must be linked to losses actually caused by the breach.
Lord Toulson stated that, absent fraud, it would be wrong to impose liability for losses that would have been suffered even if the trustee had performed their duties correctly.
He emphasised that it would be a backward step to depart from Lord Browne-Wilkinson’s analysis in Target Holdings.
The decision therefore confirmed that the “but for” test remains the governing principle in modern breach of trust claims.


The Position in Cases Involving Fraud
The courts have indicated that different considerations may arise where fraud is involved.
Fraudulent trustees are treated particularly harshly by equity because of the fundamental fiduciary obligations owed to beneficiaries.
However, even in cases involving dishonesty, the courts still require a connection between the wrongful conduct and the loss claimed. The primary difference is that equitable remedies are often interpreted more strictly against fraudulent trustees.


Relationship with Equitable Compensation
Causation is central to the assessment of equitable compensation.
The purpose of equitable compensation is to restore the trust fund to the position it would have occupied had the breach not occurred.
The court therefore compares:

1. The actual position of the trust after the breach; and
2. The position the trust would have occupied if the trustee had acted properly.

Only losses attributable to the breach are recoverable.
Accordingly, even where a trustee has clearly acted improperly, compensation will not be awarded if the claimant cannot demonstrate that the breach caused the loss.


Comprehensive Case Study
Facts
Daniel acts as trustee of a family trust.
The trust deed requires him to hold £1 million until all conditions of a property transaction have been satisfied. Instead, Daniel releases the funds one week early.
The transaction later completes exactly as anticipated. Two years afterwards, the property market collapses and the investment loses £600,000.
The beneficiaries bring proceedings against Daniel for breach of trust.
Analysis
Daniel clearly committed a breach of trust by releasing the money prematurely.
However, the court must determine whether the breach caused the £600,000 loss.
The evidence shows that the transaction would have completed regardless of the timing of the payment and that the subsequent loss resulted from a downturn in the property market.
Applying the “but for” test established in Target Holdings and reaffirmed in AIB Group, the beneficiaries cannot show that the loss would have been avoided had Daniel complied with his duties.
Outcome
Although Daniel committed a breach of trust, he will not be liable for the £600,000 loss because the breach did not cause the loss suffered by the trust.


Conclusion
Causation is an essential element of trustee liability. Beneficiaries must establish not only that a breach of trust occurred but also that the breach caused the loss for which compensation is sought. The leading decisions in Target Holdings Ltd v Redferns and AIB Group (UK) Plc v Mark Redler & Co Solicitors confirm that the appropriate approach is the “but for” test. A trustee will generally be liable only where the loss would not have occurred but for the breach. Consequently, equitable compensation seeks to restore losses actually caused by the trustee’s misconduct rather than providing recovery for losses that would have arisen regardless of the breach.


References
Target Holdings Ltd v Redferns [1996] AC 421.
AIB Group (UK) Plc v Mark Redler & Co Solicitors [2015] AC 1503.
Nestle v National Westminster Bank Plc [1993] 1 WLR 1260.
Bartlett v Barclays Bank Trust Co Ltd (No 2) [1980] Ch 515.
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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