- Published on
Islamic Law of Transaction: The Second Confirmation Request in Preemption (Shufʿah)
Introduction
In Islamic law, a person who wishes to exercise a preemption right (shufʿah) cannot simply make one request and immediately acquire the property. The jurists developed a multi-stage process to ensure that the preemptor is genuinely serious and financially capable of exercising the right.
After making the first immediate request upon learning about the sale, the preemptor must normally make a second confirmation request.
This second request serves several important purposes:
The jurists viewed this second request as an important procedural safeguard that balances the rights of the preemptor and the buyer.
⸻
Case Scenario
Ahmad and Bilal jointly own a warehouse.
Bilal sells his share to Khalid.
As soon as Ahmad learns of the sale, he immediately says:
“I claim my right of preemption.”
This is his first request.
However, a few days later Ahmad realizes:
The jurists therefore asked:
Should one spontaneous statement be enough to transfer ownership?
Their answer was generally:
No. A second confirmation request is needed.
⸻
Why Is a Second Confirmation Request Required?
The jurists explained that the first request is often made suddenly.
A person may react immediately upon hearing of the sale.
At that moment he may not have fully considered:
The second request allows him time to reflect.
⸻
Practical Example
Ahmad hears:
“Bilal sold his share.”
Immediately he says:
“I want the property through preemption.”
Later he discovers:
The second request allows him to reconsider before the process proceeds further.
⸻
Purpose of the Second Request
The jurists identified several objectives.
⸻
1. Confirming Seriousness
The second request shows that the preemptor remains committed after careful consideration.
⸻
2. Preventing Hasty Decisions
People often react emotionally when learning that property has been sold.
The second request reduces impulsive claims.
⸻
3. Protecting the Buyer
The buyer gains greater certainty that the preemptor genuinely intends to proceed.
⸻
4. Creating Evidence
The second request is usually witnessed.
This helps resolve future disputes.
⸻
Timing of the Second Request
The second request should be made shortly after the first request.
The preemptor is not expected to wait for long periods.
⸻
How Much Time Is Allowed?
The jurists stated that only the amount of time reasonably needed to gather witnesses should be allowed.
This means:
⸻
Practical Example
Ahmad makes the first request today.
He needs two days to gather witnesses.
This short delay is acceptable.
However, waiting several months without reason would not be acceptable.
⸻
Witnesses Required for the Second Request
The jurists generally required the presence of witnesses.
The standard requirement is:
⸻
Why Are Witnesses Needed?
The witnesses serve as proof that the request was actually made.
Their role is not to create the right.
Rather, they document it.
⸻
Practical Example
Years later Khalid claims:
“Ahmad never made a confirmation request.”
The witnesses may testify:
“Yes, we personally heard Ahmad make the request.”
This protects the preemptor from false denials.
⸻
To Whom May the Request Be Directed?
The jurists allowed several possibilities.
The request may be directed toward:
The Seller
If the seller still possesses the property.
The Buyer
Even if the buyer has not yet taken possession.
The Property Itself
The request may symbolically be made regarding the property.
⸻
Why So Much Flexibility?
The purpose is to preserve the right.
The jurists did not want procedural difficulties to destroy legitimate claims.
⸻
Example of a Confirmation Request
The preemptor may say:
“So-and-so has purchased this house. I possess a preemption right. I previously made my first request, and I now formally confirm my intention to exercise preemption. Be my witnesses.”
This statement clearly demonstrates:
⸻
Is Witnessing a Condition for Validity?
An important distinction must be understood.
The jurists stated:
Witnesses are not a condition for the validity of the request itself.
Rather:
⸻
Why?
A request remains valid even if witnesses are absent.
However, without witnesses:
⸻
Practical Example
Ahmad makes the confirmation request privately.
The request may still be valid.
However, if Khalid later denies it:
⸻
Requests Made From a Distance
The jurists recognized that travel is not always possible.
A preemptor living far away may:
Appoint an Agent
The agent may make the request on his behalf.
Send a Letter
The letter serves as evidence of the request.
⸻
Practical Example
Ahmad is in another city when he learns of the sale.
Instead of travelling immediately:
This preserves his right.
⸻
When Is a Second Request Not Necessary?
The jurists recognized some situations where the second request becomes unnecessary.
⸻
The Exception
If the first request was already made:
then a second request is not required.
⸻
Why?
The purpose of the second request has already been achieved.
The preemptor has already demonstrated:
⸻
Practical Example
Immediately after learning of the sale, Ahmad says before several witnesses:
“I exercise my right of preemption over this property.”
Because witnesses are already present:
⸻
Legal Effect of the Confirmation Request
The jurists differed regarding what happens after the second request has been made.
⸻
Abu Hanifah and Abu Yusuf’s View
According to Abu Hanifah and one narration from Abu Yusuf:
Once the confirmation request is made:
⸻
Consequence
Mere passage of time does not destroy the right.
⸻
Reasoning
Once a legal right has been properly established:
⸻
Practical Example
Ahmad makes a valid confirmation request.
Several years pass.
According to this opinion:
⸻
Majority Hanafi View
Most Hanafi jurists preferred this position.
They believed that a legally established right should not vanish simply because time has passed.
⸻
Muhammad’s View
Muhammad ibn al-Hasan disagreed.
⸻
His Ruling
If the preemptor delays for one additional month after making the confirmation request:
⸻
Why?
Muhammad focused on protecting the buyer.
The buyer should not remain indefinitely uncertain.
⸻
Practical Example
Ahmad makes the confirmation request.
Then he does nothing for another month.
No excuse exists.
According to Muhammad:
⸻
Why Did Some Hanafis Prefer Muhammad’s Opinion?
Later Hanafi jurists believed people sometimes abused legal rights.
A person might:
To prevent such abuse, they preferred Muhammad’s view.
⸻
Adoption in Al-Majallah
The famous Ottoman legal code Al-Majallah adopted Muhammad’s opinion.
Al-Majallah
Under this rule:
⸻
Hanbali View
The Hanbalis adopted a much more protective approach toward the preemptor.
⸻
Their Ruling
Once the confirmation request is properly witnessed:
Even if many years pass.
⸻
Practical Example
Ahmad makes a witnessed confirmation request.
Ten years later he appears and demands the property.
According to the Hanbalis:
⸻
Why Did the Hanbalis Adopt This View?
They believed:
⸻
Maliki View
The Malikis adopted a middle position.
⸻
Grace Period
The preemptor is given:
One Full Year
to proceed with exercising the right.
⸻
If He Remains Silent for One Year
Without a valid excuse:
⸻
Additional Maliki Principle
The Malikis paid special attention to construction and demolition.
Suppose the buyer:
while the preemptor watches silently.
⸻
Practical Example
Ahmad knows that Khalid is constructing a new building.
He says nothing for a year.
According to the Malikis:
⸻
Case Scenario Revisited with Solutions
Original Situation
Bilal sells his share to Khalid.
Ahmad immediately makes the first request.
⸻
Hanafi View (Abu Hanifah and Abu Yusuf)
After the confirmation request:
⸻
Muhammad’s Hanafi View
After the confirmation request:
⸻
Hanbali View
After a witnessed confirmation request:
⸻
Maliki View
After the confirmation request:
⸻
Critical Analysis
Why Did Jurists Require a Second Request?
The second request balances two competing interests:
Protection of the Preemptor
It preserves his right.
Protection of the Buyer
It ensures that the claim is genuine and serious.
⸻
Why Did Jurists Disagree About Delay?
The disagreement reflects two priorities.
Priority One: Stability of Rights
Abu Hanifah and the Hanbalis emphasized preserving legal rights.
Priority Two: Stability of Transactions
Muhammad and the Malikis emphasized protecting buyers from uncertainty.
⸻
Which View Appears Most Practical?
Many later jurists preferred Muhammad’s opinion because:
This explains why Al-Majallah adopted it.
⸻
Main Principles Derived from the Discussion
1. The First Request Alone Is Usually Not Enough
A second confirmation request is generally required.
⸻
2. The Second Request Demonstrates Seriousness
It confirms that the preemptor genuinely intends to exercise the right.
⸻
3. Witnesses Serve Mainly as Evidence
They document the request rather than create the right.
⸻
4. Jurists Differ About the Effect of Time
Some schools preserve the right indefinitely, while others impose deadlines.
⸻
5. Islamic Law Balances Competing Interests
The law seeks to protect both:
⸻
Conclusion
The second confirmation request is a crucial stage in the law of preemption. It confirms the seriousness of the preemptor, creates evidence through witnesses, and protects against impulsive or fraudulent claims. While the jurists agreed on the importance of the request, they differed regarding how long the right remains valid afterward. Abu Hanifah, Abu Yusuf, and the Hanbalis favored stronger protection of the established right, whereas Muhammad ibn al-Hasan and many later jurists emphasized protecting the buyer from prolonged uncertainty. The Malikis adopted a middle position by granting a one-year grace period. Together, these rulings demonstrate the Islamic legal system’s effort to balance fairness, certainty, and protection of property rights.
Answers to Short Answer Questions (SAQ)
1. Why is a second confirmation request required?
To confirm that the preemptor remains serious after making the first request.
2. Why might the first request alone be insufficient?
Because it may be made hastily before the preemptor evaluates his financial ability and circumstances.
3. How soon should the second request be made?
Shortly after the first request, allowing only enough time to gather witnesses.
4. Who may witness the second request?
Two men, or one man and two women.
5. Is witnessing a condition for the validity of the request?
No. It is mainly required for documentation and proof.
6. Can a distant preemptor make the request through an agent or letter?
Yes.
7. When is a second request unnecessary?
When the first request was already made in a way that clearly demonstrated seriousness, such as before witnesses.
8. What was Abu Hanifah’s view regarding the legal effect of the confirmation request?
Once made, the right becomes firmly established and is not lost merely through passage of time.
9. What was Muhammad ibn al-Hasan’s view?
One month of unjustified delay after the confirmation request causes the right to lapse.
10. What was the Maliki view regarding delay after the confirmation request?
The preemptor generally has up to one year, after which silence without excuse causes the right to be lost.
Introduction
In Islamic law, a person who wishes to exercise a preemption right (shufʿah) cannot simply make one request and immediately acquire the property. The jurists developed a multi-stage process to ensure that the preemptor is genuinely serious and financially capable of exercising the right.
After making the first immediate request upon learning about the sale, the preemptor must normally make a second confirmation request.
This second request serves several important purposes:
- It confirms that the preemptor still wishes to exercise the right.
- It prevents impulsive or emotional claims.
- It provides evidence in case disputes arise later.
- It protects the buyer from uncertainty and false allegations.
The jurists viewed this second request as an important procedural safeguard that balances the rights of the preemptor and the buyer.
⸻
Case Scenario
Ahmad and Bilal jointly own a warehouse.
Bilal sells his share to Khalid.
As soon as Ahmad learns of the sale, he immediately says:
“I claim my right of preemption.”
This is his first request.
However, a few days later Ahmad realizes:
- The property is expensive.
- He may need financing.
- He is unsure whether he can afford it.
The jurists therefore asked:
Should one spontaneous statement be enough to transfer ownership?
Their answer was generally:
No. A second confirmation request is needed.
⸻
Why Is a Second Confirmation Request Required?
The jurists explained that the first request is often made suddenly.
A person may react immediately upon hearing of the sale.
At that moment he may not have fully considered:
- The purchase price.
- His financial situation.
- The benefits of the property.
- The obligations he will assume.
The second request allows him time to reflect.
⸻
Practical Example
Ahmad hears:
“Bilal sold his share.”
Immediately he says:
“I want the property through preemption.”
Later he discovers:
- The price is RM500,000.
- He only has RM100,000 available.
The second request allows him to reconsider before the process proceeds further.
⸻
Purpose of the Second Request
The jurists identified several objectives.
⸻
1. Confirming Seriousness
The second request shows that the preemptor remains committed after careful consideration.
⸻
2. Preventing Hasty Decisions
People often react emotionally when learning that property has been sold.
The second request reduces impulsive claims.
⸻
3. Protecting the Buyer
The buyer gains greater certainty that the preemptor genuinely intends to proceed.
⸻
4. Creating Evidence
The second request is usually witnessed.
This helps resolve future disputes.
⸻
Timing of the Second Request
The second request should be made shortly after the first request.
The preemptor is not expected to wait for long periods.
⸻
How Much Time Is Allowed?
The jurists stated that only the amount of time reasonably needed to gather witnesses should be allowed.
This means:
- No unnecessary delay.
- No deliberate postponement.
- Only enough time to arrange proper documentation.
⸻
Practical Example
Ahmad makes the first request today.
He needs two days to gather witnesses.
This short delay is acceptable.
However, waiting several months without reason would not be acceptable.
⸻
Witnesses Required for the Second Request
The jurists generally required the presence of witnesses.
The standard requirement is:
- Two male witnesses, or
- One male witness and two female witnesses.
⸻
Why Are Witnesses Needed?
The witnesses serve as proof that the request was actually made.
Their role is not to create the right.
Rather, they document it.
⸻
Practical Example
Years later Khalid claims:
“Ahmad never made a confirmation request.”
The witnesses may testify:
“Yes, we personally heard Ahmad make the request.”
This protects the preemptor from false denials.
⸻
To Whom May the Request Be Directed?
The jurists allowed several possibilities.
The request may be directed toward:
The Seller
If the seller still possesses the property.
The Buyer
Even if the buyer has not yet taken possession.
The Property Itself
The request may symbolically be made regarding the property.
⸻
Why So Much Flexibility?
The purpose is to preserve the right.
The jurists did not want procedural difficulties to destroy legitimate claims.
⸻
Example of a Confirmation Request
The preemptor may say:
“So-and-so has purchased this house. I possess a preemption right. I previously made my first request, and I now formally confirm my intention to exercise preemption. Be my witnesses.”
This statement clearly demonstrates:
- Knowledge of the sale.
- Prior exercise of the first request.
- Continued intention to proceed.
⸻
Is Witnessing a Condition for Validity?
An important distinction must be understood.
The jurists stated:
Witnesses are not a condition for the validity of the request itself.
Rather:
- Witnesses are required for documentation.
⸻
Why?
A request remains valid even if witnesses are absent.
However, without witnesses:
- The preemptor may later struggle to prove that the request occurred.
⸻
Practical Example
Ahmad makes the confirmation request privately.
The request may still be valid.
However, if Khalid later denies it:
- Ahmad may have difficulty proving his claim.
⸻
Requests Made From a Distance
The jurists recognized that travel is not always possible.
A preemptor living far away may:
Appoint an Agent
The agent may make the request on his behalf.
Send a Letter
The letter serves as evidence of the request.
⸻
Practical Example
Ahmad is in another city when he learns of the sale.
Instead of travelling immediately:
- He sends a written confirmation request.
This preserves his right.
⸻
When Is a Second Request Not Necessary?
The jurists recognized some situations where the second request becomes unnecessary.
⸻
The Exception
If the first request was already made:
- Before witnesses,
- Before the seller,
- Before the buyer,
- Or in a manner clearly proving seriousness,
then a second request is not required.
⸻
Why?
The purpose of the second request has already been achieved.
The preemptor has already demonstrated:
- Seriousness,
- Determination,
- Commitment.
⸻
Practical Example
Immediately after learning of the sale, Ahmad says before several witnesses:
“I exercise my right of preemption over this property.”
Because witnesses are already present:
- No second request is necessary.
⸻
Legal Effect of the Confirmation Request
The jurists differed regarding what happens after the second request has been made.
⸻
Abu Hanifah and Abu Yusuf’s View
According to Abu Hanifah and one narration from Abu Yusuf:
Once the confirmation request is made:
- The preemption right becomes firmly established.
⸻
Consequence
Mere passage of time does not destroy the right.
⸻
Reasoning
Once a legal right has been properly established:
- It should not disappear automatically.
- Only the owner of the right can abandon it.
⸻
Practical Example
Ahmad makes a valid confirmation request.
Several years pass.
According to this opinion:
- The right still exists unless Ahmad voluntarily abandons it.
⸻
Majority Hanafi View
Most Hanafi jurists preferred this position.
They believed that a legally established right should not vanish simply because time has passed.
⸻
Muhammad’s View
Muhammad ibn al-Hasan disagreed.
⸻
His Ruling
If the preemptor delays for one additional month after making the confirmation request:
- Without a valid excuse,
- The preemption right is lost.
⸻
Why?
Muhammad focused on protecting the buyer.
The buyer should not remain indefinitely uncertain.
⸻
Practical Example
Ahmad makes the confirmation request.
Then he does nothing for another month.
No excuse exists.
According to Muhammad:
- The right lapses.
⸻
Why Did Some Hanafis Prefer Muhammad’s Opinion?
Later Hanafi jurists believed people sometimes abused legal rights.
A person might:
- Delay intentionally,
- Create uncertainty,
- Pressure the buyer.
To prevent such abuse, they preferred Muhammad’s view.
⸻
Adoption in Al-Majallah
The famous Ottoman legal code Al-Majallah adopted Muhammad’s opinion.
Al-Majallah
Under this rule:
- One month of unjustified delay causes the right to lapse.
⸻
Hanbali View
The Hanbalis adopted a much more protective approach toward the preemptor.
⸻
Their Ruling
Once the confirmation request is properly witnessed:
- The right remains valid.
Even if many years pass.
⸻
Practical Example
Ahmad makes a witnessed confirmation request.
Ten years later he appears and demands the property.
According to the Hanbalis:
- The right may still be enforceable.
⸻
Why Did the Hanbalis Adopt This View?
They believed:
- A properly established legal right should remain intact.
- Time alone should not destroy ownership claims.
⸻
Maliki View
The Malikis adopted a middle position.
⸻
Grace Period
The preemptor is given:
One Full Year
to proceed with exercising the right.
⸻
If He Remains Silent for One Year
Without a valid excuse:
- The right is lost.
⸻
Additional Maliki Principle
The Malikis paid special attention to construction and demolition.
Suppose the buyer:
- Builds new structures,
- Demolishes existing structures,
while the preemptor watches silently.
⸻
Practical Example
Ahmad knows that Khalid is constructing a new building.
He says nothing for a year.
According to the Malikis:
- His silence suggests acceptance of Khalid’s ownership.
- The preemption right is lost.
⸻
Case Scenario Revisited with Solutions
Original Situation
Bilal sells his share to Khalid.
Ahmad immediately makes the first request.
⸻
Hanafi View (Abu Hanifah and Abu Yusuf)
After the confirmation request:
- The right remains established.
- Time alone does not destroy it.
⸻
Muhammad’s Hanafi View
After the confirmation request:
- One month of unjustified delay destroys the right.
⸻
Hanbali View
After a witnessed confirmation request:
- The right remains valid even after many years.
⸻
Maliki View
After the confirmation request:
- The right remains valid for up to one year.
- Silence beyond that period causes the right to lapse.
⸻
Critical Analysis
Why Did Jurists Require a Second Request?
The second request balances two competing interests:
Protection of the Preemptor
It preserves his right.
Protection of the Buyer
It ensures that the claim is genuine and serious.
⸻
Why Did Jurists Disagree About Delay?
The disagreement reflects two priorities.
Priority One: Stability of Rights
Abu Hanifah and the Hanbalis emphasized preserving legal rights.
Priority Two: Stability of Transactions
Muhammad and the Malikis emphasized protecting buyers from uncertainty.
⸻
Which View Appears Most Practical?
Many later jurists preferred Muhammad’s opinion because:
- It prevents abuse.
- It promotes certainty.
- It protects commercial stability.
This explains why Al-Majallah adopted it.
⸻
Main Principles Derived from the Discussion
1. The First Request Alone Is Usually Not Enough
A second confirmation request is generally required.
⸻
2. The Second Request Demonstrates Seriousness
It confirms that the preemptor genuinely intends to exercise the right.
⸻
3. Witnesses Serve Mainly as Evidence
They document the request rather than create the right.
⸻
4. Jurists Differ About the Effect of Time
Some schools preserve the right indefinitely, while others impose deadlines.
⸻
5. Islamic Law Balances Competing Interests
The law seeks to protect both:
- The preemptor’s legal entitlement.
- The buyer’s need for certainty.
⸻
Conclusion
The second confirmation request is a crucial stage in the law of preemption. It confirms the seriousness of the preemptor, creates evidence through witnesses, and protects against impulsive or fraudulent claims. While the jurists agreed on the importance of the request, they differed regarding how long the right remains valid afterward. Abu Hanifah, Abu Yusuf, and the Hanbalis favored stronger protection of the established right, whereas Muhammad ibn al-Hasan and many later jurists emphasized protecting the buyer from prolonged uncertainty. The Malikis adopted a middle position by granting a one-year grace period. Together, these rulings demonstrate the Islamic legal system’s effort to balance fairness, certainty, and protection of property rights.
Answers to Short Answer Questions (SAQ)
1. Why is a second confirmation request required?
To confirm that the preemptor remains serious after making the first request.
2. Why might the first request alone be insufficient?
Because it may be made hastily before the preemptor evaluates his financial ability and circumstances.
3. How soon should the second request be made?
Shortly after the first request, allowing only enough time to gather witnesses.
4. Who may witness the second request?
Two men, or one man and two women.
5. Is witnessing a condition for the validity of the request?
No. It is mainly required for documentation and proof.
6. Can a distant preemptor make the request through an agent or letter?
Yes.
7. When is a second request unnecessary?
When the first request was already made in a way that clearly demonstrated seriousness, such as before witnesses.
8. What was Abu Hanifah’s view regarding the legal effect of the confirmation request?
Once made, the right becomes firmly established and is not lost merely through passage of time.
9. What was Muhammad ibn al-Hasan’s view?
One month of unjustified delay after the confirmation request causes the right to lapse.
10. What was the Maliki view regarding delay after the confirmation request?
The preemptor generally has up to one year, after which silence without excuse causes the right to be lost.
- Published on
Islamic Law of Transaction: Demanding to Take the Property, Delay Penalties, and Preemption Rights of Children and Interdicted Persons
Introduction
In Islamic law, a right of preemption (shufʿah) does not become fully effective merely because a person qualifies for it. A co-owner, partner, or qualifying neighbor may have a legitimate preemption right, but he must actively pursue and legally establish that right.
The jurists emphasized that preemption was introduced to remove potential harm that may arise when a stranger enters into ownership of shared or neighboring property. However, because preemption affects the buyer’s ownership rights, Islamic law requires the preemptor to act quickly and follow specific procedures.
For this reason, Islamic law developed a complete system that regulates:
Case Scenario
Ahmad and Bilal jointly own a shop lot.
Bilal sells his share to Khalid.
Ahmad is legally entitled to preemption because he is a co-owner.
Ahmad learns about the sale immediately.
However:
Does Ahmad still have the right to take the property, or has he lost it because of his delay?
To answer this question, Islamic jurists developed a detailed system of requests and deadlines.
Why Must the Preemptor Make a Formal Demand?
Preemption is unlike ordinary ownership.
A person who owns a house automatically enjoys ownership rights without needing to make a claim.
Preemption is different.
It is merely a legal opportunity to acquire property.
Therefore:
The Final Legal Demand
After completing all earlier procedures, the preemptor must make a formal demand before the judge.
This is the final and most important request.
The preemptor may say:
“This property was purchased by the buyer. I possess a valid preemption right because of my ownership of the neighboring property (or because I am a co-owner), and I now demand that the property be transferred to me.”
At this point, the preemptor is no longer merely protecting his right.
He is actively requesting ownership of the property.
Why Is This Final Demand Necessary?
Without a formal demand:
First
It confirms that the preemptor genuinely wishes to exercise the right.
Second
It informs the court that all legal requirements have been fulfilled.
Third
It allows the judge to transfer ownership lawfully.
Practical Example
Bilal sells a warehouse to Khalid.
Ahmad qualifies for preemption.
After making the required requests and presenting evidence, Ahmad stands before the judge and says:
“I demand this warehouse through my right of preemption.”
Only after this demand can the judge order the transfer of ownership.
Delay Penalties in Preemption
One of the most important principles in preemption law is:
Rights must be exercised promptly.
The jurists feared that unlimited delay would create uncertainty and instability.
Imagine if a buyer could never be sure whether a preemptor might appear years later and take the property.
Such uncertainty would discourage trade and investment.
Therefore, Islamic law imposes strict consequences for unjustified delay.
The Three Stages of Preemption Requests
The jurists generally discussed three stages:
Stage One
The immediate request after learning of the sale.
Stage Two
The confirmation request.
Stage Three
The final legal demand before the judge.
Each stage has its own deadline.
First Delay: Failure to Make the Immediate Request
The first request must be made as soon as the preemptor learns of the sale.
This request demonstrates that he does not accept the transaction and wishes to preserve his right.
The Importance of Immediate Action
The jurists considered silence dangerous because silence often indicates consent.
If a person learns about a sale and does nothing:
Actions That Cause Loss of the Right
Examples include:
Practical Example
Ahmad attends a gathering.
Someone informs him:
“Bilal has sold his share to Khalid.”
Instead of immediately asserting preemption:
Valid Excuses for Delay
Islamic law does not punish people for circumstances beyond their control.
If a valid excuse exists, the right remains intact.
Examples of Valid Excuses
Natural Disasters
Floods, earthquakes, hurricanes, or severe storms.
Serious Illness
A condition that prevents communication or movement.
Physical Incapacity
Loss of mobility or consciousness.
Lack of Access
Inability to send messages or communicate.
Coercion
Threats that prevent a person from acting.
Practical Example
Ahmad learns of the sale.
The next day a flood destroys transportation routes.
He cannot travel or communicate.
The delay is excused.
His preemption right remains valid until the obstacle disappears.
Second Delay: Failure to Make the Confirmation Request
After the first request comes the confirmation request.
This second request proves that the preemptor remains serious about exercising his right.
Why Is a Confirmation Request Needed?
The jurists recognized that people sometimes make statements impulsively.
The confirmation request demonstrates continued commitment.
Means of Making the Request
The request may be made through:
Practical Example
Ahmad makes the first request.
Several weeks pass.
He makes no effort to send a letter or contact witnesses despite having the ability to do so.
Result:
Third Delay: Failure to Bring the Final Court Claim
The final step is to appear before the judge and formally demand the property.
One-Month Limitation
According to the discussion cited in Al-Majallah:
If the preemptor delays the final claim for an entire month without excuse:
Why?
The law seeks to provide finality.
A buyer should not remain indefinitely uncertain about ownership.
Practical Example
Ahmad:
Result:
Why Islamic Law Is Strict About Delay
The strictness of these rules serves several purposes.
Protecting the Buyer
The buyer should know whether ownership is secure.
Without deadlines:
Protecting Commercial Stability
Property markets depend on certainty.
People must know who owns what.
Preventing Abuse
A preemptor should not be allowed to:
Preemption Rights of Children and Interdicted Persons
The jurists also considered situations involving people who cannot legally manage their own affairs.
Examples include:
Can a Child Possess a Preemption Right?
Yes.
All schools generally recognize that children may possess preemption rights.
Practical Example
A child inherits a neighboring property.
A nearby share is sold.
The child becomes entitled to preemption even though he cannot personally exercise it.
Role of the Guardian
Since the child lacks legal capacity, the guardian acts on his behalf.
The guardian may:
Conditions for Guardian Action
The guardian should exercise preemption only if:
It Benefits the Child
The purchase improves the child’s interests.
The Child Has Sufficient Funds
The child possesses enough wealth to pay the purchase price.
Practical Example
A child owns property worth RM1 million.
A neighboring share becomes available through preemption.
Purchasing the property would strengthen the child’s estate.
The guardian may exercise the right.
Can the Child Later Reject the Guardian’s Decision?
Most jurists said:
No.
If the guardian lawfully exercised preemption:
Abu Hanifah and Abu Yusuf’s View
Abu Hanifah and Abu Yusuf gave broad authority to guardians.
Their Ruling
If the guardian does not exercise the child’s preemption right:
Reasoning
The guardian acts as the child’s legal representative.
Since he may exercise the right:
Practical Example
A guardian decides not to pursue preemption.
Years later the child becomes an adult.
According to Abu Hanifah and Abu Yusuf:
Maliki and Shafiʿi View
The Malikis and Shafiʿis focused heavily on the child’s welfare.
If the Guardian Acted Properly
The guardian’s decision remains binding.
Practical Example
Purchasing the property would require heavy debt.
The guardian refuses preemption.
This decision protects the child.
The child cannot later challenge it.
If the Guardian Acted Carelessly
The ruling changes.
If the guardian:
Practical Example
A valuable neighboring property is available at a very low price.
The guardian ignores the opportunity without consideration.
According to the Malikis and Shafiʿis:
Insufficient Funds
The Malikis and Shafiʿis also discussed situations where the child cannot afford the property.
If the child lacks sufficient wealth:
Hanbali View and the View of Zufar and Muhammad
These jurists adopted the strongest protection for children.
Their Position
The child’s right survives regardless of the guardian’s decision.
Whether:
Reasoning
The right belongs to the child.
The guardian merely manages affairs.
He does not own the right itself.
Therefore:
Practical Example
A guardian abandons a preemption claim.
Ten years later the child becomes an adult.
According to the Hanbalis:
Critical Analysis
First Issue: Speed Versus Fairness
The delay rules prioritize commercial certainty.
However, they may sometimes appear strict.
The jurists believed that certainty in property transactions is essential for economic stability.
Second Issue: Guardian Authority
The disagreement reflects two legal philosophies.
Broad Authority Approach
Abu Hanifah and Abu Yusuf trusted guardians to make final decisions.
Child Protection Approach
The Hanbalis preferred preserving the child’s rights even against guardian decisions.
Third Issue: Balancing Interests
All schools attempted to balance:
Conclusion
Demanding to take the property is the final and essential stage of exercising preemption. Islamic law requires prompt action at every stage and imposes penalties for unjustified delay in order to protect buyers and preserve commercial certainty. The jurists also developed sophisticated rules for children and interdicted persons, balancing the authority of guardians with the need to safeguard vulnerable individuals. Although the schools differed regarding the extent of guardian authority and the survival of children’s rights, all sought to achieve justice, stability, and protection of legitimate property interests.
Answers to Short Answer Questions (SAQ)
1. What is the final step in exercising preemption?
Making a formal legal demand before the judge to take the property.
2. Why is a formal demand required?
Because the law does not assume every eligible person wishes to exercise preemption.
3. What happens if the first request is not made immediately?
The preemption right may be lost.
4. Why does Islamic law penalize delay?
To protect buyers and maintain certainty in property transactions.
5. What are examples of valid excuses for delay?
Natural disasters, illness, incapacity, lack of communication, and coercion.
6. What happens if the confirmation request is delayed unnecessarily?
The preemption right may be lost.
7. What happens if the final court claim is delayed for more than one month without excuse?
The preemption right may lapse.
8. Can children possess preemption rights?
Yes, all schools generally recognize such rights.
9. What is the Hanbali view regarding a guardian’s abandonment of a child’s preemption right?
The child may still exercise the right upon reaching adulthood.
10. What major legal principle is reflected in these rules?
Rights must be exercised diligently and in accordance with proper legal procedures while balancing fairness and commercial certainty.
Introduction
In Islamic law, a right of preemption (shufʿah) does not become fully effective merely because a person qualifies for it. A co-owner, partner, or qualifying neighbor may have a legitimate preemption right, but he must actively pursue and legally establish that right.
The jurists emphasized that preemption was introduced to remove potential harm that may arise when a stranger enters into ownership of shared or neighboring property. However, because preemption affects the buyer’s ownership rights, Islamic law requires the preemptor to act quickly and follow specific procedures.
For this reason, Islamic law developed a complete system that regulates:
- How the preemptor must demand the property.
- The consequences of delay.
- The role of excuses that justify delay.
- How preemption rights apply to children and legally incapacitated persons.
- The authority of guardians in exercising or abandoning those rights.
Case Scenario
Ahmad and Bilal jointly own a shop lot.
Bilal sells his share to Khalid.
Ahmad is legally entitled to preemption because he is a co-owner.
Ahmad learns about the sale immediately.
However:
- He does not make any request.
- He waits several weeks.
- He later decides that he wants the property.
Does Ahmad still have the right to take the property, or has he lost it because of his delay?
To answer this question, Islamic jurists developed a detailed system of requests and deadlines.
Why Must the Preemptor Make a Formal Demand?
Preemption is unlike ordinary ownership.
A person who owns a house automatically enjoys ownership rights without needing to make a claim.
Preemption is different.
It is merely a legal opportunity to acquire property.
Therefore:
- The law cannot assume that every eligible person wishes to exercise it.
- Some may not want the property.
- Some may not have sufficient money.
- Some may be satisfied with the buyer’s ownership.
The Final Legal Demand
After completing all earlier procedures, the preemptor must make a formal demand before the judge.
This is the final and most important request.
The preemptor may say:
“This property was purchased by the buyer. I possess a valid preemption right because of my ownership of the neighboring property (or because I am a co-owner), and I now demand that the property be transferred to me.”
At this point, the preemptor is no longer merely protecting his right.
He is actively requesting ownership of the property.
Why Is This Final Demand Necessary?
Without a formal demand:
- The judge cannot know whether the preemptor truly wants the property.
- The buyer remains uncertain about his ownership.
- The dispute cannot be resolved.
First
It confirms that the preemptor genuinely wishes to exercise the right.
Second
It informs the court that all legal requirements have been fulfilled.
Third
It allows the judge to transfer ownership lawfully.
Practical Example
Bilal sells a warehouse to Khalid.
Ahmad qualifies for preemption.
After making the required requests and presenting evidence, Ahmad stands before the judge and says:
“I demand this warehouse through my right of preemption.”
Only after this demand can the judge order the transfer of ownership.
Delay Penalties in Preemption
One of the most important principles in preemption law is:
Rights must be exercised promptly.
The jurists feared that unlimited delay would create uncertainty and instability.
Imagine if a buyer could never be sure whether a preemptor might appear years later and take the property.
Such uncertainty would discourage trade and investment.
Therefore, Islamic law imposes strict consequences for unjustified delay.
The Three Stages of Preemption Requests
The jurists generally discussed three stages:
Stage One
The immediate request after learning of the sale.
Stage Two
The confirmation request.
Stage Three
The final legal demand before the judge.
Each stage has its own deadline.
First Delay: Failure to Make the Immediate Request
The first request must be made as soon as the preemptor learns of the sale.
This request demonstrates that he does not accept the transaction and wishes to preserve his right.
The Importance of Immediate Action
The jurists considered silence dangerous because silence often indicates consent.
If a person learns about a sale and does nothing:
- Others naturally assume that he accepts it.
- The buyer begins relying on that assumption.
Actions That Cause Loss of the Right
Examples include:
- Walking away from the meeting.
- Starting another conversation.
- Conducting unrelated business.
- Deliberately postponing the request.
Practical Example
Ahmad attends a gathering.
Someone informs him:
“Bilal has sold his share to Khalid.”
Instead of immediately asserting preemption:
- Ahmad discusses football.
- Ahmad negotiates another business deal.
- Ahmad leaves the gathering.
- This may indicate acceptance of the sale.
- His preemption right may be lost.
Valid Excuses for Delay
Islamic law does not punish people for circumstances beyond their control.
If a valid excuse exists, the right remains intact.
Examples of Valid Excuses
Natural Disasters
Floods, earthquakes, hurricanes, or severe storms.
Serious Illness
A condition that prevents communication or movement.
Physical Incapacity
Loss of mobility or consciousness.
Lack of Access
Inability to send messages or communicate.
Coercion
Threats that prevent a person from acting.
Practical Example
Ahmad learns of the sale.
The next day a flood destroys transportation routes.
He cannot travel or communicate.
The delay is excused.
His preemption right remains valid until the obstacle disappears.
Second Delay: Failure to Make the Confirmation Request
After the first request comes the confirmation request.
This second request proves that the preemptor remains serious about exercising his right.
Why Is a Confirmation Request Needed?
The jurists recognized that people sometimes make statements impulsively.
The confirmation request demonstrates continued commitment.
Means of Making the Request
The request may be made through:
- Personal appearance.
- A written letter.
- A messenger.
- Any reliable method of communication.
Practical Example
Ahmad makes the first request.
Several weeks pass.
He makes no effort to send a letter or contact witnesses despite having the ability to do so.
Result:
- The right may be lost.
Third Delay: Failure to Bring the Final Court Claim
The final step is to appear before the judge and formally demand the property.
One-Month Limitation
According to the discussion cited in Al-Majallah:
If the preemptor delays the final claim for an entire month without excuse:
- His right is lost.
Why?
The law seeks to provide finality.
A buyer should not remain indefinitely uncertain about ownership.
Practical Example
Ahmad:
- Makes the first request.
- Makes the confirmation request.
- He waits six weeks before approaching the court.
Result:
- His preemption right may lapse.
Why Islamic Law Is Strict About Delay
The strictness of these rules serves several purposes.
Protecting the Buyer
The buyer should know whether ownership is secure.
Without deadlines:
- Ownership remains uncertain.
- Investment becomes risky.
Protecting Commercial Stability
Property markets depend on certainty.
People must know who owns what.
Preventing Abuse
A preemptor should not be allowed to:
- Wait until property values rise.
- Observe market changes.
- Then decide whether to claim preemption.
Preemption Rights of Children and Interdicted Persons
The jurists also considered situations involving people who cannot legally manage their own affairs.
Examples include:
- Minors,
- Persons with mental incapacity,
- Persons under legal interdiction.
Can a Child Possess a Preemption Right?
Yes.
All schools generally recognize that children may possess preemption rights.
Practical Example
A child inherits a neighboring property.
A nearby share is sold.
The child becomes entitled to preemption even though he cannot personally exercise it.
Role of the Guardian
Since the child lacks legal capacity, the guardian acts on his behalf.
The guardian may:
- Exercise the right.
- Investigate the transaction.
- Assess benefits and risks.
- Appear before the court.
Conditions for Guardian Action
The guardian should exercise preemption only if:
It Benefits the Child
The purchase improves the child’s interests.
The Child Has Sufficient Funds
The child possesses enough wealth to pay the purchase price.
Practical Example
A child owns property worth RM1 million.
A neighboring share becomes available through preemption.
Purchasing the property would strengthen the child’s estate.
The guardian may exercise the right.
Can the Child Later Reject the Guardian’s Decision?
Most jurists said:
No.
If the guardian lawfully exercised preemption:
- The transaction becomes binding.
- The child cannot cancel it after adulthood.
Abu Hanifah and Abu Yusuf’s View
Abu Hanifah and Abu Yusuf gave broad authority to guardians.
Their Ruling
If the guardian does not exercise the child’s preemption right:
- The right is lost.
Reasoning
The guardian acts as the child’s legal representative.
Since he may exercise the right:
- He may also abandon it.
Practical Example
A guardian decides not to pursue preemption.
Years later the child becomes an adult.
According to Abu Hanifah and Abu Yusuf:
- The right cannot be revived.
Maliki and Shafiʿi View
The Malikis and Shafiʿis focused heavily on the child’s welfare.
If the Guardian Acted Properly
The guardian’s decision remains binding.
Practical Example
Purchasing the property would require heavy debt.
The guardian refuses preemption.
This decision protects the child.
The child cannot later challenge it.
If the Guardian Acted Carelessly
The ruling changes.
If the guardian:
- Failed to investigate,
- Ignored obvious benefits,
- Acted negligently,
Practical Example
A valuable neighboring property is available at a very low price.
The guardian ignores the opportunity without consideration.
According to the Malikis and Shafiʿis:
- The child may exercise the right upon adulthood.
Insufficient Funds
The Malikis and Shafiʿis also discussed situations where the child cannot afford the property.
If the child lacks sufficient wealth:
- The preemption right automatically lapses.
Hanbali View and the View of Zufar and Muhammad
These jurists adopted the strongest protection for children.
Their Position
The child’s right survives regardless of the guardian’s decision.
Whether:
- The guardian exercised it,
- The guardian ignored it,
- The guardian abandoned it,
Reasoning
The right belongs to the child.
The guardian merely manages affairs.
He does not own the right itself.
Therefore:
- He cannot permanently destroy it.
Practical Example
A guardian abandons a preemption claim.
Ten years later the child becomes an adult.
According to the Hanbalis:
- The child may still exercise the right.
Critical Analysis
First Issue: Speed Versus Fairness
The delay rules prioritize commercial certainty.
However, they may sometimes appear strict.
The jurists believed that certainty in property transactions is essential for economic stability.
Second Issue: Guardian Authority
The disagreement reflects two legal philosophies.
Broad Authority Approach
Abu Hanifah and Abu Yusuf trusted guardians to make final decisions.
Child Protection Approach
The Hanbalis preferred preserving the child’s rights even against guardian decisions.
Third Issue: Balancing Interests
All schools attempted to balance:
- Protection of the child,
- Authority of guardians,
- Security of ownership,
- Stability of commerce.
Conclusion
Demanding to take the property is the final and essential stage of exercising preemption. Islamic law requires prompt action at every stage and imposes penalties for unjustified delay in order to protect buyers and preserve commercial certainty. The jurists also developed sophisticated rules for children and interdicted persons, balancing the authority of guardians with the need to safeguard vulnerable individuals. Although the schools differed regarding the extent of guardian authority and the survival of children’s rights, all sought to achieve justice, stability, and protection of legitimate property interests.
Answers to Short Answer Questions (SAQ)
1. What is the final step in exercising preemption?
Making a formal legal demand before the judge to take the property.
2. Why is a formal demand required?
Because the law does not assume every eligible person wishes to exercise preemption.
3. What happens if the first request is not made immediately?
The preemption right may be lost.
4. Why does Islamic law penalize delay?
To protect buyers and maintain certainty in property transactions.
5. What are examples of valid excuses for delay?
Natural disasters, illness, incapacity, lack of communication, and coercion.
6. What happens if the confirmation request is delayed unnecessarily?
The preemption right may be lost.
7. What happens if the final court claim is delayed for more than one month without excuse?
The preemption right may lapse.
8. Can children possess preemption rights?
Yes, all schools generally recognize such rights.
9. What is the Hanbali view regarding a guardian’s abandonment of a child’s preemption right?
The child may still exercise the right upon reaching adulthood.
10. What major legal principle is reflected in these rules?
Rights must be exercised diligently and in accordance with proper legal procedures while balancing fairness and commercial certainty.
- Published on
SQE – Equity and Trust – Liability for the Acts of a Co-Trustee
Introduction
Trusts are frequently administered by more than one trustee. The appointment of multiple trustees provides additional safeguards for beneficiaries because important decisions can be discussed collectively and trust property is less vulnerable to misuse by a single individual. However, where one trustee commits a breach of trust, an important question arises: to what extent are the other trustees liable?
The general principle is that trustees are not automatically liable for the wrongdoing of their co-trustees. Each trustee is ordinarily responsible only for their own conduct. Nevertheless, equity imposes a duty upon trustees to participate actively in the administration of the trust and to supervise the actions of their fellow trustees. Consequently, a trustee who remains passive or fails to intervene when a breach could have been prevented may become personally liable alongside the trustee who committed the wrongdoing.
The General Rule
The starting point is that trustees are not vicariously liable for the acts of their co-trustees. Unlike employers who may be liable for the acts of their employees, trustees are generally liable only for breaches that they themselves commit.
This principle reflects the fact that each trustee is individually responsible for performing their fiduciary obligations and exercising independent judgment when administering the trust.
However, the rule is subject to an important qualification. A trustee cannot avoid liability by remaining inactive or deliberately ignoring the conduct of a co-trustee.
The Duty to Participate in Trust Administration
Trustees have a duty to participate actively in the management of the trust. Decisions affecting the trust should generally be taken unanimously, and each trustee is expected to monitor the conduct of the others.
A trustee who simply leaves matters entirely to a co-trustee risks becoming liable if a breach of trust occurs that could reasonably have been prevented.
This principle was recognised in Luke v South Kensington Hotel Co (1879), where the court emphasised the importance of trustees acting together and participating in trust administration.
Bahin v Hughes (1886)
The leading authority on passive trustee liability is Bahin v Hughes (1886) 31 Ch D 390.
In this case, one trustee made an improper investment of trust funds. The other trustee was aware of the proposed investment but took no action to prevent it. The investment subsequently resulted in significant losses to the trust.
The court held that the passive trustee was liable alongside the active trustee because he had knowledge of the proposed transaction and was in a position to prevent the breach. His failure to intervene amounted to a breach of his own fiduciary duties.
The case demonstrates that equity will not protect what is often described as a “sleeping trustee”. Trustees must remain vigilant and actively protect the interests of beneficiaries.
Example of Passive Trustee Liability
Suppose Daniel and Sarah are co-trustees of a family trust worth £5 million. Daniel proposes investing £2 million of trust funds in a highly speculative cryptocurrency scheme that clearly falls outside the trust’s investment policy.
Sarah is aware of Daniel’s intention but decides not to become involved and allows him to proceed.
The investment collapses and the trust loses £2 million.
Although Sarah did not personally make the investment decision, she may nevertheless be liable because she failed to take reasonable steps to prevent Daniel’s breach of trust. Her passivity contributed to the loss suffered by the trust.
Joint and Several Liability
Where two or more trustees are found liable for a breach of trust, their liability is generally joint and several.
This means that each trustee is legally responsible for the entire loss suffered by the trust. The beneficiaries may choose to pursue one trustee, several trustees, or all trustees together.
The beneficiaries are not required to divide their claim equally between the trustees.
Example of Joint and Several Liability
Suppose three trustees jointly cause a loss of £600,000 to a trust.
The beneficiaries may choose to sue only one trustee and recover the entire £600,000 from that individual.
The trustee who pays may then seek contribution from the other trustees, but that is a separate matter between the trustees themselves.
This rule provides significant protection for beneficiaries because it increases the likelihood that the trust will recover its losses.
The Civil Liability (Contribution) Act 1978
The potentially harsh consequences of joint and several liability have been moderated by the Civil Liability (Contribution) Act 1978.
Section 2(1) allows the court to apportion liability between trustees according to what is just and equitable in the circumstances, taking account of each trustee’s responsibility for the loss.
Consequently, trustees who are only minimally involved in a breach may be required to contribute less than those who played a central role.
Example of Contribution
Assume Daniel and Sarah are co-trustees.
Daniel deliberately misappropriates £500,000 from the trust.
Sarah becomes liable because she negligently failed to supervise him.
The beneficiaries recover the full £500,000 from Sarah because Daniel has become insolvent.
Sarah may subsequently seek contribution from Daniel under the Civil Liability (Contribution) Act 1978.
The court may decide that Daniel should bear the majority of the liability because he was primarily responsible for the breach.
Indemnities Between Co-Trustees
In certain situations, one trustee may be entitled to an indemnity from another trustee.
An indemnity is a right to recover compensation from a co-trustee who bears primary responsibility for the loss.
The courts recognise several circumstances where indemnities may be appropriate.
Fraudulent Conduct by a Co-Trustee
Where one trustee has acted fraudulently, that trustee may be required to indemnify the innocent trustees.
This principle was recognised in Re Smith [1896] 2 Ch 590.
The rationale is that a fraudulent trustee should not be permitted to shift the consequences of their wrongdoing onto honest co-trustees.
Example
Suppose Daniel secretly steals £1 million from the trust while Sarah performs her duties honestly and responsibly.
If Sarah is required to compensate the beneficiaries, she may seek an indemnity from Daniel because his fraudulent conduct was the primary cause of the loss.
Trustees with Specialist Knowledge
An indemnity may also arise where one trustee possesses specialist expertise and assumes responsibility for a particular aspect of trust administration.
This principle was recognised in Head v Gould [1898] 2 Ch 250.
The court may require the more experienced trustee to bear a greater share of responsibility where the loss resulted from matters within their area of expertise.
Example
Suppose one trustee is an experienced investment adviser while another is a family friend with no financial expertise.
If losses arise from negligent investment decisions made by the professional trustee, the court may require that trustee to indemnify the lay trustee to a greater extent.
Trustee Who Is Also a Beneficiary
An indemnity may also be available where a trustee is simultaneously a beneficiary of the trust.
In such circumstances, the trustee-beneficiary may be required to indemnify the other trustees to the extent of their beneficial interest in the trust.
This prevents a trustee-beneficiary from unfairly benefiting from their own breach while shifting liability onto other trustees.
Liability After Retirement
When a trustee retires properly, liability for future breaches of trust generally comes to an end.
The retiring trustee remains liable for breaches committed during their period of office unless an indemnity has been obtained from the continuing trustees.
Once retirement is effective, responsibility for future administration normally passes to the remaining trustees.
Exceptions to the General Rule
A retiring trustee may continue to be liable in exceptional circumstances.
The first exception arises where the trustee retires specifically to facilitate a breach of trust. In Wright v Morgan [1926] AC 788, the Privy Council recognised that retirement cannot be used as a mechanism for avoiding responsibility while knowingly enabling misconduct.
The second exception arises where the trustee retires knowing that the trust is in serious danger. In Head v Gould [1898] 2 Ch 250, the court recognised that a trustee who abandons the trust while aware of imminent risks may continue to bear responsibility for resulting losses.
Example of Continued Liability After Retirement
Suppose Sarah retires as trustee knowing that Daniel intends to transfer trust assets to an offshore account in breach of trust.
Rather than preventing the transaction or alerting beneficiaries, she simply retires and takes no further action.
Daniel subsequently misappropriates £2 million.
Sarah may remain liable because her retirement effectively facilitated the breach and she knowingly left the trust in jeopardy.
Relationship with Equitable Remedies
Where co-trustees are liable, beneficiaries may seek a range of remedies including equitable compensation, restoration of trust property, tracing, constructive trusts, equitable liens, and interest on sums improperly administered.
The existence of multiple trustees does not affect the beneficiaries’ right to recover losses. The beneficiaries remain entitled to pursue whichever trustee or trustees are most capable of satisfying the judgment.
Conclusion
The law governing liability for the acts of co-trustees reflects equity’s insistence that trustees actively participate in the administration of trusts. Although trustees are not generally vicariously liable for the wrongdoing of their co-trustees, they may become liable where they fail to supervise, intervene, or prevent breaches that could reasonably have been avoided. Cases such as Bahin v Hughes demonstrate that equity will not tolerate passive or sleeping trustees. Where multiple trustees are liable, the principles of joint and several liability ensure that beneficiaries are fully protected, while the Civil Liability (Contribution) Act 1978 and equitable indemnities provide mechanisms for achieving fairness between trustees themselves.
References
Luke v South Kensington Hotel Co (1879) LR 11 Ch D 121.
Bahin v Hughes (1886) 31 Ch D 390.
Re Smith [1896] 2 Ch 590.
Head v Gould [1898] 2 Ch 250.
Wright v Morgan [1926] AC 788 (PC).
Civil Liability (Contribution) Act 1978, s 2(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).
Introduction
Trusts are frequently administered by more than one trustee. The appointment of multiple trustees provides additional safeguards for beneficiaries because important decisions can be discussed collectively and trust property is less vulnerable to misuse by a single individual. However, where one trustee commits a breach of trust, an important question arises: to what extent are the other trustees liable?
The general principle is that trustees are not automatically liable for the wrongdoing of their co-trustees. Each trustee is ordinarily responsible only for their own conduct. Nevertheless, equity imposes a duty upon trustees to participate actively in the administration of the trust and to supervise the actions of their fellow trustees. Consequently, a trustee who remains passive or fails to intervene when a breach could have been prevented may become personally liable alongside the trustee who committed the wrongdoing.
The General Rule
The starting point is that trustees are not vicariously liable for the acts of their co-trustees. Unlike employers who may be liable for the acts of their employees, trustees are generally liable only for breaches that they themselves commit.
This principle reflects the fact that each trustee is individually responsible for performing their fiduciary obligations and exercising independent judgment when administering the trust.
However, the rule is subject to an important qualification. A trustee cannot avoid liability by remaining inactive or deliberately ignoring the conduct of a co-trustee.
The Duty to Participate in Trust Administration
Trustees have a duty to participate actively in the management of the trust. Decisions affecting the trust should generally be taken unanimously, and each trustee is expected to monitor the conduct of the others.
A trustee who simply leaves matters entirely to a co-trustee risks becoming liable if a breach of trust occurs that could reasonably have been prevented.
This principle was recognised in Luke v South Kensington Hotel Co (1879), where the court emphasised the importance of trustees acting together and participating in trust administration.
Bahin v Hughes (1886)
The leading authority on passive trustee liability is Bahin v Hughes (1886) 31 Ch D 390.
In this case, one trustee made an improper investment of trust funds. The other trustee was aware of the proposed investment but took no action to prevent it. The investment subsequently resulted in significant losses to the trust.
The court held that the passive trustee was liable alongside the active trustee because he had knowledge of the proposed transaction and was in a position to prevent the breach. His failure to intervene amounted to a breach of his own fiduciary duties.
The case demonstrates that equity will not protect what is often described as a “sleeping trustee”. Trustees must remain vigilant and actively protect the interests of beneficiaries.
Example of Passive Trustee Liability
Suppose Daniel and Sarah are co-trustees of a family trust worth £5 million. Daniel proposes investing £2 million of trust funds in a highly speculative cryptocurrency scheme that clearly falls outside the trust’s investment policy.
Sarah is aware of Daniel’s intention but decides not to become involved and allows him to proceed.
The investment collapses and the trust loses £2 million.
Although Sarah did not personally make the investment decision, she may nevertheless be liable because she failed to take reasonable steps to prevent Daniel’s breach of trust. Her passivity contributed to the loss suffered by the trust.
Joint and Several Liability
Where two or more trustees are found liable for a breach of trust, their liability is generally joint and several.
This means that each trustee is legally responsible for the entire loss suffered by the trust. The beneficiaries may choose to pursue one trustee, several trustees, or all trustees together.
The beneficiaries are not required to divide their claim equally between the trustees.
Example of Joint and Several Liability
Suppose three trustees jointly cause a loss of £600,000 to a trust.
The beneficiaries may choose to sue only one trustee and recover the entire £600,000 from that individual.
The trustee who pays may then seek contribution from the other trustees, but that is a separate matter between the trustees themselves.
This rule provides significant protection for beneficiaries because it increases the likelihood that the trust will recover its losses.
The Civil Liability (Contribution) Act 1978
The potentially harsh consequences of joint and several liability have been moderated by the Civil Liability (Contribution) Act 1978.
Section 2(1) allows the court to apportion liability between trustees according to what is just and equitable in the circumstances, taking account of each trustee’s responsibility for the loss.
Consequently, trustees who are only minimally involved in a breach may be required to contribute less than those who played a central role.
Example of Contribution
Assume Daniel and Sarah are co-trustees.
Daniel deliberately misappropriates £500,000 from the trust.
Sarah becomes liable because she negligently failed to supervise him.
The beneficiaries recover the full £500,000 from Sarah because Daniel has become insolvent.
Sarah may subsequently seek contribution from Daniel under the Civil Liability (Contribution) Act 1978.
The court may decide that Daniel should bear the majority of the liability because he was primarily responsible for the breach.
Indemnities Between Co-Trustees
In certain situations, one trustee may be entitled to an indemnity from another trustee.
An indemnity is a right to recover compensation from a co-trustee who bears primary responsibility for the loss.
The courts recognise several circumstances where indemnities may be appropriate.
Fraudulent Conduct by a Co-Trustee
Where one trustee has acted fraudulently, that trustee may be required to indemnify the innocent trustees.
This principle was recognised in Re Smith [1896] 2 Ch 590.
The rationale is that a fraudulent trustee should not be permitted to shift the consequences of their wrongdoing onto honest co-trustees.
Example
Suppose Daniel secretly steals £1 million from the trust while Sarah performs her duties honestly and responsibly.
If Sarah is required to compensate the beneficiaries, she may seek an indemnity from Daniel because his fraudulent conduct was the primary cause of the loss.
Trustees with Specialist Knowledge
An indemnity may also arise where one trustee possesses specialist expertise and assumes responsibility for a particular aspect of trust administration.
This principle was recognised in Head v Gould [1898] 2 Ch 250.
The court may require the more experienced trustee to bear a greater share of responsibility where the loss resulted from matters within their area of expertise.
Example
Suppose one trustee is an experienced investment adviser while another is a family friend with no financial expertise.
If losses arise from negligent investment decisions made by the professional trustee, the court may require that trustee to indemnify the lay trustee to a greater extent.
Trustee Who Is Also a Beneficiary
An indemnity may also be available where a trustee is simultaneously a beneficiary of the trust.
In such circumstances, the trustee-beneficiary may be required to indemnify the other trustees to the extent of their beneficial interest in the trust.
This prevents a trustee-beneficiary from unfairly benefiting from their own breach while shifting liability onto other trustees.
Liability After Retirement
When a trustee retires properly, liability for future breaches of trust generally comes to an end.
The retiring trustee remains liable for breaches committed during their period of office unless an indemnity has been obtained from the continuing trustees.
Once retirement is effective, responsibility for future administration normally passes to the remaining trustees.
Exceptions to the General Rule
A retiring trustee may continue to be liable in exceptional circumstances.
The first exception arises where the trustee retires specifically to facilitate a breach of trust. In Wright v Morgan [1926] AC 788, the Privy Council recognised that retirement cannot be used as a mechanism for avoiding responsibility while knowingly enabling misconduct.
The second exception arises where the trustee retires knowing that the trust is in serious danger. In Head v Gould [1898] 2 Ch 250, the court recognised that a trustee who abandons the trust while aware of imminent risks may continue to bear responsibility for resulting losses.
Example of Continued Liability After Retirement
Suppose Sarah retires as trustee knowing that Daniel intends to transfer trust assets to an offshore account in breach of trust.
Rather than preventing the transaction or alerting beneficiaries, she simply retires and takes no further action.
Daniel subsequently misappropriates £2 million.
Sarah may remain liable because her retirement effectively facilitated the breach and she knowingly left the trust in jeopardy.
Relationship with Equitable Remedies
Where co-trustees are liable, beneficiaries may seek a range of remedies including equitable compensation, restoration of trust property, tracing, constructive trusts, equitable liens, and interest on sums improperly administered.
The existence of multiple trustees does not affect the beneficiaries’ right to recover losses. The beneficiaries remain entitled to pursue whichever trustee or trustees are most capable of satisfying the judgment.
Conclusion
The law governing liability for the acts of co-trustees reflects equity’s insistence that trustees actively participate in the administration of trusts. Although trustees are not generally vicariously liable for the wrongdoing of their co-trustees, they may become liable where they fail to supervise, intervene, or prevent breaches that could reasonably have been avoided. Cases such as Bahin v Hughes demonstrate that equity will not tolerate passive or sleeping trustees. Where multiple trustees are liable, the principles of joint and several liability ensure that beneficiaries are fully protected, while the Civil Liability (Contribution) Act 1978 and equitable indemnities provide mechanisms for achieving fairness between trustees themselves.
References
Luke v South Kensington Hotel Co (1879) LR 11 Ch D 121.
Bahin v Hughes (1886) 31 Ch D 390.
Re Smith [1896] 2 Ch 590.
Head v Gould [1898] 2 Ch 250.
Wright v Morgan [1926] AC 788 (PC).
Civil Liability (Contribution) Act 1978, s 2(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).
- Published on
SQE – Equity and Trust – Causation in Breach of Trust Claims
Introduction
Establishing that a trustee has committed a breach of trust does not automatically result in liability. A beneficiary must also demonstrate that the breach caused a loss to the trust fund or enabled the trustee to obtain an unauthorised profit. This requirement is known as causation.
Causation serves as an important limitation on trustee liability because it ensures that trustees are only held responsible for losses that are actually connected to their wrongdoing. If the same loss would have occurred regardless of the breach, then the trustee will generally not be liable to compensate the beneficiaries.
The law of trusts adopts a similar approach to other areas of private law by requiring a causal link between the wrongful act and the loss suffered. However, the principles have developed within equity and are applied in a manner consistent with the objectives of trust law.
The Requirement of a Causal Link
Before equitable compensation can be awarded, the court must be satisfied that there is a sufficient connection between the breach of trust and the loss suffered by the trust.
The court therefore asks whether the trustee’s conduct actually caused the loss complained of by the beneficiary.
If the breach had no impact on the outcome and the loss would have occurred in any event, the trustee will not be liable despite having committed a breach of trust.
This principle reflects the broader equitable objective of restoring the trust fund rather than punishing trustees for technical breaches that have caused no damage.
The “But For” Test
The primary test for causation in breach of trust claims is the “but for” test.
The court asks:
Would the loss have occurred but for the trustee’s breach of trust?
If the answer is no, the breach caused the loss and liability will generally follow.
If the answer is yes, the trustee’s conduct was not the cause of the loss and compensation will not be awarded.
The “but for” test therefore focuses on factual causation rather than simply identifying wrongdoing.
Target Holdings Ltd v Redferns [1996] AC 421
The leading authority on causation in breach of trust claims is Target Holdings Ltd v Redferns.
The claimant lender agreed to advance approximately £1.5 million to finance the purchase of two properties. The defendants were solicitors acting 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 solicitors were not authorised to release the money until completion. However, they released the funds several days early, thereby committing a breach of trust.
The property transaction subsequently completed as planned. Unfortunately, the purchasers later defaulted on the mortgage. When the lender enforced its security, it discovered that the properties were worth only £775,000 rather than the £2 million previously represented. As a result, the lender suffered a substantial shortfall.
The lender argued that because the solicitors had committed a breach of trust by releasing the money prematurely, they should compensate the lender for the entire loss.
Decision in Target Holdings
The House of Lords rejected the lender’s claim.
Although the solicitors had clearly acted in breach of trust, the court held that the breach did not cause the loss suffered by the lender.
The evidence demonstrated that even if the solicitors had complied with their instructions and released the money only upon completion, the transaction would still have completed in exactly the same way. The lender would still have received inadequate security and would still have suffered the same loss when the borrowers defaulted.
Consequently, the loss would have occurred regardless of the breach.
Applying the “but for” test, the court concluded that the breach was not the cause of the claimant’s loss.
Significance of Target Holdings
Target Holdings established that trustees are liable only for losses that are actually caused by their breach of trust.
The case marked an important shift away from the older view that trustees might be strictly liable for all losses associated with trust property once a breach had occurred.
Instead, equitable compensation became more closely linked to causation and the actual consequences of the trustee’s misconduct.
Example of Successful Causation
Suppose a trustee is instructed not to release £500,000 of trust funds until certain contractual conditions have been satisfied.
Ignoring those instructions, the trustee transfers the money immediately to a purchaser who subsequently disappears with the funds.
Had the trustee retained the money as required, the loss would never have occurred.
Applying the “but for” test, the trustee’s breach clearly caused the loss and equitable compensation would likely be awarded.
Example Where Causation Is Not Established
Suppose a trustee releases trust funds one day earlier than authorised.
However, the transaction completes successfully the following day exactly as intended.
Several years later, an economic recession causes the investment to fail.
The beneficiaries argue that the early release constituted a breach of trust.
Although a breach occurred, the loss resulted from the recession rather than the premature transfer of funds. The loss would have occurred regardless of the breach.
Applying the “but for” test, causation is not established and the trustee is unlikely to be liable for the loss.
AIB Group (UK) Plc v Mark Redler & Co Solicitors [2015] AC 1503
The principles established in Target Holdings were reaffirmed by the Supreme Court in AIB Group (UK) Plc v Mark Redler & Co Solicitors.
The case involved solicitors acting as trustees who incorrectly distributed mortgage funds during a refinancing transaction. The claimant argued that the solicitors should be liable for the entirety of the lender’s losses.
The Supreme Court rejected this argument and emphasised that equitable compensation should reflect only the loss actually caused by the breach.
Lord Toulson stated that, absent fraud, it would be wrong to require a trustee to compensate beneficiaries for losses that would have been suffered even if the trustee had properly performed their duties.
The court therefore confirmed the continuing authority of Target Holdings and the central importance of causation in breach of trust claims.
Causation and Equitable Compensation
The requirement of causation plays a crucial role in determining the amount of equitable compensation.
The objective of equitable compensation is to restore the trust fund to the position it would have occupied had the breach not occurred.
Accordingly, compensation should correspond to the actual loss caused by the trustee’s misconduct rather than losses arising from unrelated events.
This ensures that beneficiaries are fairly compensated without imposing disproportionate liability upon trustees.
Relationship with Remoteness
Although causation and remoteness are closely related concepts, they are distinct.
Causation asks whether the breach caused the loss.
Remoteness asks whether the loss is sufficiently connected to the breach to justify recovery.
Following Target Holdings and AIB Group, the courts have generally focused on causation rather than importing complex common law rules of remoteness into equitable compensation claims.
The key question remains whether the loss would have occurred but for the breach.
Comprehensive Case Study
Facts
Daniel is trustee of a trust worth £5 million.
The trust deed requires him to retain trust funds until all contractual conditions have been satisfied. Instead, Daniel releases £1 million to a purchaser two weeks early.
The purchaser subsequently completes the transaction exactly as anticipated.
Five years later, a collapse in the property market causes the investment to lose £700,000 in value.
The beneficiaries bring a claim against Daniel.
Analysis
Daniel has committed a breach of trust by releasing the money prematurely.
However, the court must determine whether the breach caused the loss.
The evidence shows that the transaction would have completed regardless of whether the funds had been released early or on the correct date. The subsequent loss arose from market conditions rather than the premature transfer.
Applying the “but for” test established in Target Holdings, the beneficiaries cannot demonstrate that the breach caused the loss.
Outcome
Although Daniel committed a breach of trust, he is unlikely to be liable for the £700,000 loss because causation has not been established.
Conclusion
Causation is a fundamental requirement in breach of trust claims. Beneficiaries must demonstrate not only that a breach occurred but also that the breach caused the loss suffered by the trust. The leading decisions in Target Holdings Ltd v Redferns and AIB Group (UK) Plc v Mark Redler & Co Solicitors confirm that the appropriate test is the “but for” test. If the loss would have occurred regardless of the trustee’s breach, liability will not arise. Consequently, modern trust law seeks to ensure that equitable compensation reflects actual loss caused by wrongdoing rather than imposing liability for losses that would have occurred in any event.
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).
Introduction
Establishing that a trustee has committed a breach of trust does not automatically result in liability. A beneficiary must also demonstrate that the breach caused a loss to the trust fund or enabled the trustee to obtain an unauthorised profit. This requirement is known as causation.
Causation serves as an important limitation on trustee liability because it ensures that trustees are only held responsible for losses that are actually connected to their wrongdoing. If the same loss would have occurred regardless of the breach, then the trustee will generally not be liable to compensate the beneficiaries.
The law of trusts adopts a similar approach to other areas of private law by requiring a causal link between the wrongful act and the loss suffered. However, the principles have developed within equity and are applied in a manner consistent with the objectives of trust law.
The Requirement of a Causal Link
Before equitable compensation can be awarded, the court must be satisfied that there is a sufficient connection between the breach of trust and the loss suffered by the trust.
The court therefore asks whether the trustee’s conduct actually caused the loss complained of by the beneficiary.
If the breach had no impact on the outcome and the loss would have occurred in any event, the trustee will not be liable despite having committed a breach of trust.
This principle reflects the broader equitable objective of restoring the trust fund rather than punishing trustees for technical breaches that have caused no damage.
The “But For” Test
The primary test for causation in breach of trust claims is the “but for” test.
The court asks:
Would the loss have occurred but for the trustee’s breach of trust?
If the answer is no, the breach caused the loss and liability will generally follow.
If the answer is yes, the trustee’s conduct was not the cause of the loss and compensation will not be awarded.
The “but for” test therefore focuses on factual causation rather than simply identifying wrongdoing.
Target Holdings Ltd v Redferns [1996] AC 421
The leading authority on causation in breach of trust claims is Target Holdings Ltd v Redferns.
The claimant lender agreed to advance approximately £1.5 million to finance the purchase of two properties. The defendants were solicitors acting 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 solicitors were not authorised to release the money until completion. However, they released the funds several days early, thereby committing a breach of trust.
The property transaction subsequently completed as planned. Unfortunately, the purchasers later defaulted on the mortgage. When the lender enforced its security, it discovered that the properties were worth only £775,000 rather than the £2 million previously represented. As a result, the lender suffered a substantial shortfall.
The lender argued that because the solicitors had committed a breach of trust by releasing the money prematurely, they should compensate the lender for the entire loss.
Decision in Target Holdings
The House of Lords rejected the lender’s claim.
Although the solicitors had clearly acted in breach of trust, the court held that the breach did not cause the loss suffered by the lender.
The evidence demonstrated that even if the solicitors had complied with their instructions and released the money only upon completion, the transaction would still have completed in exactly the same way. The lender would still have received inadequate security and would still have suffered the same loss when the borrowers defaulted.
Consequently, the loss would have occurred regardless of the breach.
Applying the “but for” test, the court concluded that the breach was not the cause of the claimant’s loss.
Significance of Target Holdings
Target Holdings established that trustees are liable only for losses that are actually caused by their breach of trust.
The case marked an important shift away from the older view that trustees might be strictly liable for all losses associated with trust property once a breach had occurred.
Instead, equitable compensation became more closely linked to causation and the actual consequences of the trustee’s misconduct.
Example of Successful Causation
Suppose a trustee is instructed not to release £500,000 of trust funds until certain contractual conditions have been satisfied.
Ignoring those instructions, the trustee transfers the money immediately to a purchaser who subsequently disappears with the funds.
Had the trustee retained the money as required, the loss would never have occurred.
Applying the “but for” test, the trustee’s breach clearly caused the loss and equitable compensation would likely be awarded.
Example Where Causation Is Not Established
Suppose a trustee releases trust funds one day earlier than authorised.
However, the transaction completes successfully the following day exactly as intended.
Several years later, an economic recession causes the investment to fail.
The beneficiaries argue that the early release constituted a breach of trust.
Although a breach occurred, the loss resulted from the recession rather than the premature transfer of funds. The loss would have occurred regardless of the breach.
Applying the “but for” test, causation is not established and the trustee is unlikely to be liable for the loss.
AIB Group (UK) Plc v Mark Redler & Co Solicitors [2015] AC 1503
The principles established in Target Holdings were reaffirmed by the Supreme Court in AIB Group (UK) Plc v Mark Redler & Co Solicitors.
The case involved solicitors acting as trustees who incorrectly distributed mortgage funds during a refinancing transaction. The claimant argued that the solicitors should be liable for the entirety of the lender’s losses.
The Supreme Court rejected this argument and emphasised that equitable compensation should reflect only the loss actually caused by the breach.
Lord Toulson stated that, absent fraud, it would be wrong to require a trustee to compensate beneficiaries for losses that would have been suffered even if the trustee had properly performed their duties.
The court therefore confirmed the continuing authority of Target Holdings and the central importance of causation in breach of trust claims.
Causation and Equitable Compensation
The requirement of causation plays a crucial role in determining the amount of equitable compensation.
The objective of equitable compensation is to restore the trust fund to the position it would have occupied had the breach not occurred.
Accordingly, compensation should correspond to the actual loss caused by the trustee’s misconduct rather than losses arising from unrelated events.
This ensures that beneficiaries are fairly compensated without imposing disproportionate liability upon trustees.
Relationship with Remoteness
Although causation and remoteness are closely related concepts, they are distinct.
Causation asks whether the breach caused the loss.
Remoteness asks whether the loss is sufficiently connected to the breach to justify recovery.
Following Target Holdings and AIB Group, the courts have generally focused on causation rather than importing complex common law rules of remoteness into equitable compensation claims.
The key question remains whether the loss would have occurred but for the breach.
Comprehensive Case Study
Facts
Daniel is trustee of a trust worth £5 million.
The trust deed requires him to retain trust funds until all contractual conditions have been satisfied. Instead, Daniel releases £1 million to a purchaser two weeks early.
The purchaser subsequently completes the transaction exactly as anticipated.
Five years later, a collapse in the property market causes the investment to lose £700,000 in value.
The beneficiaries bring a claim against Daniel.
Analysis
Daniel has committed a breach of trust by releasing the money prematurely.
However, the court must determine whether the breach caused the loss.
The evidence shows that the transaction would have completed regardless of whether the funds had been released early or on the correct date. The subsequent loss arose from market conditions rather than the premature transfer.
Applying the “but for” test established in Target Holdings, the beneficiaries cannot demonstrate that the breach caused the loss.
Outcome
Although Daniel committed a breach of trust, he is unlikely to be liable for the £700,000 loss because causation has not been established.
Conclusion
Causation is a fundamental requirement in breach of trust claims. Beneficiaries must demonstrate not only that a breach occurred but also that the breach caused the loss suffered by the trust. The leading decisions in Target Holdings Ltd v Redferns and AIB Group (UK) Plc v Mark Redler & Co Solicitors confirm that the appropriate test is the “but for” test. If the loss would have occurred regardless of the trustee’s breach, liability will not arise. Consequently, modern trust law seeks to ensure that equitable compensation reflects actual loss caused by wrongdoing rather than imposing liability for losses that would have occurred in any event.
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).
- Published on
SQE – Equity and Trust – Remoteness of Damage in Breach of Trust Claims
Introduction
Once a trustee has been found to have committed a breach of trust, the court must determine whether the loss suffered by the beneficiaries was caused by that breach and, if so, the extent of the trustee’s liability. This raises the closely related concepts of causation and remoteness of damage.
In many cases, losses may result from a combination of factors, including the actions of trustees, third parties, market fluctuations, economic events, or the conduct of beneficiaries themselves. The question therefore arises whether the trustee must be the sole cause of the loss or whether it is sufficient that the breach contributed to the loss.
Unlike common law claims in negligence, where complex rules of remoteness and foreseeability often apply, equity adopts a different approach when assessing trustee liability. The courts generally focus on whether the loss would have occurred “but for” the trustee’s breach of trust.
The Concept of Remoteness
Remoteness concerns the connection between the trustee’s breach and the loss suffered by the trust. The court must determine whether the loss is sufficiently linked to the breach to justify imposing liability.
In common law negligence, a defendant is generally liable only for losses that are reasonably foreseeable. However, equity has traditionally adopted a stricter approach towards trustees because of the fiduciary nature of the trustee-beneficiary relationship.
The rationale is that trustees voluntarily assume responsibility for managing trust property and should therefore bear a high level of accountability when their misconduct causes loss.
Causation and the “But For” Test
The primary test used in breach of trust cases is the “but for” test.
The court asks:
Would the loss have occurred but for the trustee’s breach of trust?
If the answer is no, the trustee will generally be liable.
This test focuses on factual causation rather than foreseeability.
Consequently, beneficiaries are not usually required to demonstrate that the trustee’s breach was the sole cause of the loss. It is generally sufficient to show that the breach was a cause of the loss.
Target Holdings Ltd v Redferns
The leading authority is Target Holdings Ltd v Redferns [1996] AC 421.
In this case, solicitors acting as trustees released mortgage funds prematurely and thereby acted in breach of trust. The issue was whether they should be liable for all losses suffered by the lender or only those losses actually caused by the breach.
The House of Lords held that equitable compensation should be awarded only for losses flowing from the breach itself. Lord Browne-Wilkinson emphasised that common law rules of remoteness do not apply directly to equitable compensation claims.
Instead, the court focused upon causation and asked whether the claimant’s loss would have occurred but for the trustee’s breach.
The case therefore established that trustee liability depends primarily upon establishing a causal connection between the breach and the loss.
Example of the “But For” Test
Suppose a trustee improperly releases £1 million from a trust account to a property developer before all contractual conditions have been satisfied.
The developer subsequently becomes insolvent and the money is lost.
The court would ask whether the loss would have occurred if the trustee had complied with their duties and retained the money until completion.
If the answer is that the money would have been protected had the trustee acted properly, the trustee will likely be liable for the loss.
The Role of Third Parties
A breach of trust may involve the actions of third parties such as dishonest assistants, knowing recipients, investment advisers, solicitors, or financial institutions.
The involvement of third parties does not necessarily break the chain of causation.
A trustee may still be liable where their breach contributed to the loss, even if another person also played a role.
Equity is primarily concerned with determining whether the trustee’s breach was a factual cause of the loss.
Example Involving Multiple Causes
Suppose trustees negligently invest £2 million in a speculative venture after receiving flawed advice from an investment consultant.
The investment subsequently fails because of both poor advice and an unexpected economic recession.
The trustees may still be liable if the beneficiaries can demonstrate that the loss would not have occurred but for the trustees’ improper investment decision.
The fact that other factors contributed to the loss does not necessarily relieve the trustees of responsibility.
Nestle v National Westminster Bank Plc
An important illustration of the difficulties associated with causation is provided by Nestle v National Westminster Bank Plc [1993] 1 WLR 1260.
The claimant argued that trustees had failed to manage trust investments properly over many years. It was alleged that the trustees misunderstood the scope of their investment powers and adopted an excessively conservative investment strategy.
The claimant argued that, had the trustees invested differently, the trust fund would have achieved significantly greater growth.
The court accepted that the trustees had misunderstood their investment powers. Nevertheless, the claim failed because the claimant could not establish that the trust had actually suffered loss as a result of the breach.
The difficulty lay in proving what would have happened if different investments had been selected. The court could not reliably determine whether alternative shares would have generated better returns than those actually chosen.
The Burden of Proof
Nestle demonstrates that the burden of proof remains on the claimant.
A beneficiary must establish:
Example of Failure to Establish Loss
Suppose trustees fail to invest trust money in technology stocks.
The beneficiaries later argue that had the trustees invested in those companies, the trust would have earned an additional £5 million.
However, the beneficiaries cannot establish which specific shares should have been purchased or whether those shares would actually have increased in value.
In these circumstances, the claim may fail because the alleged loss remains speculative.
Equity’s Approach Compared with Common Law
The equitable approach differs significantly from common law negligence.
At common law, courts frequently ask whether the damage was reasonably foreseeable and whether it is too remote.
In equity, the primary focus is on restoring the trust fund and holding trustees accountable for breaches of duty.
Consequently, once causation is established, equity tends to favour the beneficiaries and may assess compensation with the benefit of hindsight.
Nevertheless, beneficiaries must still prove that the breach actually caused the loss complained of.
Relationship with Equitable Compensation
Remoteness issues frequently arise when courts assess 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 claimant must therefore establish a causal link between the breach and the loss requiring restoration.
Where this link cannot be demonstrated, equitable compensation will not be awarded.
Comprehensive Case Study
Facts
Daniel is trustee of a family trust worth £10 million.
The trust deed permits low-risk investments only.
Daniel improperly invests £4 million in speculative cryptocurrency assets.
At the same time, the global economy enters a severe recession and cryptocurrency markets collapse.
The trust loses £3 million.
The beneficiaries bring proceedings against Daniel.
Analysis
The court first determines whether Daniel breached his duties. Since the trust deed authorised only low-risk investments, the speculative investment constitutes a breach of trust.
The court then considers causation. The beneficiaries must show that the loss would not have occurred but for Daniel’s improper investment decision.
Daniel argues that the recession would have caused losses regardless of his actions.
The court must therefore determine whether the losses resulted from the breach itself or from external market conditions.
If the beneficiaries establish that the trust would have avoided the losses had Daniel complied with the trust deed, he will likely be liable for equitable compensation.
Outcome
Daniel may be required to restore the trust fund by paying compensation equal to the losses attributable to his breach.
Conclusion
The doctrine of remoteness in breach of trust claims differs significantly from its common law counterpart. Equity focuses primarily on causation rather than foreseeability, applying the “but for” test to determine whether a trustee’s breach caused the loss suffered by the trust. Target Holdings confirms that common law remoteness principles do not directly apply to equitable compensation claims, while Nestle demonstrates the practical difficulties beneficiaries may face in proving that a breach caused measurable loss. Ultimately, trustees will be liable where beneficiaries can establish that the loss would not have occurred but for the breach of trust, but claims will fail where the alleged damage remains speculative or cannot be causally connected to the wrongdoing.
References
Target Holdings Ltd v Redferns [1996] AC 421.
Nestle v National Westminster Bank Plc [1993] 1 WLR 1260.
Bartlett v Barclays Bank Trust Co Ltd (No 2) [1980] Ch 515.
Hulbert v Avens [2003] EWHC 76 (Ch).
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, Oxford University Press 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, Oxford University Press 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).
Introduction
Once a trustee has been found to have committed a breach of trust, the court must determine whether the loss suffered by the beneficiaries was caused by that breach and, if so, the extent of the trustee’s liability. This raises the closely related concepts of causation and remoteness of damage.
In many cases, losses may result from a combination of factors, including the actions of trustees, third parties, market fluctuations, economic events, or the conduct of beneficiaries themselves. The question therefore arises whether the trustee must be the sole cause of the loss or whether it is sufficient that the breach contributed to the loss.
Unlike common law claims in negligence, where complex rules of remoteness and foreseeability often apply, equity adopts a different approach when assessing trustee liability. The courts generally focus on whether the loss would have occurred “but for” the trustee’s breach of trust.
The Concept of Remoteness
Remoteness concerns the connection between the trustee’s breach and the loss suffered by the trust. The court must determine whether the loss is sufficiently linked to the breach to justify imposing liability.
In common law negligence, a defendant is generally liable only for losses that are reasonably foreseeable. However, equity has traditionally adopted a stricter approach towards trustees because of the fiduciary nature of the trustee-beneficiary relationship.
The rationale is that trustees voluntarily assume responsibility for managing trust property and should therefore bear a high level of accountability when their misconduct causes loss.
Causation and the “But For” Test
The primary test used in breach of trust cases is the “but for” test.
The court asks:
Would the loss have occurred but for the trustee’s breach of trust?
If the answer is no, the trustee will generally be liable.
This test focuses on factual causation rather than foreseeability.
Consequently, beneficiaries are not usually required to demonstrate that the trustee’s breach was the sole cause of the loss. It is generally sufficient to show that the breach was a cause of the loss.
Target Holdings Ltd v Redferns
The leading authority is Target Holdings Ltd v Redferns [1996] AC 421.
In this case, solicitors acting as trustees released mortgage funds prematurely and thereby acted in breach of trust. The issue was whether they should be liable for all losses suffered by the lender or only those losses actually caused by the breach.
The House of Lords held that equitable compensation should be awarded only for losses flowing from the breach itself. Lord Browne-Wilkinson emphasised that common law rules of remoteness do not apply directly to equitable compensation claims.
Instead, the court focused upon causation and asked whether the claimant’s loss would have occurred but for the trustee’s breach.
The case therefore established that trustee liability depends primarily upon establishing a causal connection between the breach and the loss.
Example of the “But For” Test
Suppose a trustee improperly releases £1 million from a trust account to a property developer before all contractual conditions have been satisfied.
The developer subsequently becomes insolvent and the money is lost.
The court would ask whether the loss would have occurred if the trustee had complied with their duties and retained the money until completion.
If the answer is that the money would have been protected had the trustee acted properly, the trustee will likely be liable for the loss.
The Role of Third Parties
A breach of trust may involve the actions of third parties such as dishonest assistants, knowing recipients, investment advisers, solicitors, or financial institutions.
The involvement of third parties does not necessarily break the chain of causation.
A trustee may still be liable where their breach contributed to the loss, even if another person also played a role.
Equity is primarily concerned with determining whether the trustee’s breach was a factual cause of the loss.
Example Involving Multiple Causes
Suppose trustees negligently invest £2 million in a speculative venture after receiving flawed advice from an investment consultant.
The investment subsequently fails because of both poor advice and an unexpected economic recession.
The trustees may still be liable if the beneficiaries can demonstrate that the loss would not have occurred but for the trustees’ improper investment decision.
The fact that other factors contributed to the loss does not necessarily relieve the trustees of responsibility.
Nestle v National Westminster Bank Plc
An important illustration of the difficulties associated with causation is provided by Nestle v National Westminster Bank Plc [1993] 1 WLR 1260.
The claimant argued that trustees had failed to manage trust investments properly over many years. It was alleged that the trustees misunderstood the scope of their investment powers and adopted an excessively conservative investment strategy.
The claimant argued that, had the trustees invested differently, the trust fund would have achieved significantly greater growth.
The court accepted that the trustees had misunderstood their investment powers. Nevertheless, the claim failed because the claimant could not establish that the trust had actually suffered loss as a result of the breach.
The difficulty lay in proving what would have happened if different investments had been selected. The court could not reliably determine whether alternative shares would have generated better returns than those actually chosen.
The Burden of Proof
Nestle demonstrates that the burden of proof remains on the claimant.
A beneficiary must establish:
- A breach of trust;
- A resulting loss; and
- A causal connection between the breach and the loss.
Example of Failure to Establish Loss
Suppose trustees fail to invest trust money in technology stocks.
The beneficiaries later argue that had the trustees invested in those companies, the trust would have earned an additional £5 million.
However, the beneficiaries cannot establish which specific shares should have been purchased or whether those shares would actually have increased in value.
In these circumstances, the claim may fail because the alleged loss remains speculative.
Equity’s Approach Compared with Common Law
The equitable approach differs significantly from common law negligence.
At common law, courts frequently ask whether the damage was reasonably foreseeable and whether it is too remote.
In equity, the primary focus is on restoring the trust fund and holding trustees accountable for breaches of duty.
Consequently, once causation is established, equity tends to favour the beneficiaries and may assess compensation with the benefit of hindsight.
Nevertheless, beneficiaries must still prove that the breach actually caused the loss complained of.
Relationship with Equitable Compensation
Remoteness issues frequently arise when courts assess 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 claimant must therefore establish a causal link between the breach and the loss requiring restoration.
Where this link cannot be demonstrated, equitable compensation will not be awarded.
Comprehensive Case Study
Facts
Daniel is trustee of a family trust worth £10 million.
The trust deed permits low-risk investments only.
Daniel improperly invests £4 million in speculative cryptocurrency assets.
At the same time, the global economy enters a severe recession and cryptocurrency markets collapse.
The trust loses £3 million.
The beneficiaries bring proceedings against Daniel.
Analysis
The court first determines whether Daniel breached his duties. Since the trust deed authorised only low-risk investments, the speculative investment constitutes a breach of trust.
The court then considers causation. The beneficiaries must show that the loss would not have occurred but for Daniel’s improper investment decision.
Daniel argues that the recession would have caused losses regardless of his actions.
The court must therefore determine whether the losses resulted from the breach itself or from external market conditions.
If the beneficiaries establish that the trust would have avoided the losses had Daniel complied with the trust deed, he will likely be liable for equitable compensation.
Outcome
Daniel may be required to restore the trust fund by paying compensation equal to the losses attributable to his breach.
Conclusion
The doctrine of remoteness in breach of trust claims differs significantly from its common law counterpart. Equity focuses primarily on causation rather than foreseeability, applying the “but for” test to determine whether a trustee’s breach caused the loss suffered by the trust. Target Holdings confirms that common law remoteness principles do not directly apply to equitable compensation claims, while Nestle demonstrates the practical difficulties beneficiaries may face in proving that a breach caused measurable loss. Ultimately, trustees will be liable where beneficiaries can establish that the loss would not have occurred but for the breach of trust, but claims will fail where the alleged damage remains speculative or cannot be causally connected to the wrongdoing.
References
Target Holdings Ltd v Redferns [1996] AC 421.
Nestle v National Westminster Bank Plc [1993] 1 WLR 1260.
Bartlett v Barclays Bank Trust Co Ltd (No 2) [1980] Ch 515.
Hulbert v Avens [2003] EWHC 76 (Ch).
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).
- Published on
SQE – Equity and Trust – Liability for the Acts of Agents
Introduction
Trustees are generally expected to administer trusts personally and to exercise their powers and duties in accordance with the trust instrument and their fiduciary obligations. However, modern trust administration often requires specialist expertise in areas such as investment management, accounting, taxation, and property management. As a result, trustees frequently delegate certain functions to professional agents.
The delegation of responsibilities raises an important legal issue: if an agent commits an error or causes loss to the trust fund, who bears responsibility? The answer depends upon the statutory basis of the delegation and whether the trustees have complied with their legal duties when appointing and supervising the agent.
The General Principle
The appointment of an agent does not automatically relieve trustees of their responsibilities. Trustees remain fiduciaries and continue to owe duties to beneficiaries. They must therefore exercise reasonable care when selecting agents, provide appropriate instructions, and supervise the performance of delegated functions.
Whether trustees are personally liable for an agent’s acts depends upon the type of delegation used and the extent to which trustees have complied with their statutory obligations.
Individual Delegation Under Section 25 Trustee Act 1925
Section 25 of the Trustee Act 1925 permits a trustee to delegate powers through a power of attorney. This form of delegation is usually temporary and enables another person to perform trust functions on behalf of the trustee.
A significant feature of section 25 is that it imposes strict liability upon the appointing trustee. Section 25(7) provides that the trustee remains responsible for the acts and defaults of the attorney. Consequently, even where the trustee has acted honestly and carefully in making the appointment, liability may still arise if the attorney causes loss to the trust.
This strict approach explains why section 25 is relatively uncommon in modern trust administration.
Example of Individual Delegation
Suppose Sarah is the trustee of a family trust worth £2 million. Before travelling overseas, she appoints her brother as attorney under section 25. During her absence, the attorney improperly withdraws £300,000 from the trust account and uses the money for personal purposes.
Although Sarah selected her brother carefully and had no reason to suspect wrongdoing, she may nevertheless be personally liable for the loss because section 25(7) imposes strict liability upon the appointing trustee.
Collective Delegation Under the Trustee Act 2000
The Trustee Act 2000 introduced a more flexible and commercially realistic approach to delegation. Section 11 allows trustees collectively to delegate a wide range of administrative and investment functions to professional agents.
This reflects the reality that modern trust administration often requires specialist knowledge that trustees themselves may not possess. Investment managers, solicitors, accountants, and surveyors are therefore commonly appointed to assist trustees in carrying out their duties.
Unlike section 25 of the Trustee Act 1925, delegation under the Trustee Act 2000 does not automatically result in trustee liability if the agent makes a mistake.
Liability Under Section 23 Trustee Act 2000
Section 23 of the Trustee Act 2000 provides that trustees will only be liable for the acts or defaults of an agent where they have failed to comply with their statutory obligations when selecting, instructing, or supervising that agent.
Consequently, trustees are not liable simply because an agent performs poorly or makes an incorrect decision. Liability arises only where the trustees themselves have failed to exercise reasonable care.
This represents a significant departure from the strict liability approach adopted under section 25 of the Trustee Act 1925.
The Statutory Duty of Care
When appointing and supervising agents, trustees must comply with the statutory duty of care contained in section 1 of the Trustee Act 2000.
The duty requires trustees to exercise such care and skill as is reasonable in the circumstances, taking into account any special knowledge or expertise that they possess. Professional trustees are therefore expected to meet a higher standard than ordinary lay trustees.
Reasonable care may require trustees to investigate an agent’s qualifications, experience, professional reputation, and suitability before making an appointment.
The Requirement to Provide a Policy Statement
Section 15 of the Trustee Act 2000 requires trustees to provide agents with a written policy statement.
The policy statement establishes the framework within which the agent is expected to operate. It may specify investment objectives, acceptable levels of risk, ethical considerations, or restrictions on particular transactions.
This requirement ensures that agents understand the trustees’ expectations and act consistently with the interests of the beneficiaries.
The Duty to Keep the Agent Under Review
Trustees must not simply appoint an agent and then ignore their activities. Section 22 of the Trustee Act 2000 requires trustees to keep the agent’s performance under regular review.
This involves monitoring reports, assessing investment performance, reviewing decisions, and determining whether the delegation remains appropriate.
Failure to supervise an agent adequately may expose trustees to personal liability, even where the original appointment was reasonable.
Example of Proper Delegation
Assume that trustees appoint a qualified investment manager to manage a trust portfolio worth £10 million. Before making the appointment, they investigate the manager’s qualifications, issue a detailed policy statement, and regularly review performance reports.
Despite these precautions, the investment manager makes a series of poor investment decisions that result in losses of £1 million.
In these circumstances, the trustees are unlikely to be personally liable. They have complied with their statutory obligations and exercised reasonable care throughout the delegation process. The loss arises from the agent’s mistakes rather than any breach by the trustees.
Example of Trustee Liability
Suppose instead that trustees appoint a friend with no investment experience to manage a trust fund worth £5 million. No due diligence is undertaken, no policy statement is issued, and the trustees fail to monitor the agent’s activities.
The agent subsequently loses £2 million through reckless investments.
In this situation, the trustees are likely to be personally liable because they have failed to comply with their statutory duties under sections 1, 15, and 22 of the Trustee Act 2000.
Indemnities Upon Retirement
When a trustee retires, they may seek an indemnity from the continuing trustees. An indemnity is a promise that the continuing trustees will assume responsibility for certain liabilities that may arise after retirement.
Such indemnities are particularly important where there is concern about future claims relating to the administration of the trust. However, negotiating indemnities can be difficult, especially where there may have been prior breaches of trust or uncertainty regarding potential liability.
Exclusion Clauses and Agent Liability
Trustees may also benefit indirectly from exclusion clauses contained within the trust instrument. Where a trust deed excludes liability for negligence or certain breaches of trust, the clause may protect trustees from liability arising from an agent’s mistakes, provided that the trustees themselves have complied with their statutory duties.
An exclusion clause does not automatically protect trustees from dishonesty, fraud, or breaches of core fiduciary obligations, but it may provide significant protection in relation to ordinary administrative errors.
Relationship with Remedies for Breach of Trust
Where trustees fail to comply with their duties regarding delegation, beneficiaries may pursue a range of remedies. These include equitable compensation, restoration of trust property, tracing, constructive trusts, equitable liens, and interest on sums improperly administered.
Conversely, where trustees have exercised reasonable care and complied with the Trustee Act 2000, they will generally avoid personal liability even if the agent’s conduct causes substantial losses to the trust.
Conclusion
The law governing liability for the acts of agents seeks to balance the practical necessity of delegation with the need to protect beneficiaries. While section 25 of the Trustee Act 1925 imposes strict liability on trustees who delegate through powers of attorney, the Trustee Act 2000 adopts a more flexible approach that focuses on whether trustees have exercised reasonable care. Provided trustees comply with their duties when selecting, instructing, and supervising agents, they will generally not be liable for an agent’s mistakes. Modern trust law therefore recognises the importance of professional delegation while ensuring that trustees remain accountable for the proper administration of trust property.
References
Trustee Act 1925, s 25.
Trustee Act 2000, ss 1, 11, 15, 22 and 23.
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, Oxford University Press 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, Oxford University Press 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).
Introduction
Trustees are generally expected to administer trusts personally and to exercise their powers and duties in accordance with the trust instrument and their fiduciary obligations. However, modern trust administration often requires specialist expertise in areas such as investment management, accounting, taxation, and property management. As a result, trustees frequently delegate certain functions to professional agents.
The delegation of responsibilities raises an important legal issue: if an agent commits an error or causes loss to the trust fund, who bears responsibility? The answer depends upon the statutory basis of the delegation and whether the trustees have complied with their legal duties when appointing and supervising the agent.
The General Principle
The appointment of an agent does not automatically relieve trustees of their responsibilities. Trustees remain fiduciaries and continue to owe duties to beneficiaries. They must therefore exercise reasonable care when selecting agents, provide appropriate instructions, and supervise the performance of delegated functions.
Whether trustees are personally liable for an agent’s acts depends upon the type of delegation used and the extent to which trustees have complied with their statutory obligations.
Individual Delegation Under Section 25 Trustee Act 1925
Section 25 of the Trustee Act 1925 permits a trustee to delegate powers through a power of attorney. This form of delegation is usually temporary and enables another person to perform trust functions on behalf of the trustee.
A significant feature of section 25 is that it imposes strict liability upon the appointing trustee. Section 25(7) provides that the trustee remains responsible for the acts and defaults of the attorney. Consequently, even where the trustee has acted honestly and carefully in making the appointment, liability may still arise if the attorney causes loss to the trust.
This strict approach explains why section 25 is relatively uncommon in modern trust administration.
Example of Individual Delegation
Suppose Sarah is the trustee of a family trust worth £2 million. Before travelling overseas, she appoints her brother as attorney under section 25. During her absence, the attorney improperly withdraws £300,000 from the trust account and uses the money for personal purposes.
Although Sarah selected her brother carefully and had no reason to suspect wrongdoing, she may nevertheless be personally liable for the loss because section 25(7) imposes strict liability upon the appointing trustee.
Collective Delegation Under the Trustee Act 2000
The Trustee Act 2000 introduced a more flexible and commercially realistic approach to delegation. Section 11 allows trustees collectively to delegate a wide range of administrative and investment functions to professional agents.
This reflects the reality that modern trust administration often requires specialist knowledge that trustees themselves may not possess. Investment managers, solicitors, accountants, and surveyors are therefore commonly appointed to assist trustees in carrying out their duties.
Unlike section 25 of the Trustee Act 1925, delegation under the Trustee Act 2000 does not automatically result in trustee liability if the agent makes a mistake.
Liability Under Section 23 Trustee Act 2000
Section 23 of the Trustee Act 2000 provides that trustees will only be liable for the acts or defaults of an agent where they have failed to comply with their statutory obligations when selecting, instructing, or supervising that agent.
Consequently, trustees are not liable simply because an agent performs poorly or makes an incorrect decision. Liability arises only where the trustees themselves have failed to exercise reasonable care.
This represents a significant departure from the strict liability approach adopted under section 25 of the Trustee Act 1925.
The Statutory Duty of Care
When appointing and supervising agents, trustees must comply with the statutory duty of care contained in section 1 of the Trustee Act 2000.
The duty requires trustees to exercise such care and skill as is reasonable in the circumstances, taking into account any special knowledge or expertise that they possess. Professional trustees are therefore expected to meet a higher standard than ordinary lay trustees.
Reasonable care may require trustees to investigate an agent’s qualifications, experience, professional reputation, and suitability before making an appointment.
The Requirement to Provide a Policy Statement
Section 15 of the Trustee Act 2000 requires trustees to provide agents with a written policy statement.
The policy statement establishes the framework within which the agent is expected to operate. It may specify investment objectives, acceptable levels of risk, ethical considerations, or restrictions on particular transactions.
This requirement ensures that agents understand the trustees’ expectations and act consistently with the interests of the beneficiaries.
The Duty to Keep the Agent Under Review
Trustees must not simply appoint an agent and then ignore their activities. Section 22 of the Trustee Act 2000 requires trustees to keep the agent’s performance under regular review.
This involves monitoring reports, assessing investment performance, reviewing decisions, and determining whether the delegation remains appropriate.
Failure to supervise an agent adequately may expose trustees to personal liability, even where the original appointment was reasonable.
Example of Proper Delegation
Assume that trustees appoint a qualified investment manager to manage a trust portfolio worth £10 million. Before making the appointment, they investigate the manager’s qualifications, issue a detailed policy statement, and regularly review performance reports.
Despite these precautions, the investment manager makes a series of poor investment decisions that result in losses of £1 million.
In these circumstances, the trustees are unlikely to be personally liable. They have complied with their statutory obligations and exercised reasonable care throughout the delegation process. The loss arises from the agent’s mistakes rather than any breach by the trustees.
Example of Trustee Liability
Suppose instead that trustees appoint a friend with no investment experience to manage a trust fund worth £5 million. No due diligence is undertaken, no policy statement is issued, and the trustees fail to monitor the agent’s activities.
The agent subsequently loses £2 million through reckless investments.
In this situation, the trustees are likely to be personally liable because they have failed to comply with their statutory duties under sections 1, 15, and 22 of the Trustee Act 2000.
Indemnities Upon Retirement
When a trustee retires, they may seek an indemnity from the continuing trustees. An indemnity is a promise that the continuing trustees will assume responsibility for certain liabilities that may arise after retirement.
Such indemnities are particularly important where there is concern about future claims relating to the administration of the trust. However, negotiating indemnities can be difficult, especially where there may have been prior breaches of trust or uncertainty regarding potential liability.
Exclusion Clauses and Agent Liability
Trustees may also benefit indirectly from exclusion clauses contained within the trust instrument. Where a trust deed excludes liability for negligence or certain breaches of trust, the clause may protect trustees from liability arising from an agent’s mistakes, provided that the trustees themselves have complied with their statutory duties.
An exclusion clause does not automatically protect trustees from dishonesty, fraud, or breaches of core fiduciary obligations, but it may provide significant protection in relation to ordinary administrative errors.
Relationship with Remedies for Breach of Trust
Where trustees fail to comply with their duties regarding delegation, beneficiaries may pursue a range of remedies. These include equitable compensation, restoration of trust property, tracing, constructive trusts, equitable liens, and interest on sums improperly administered.
Conversely, where trustees have exercised reasonable care and complied with the Trustee Act 2000, they will generally avoid personal liability even if the agent’s conduct causes substantial losses to the trust.
Conclusion
The law governing liability for the acts of agents seeks to balance the practical necessity of delegation with the need to protect beneficiaries. While section 25 of the Trustee Act 1925 imposes strict liability on trustees who delegate through powers of attorney, the Trustee Act 2000 adopts a more flexible approach that focuses on whether trustees have exercised reasonable care. Provided trustees comply with their duties when selecting, instructing, and supervising agents, they will generally not be liable for an agent’s mistakes. Modern trust law therefore recognises the importance of professional delegation while ensuring that trustees remain accountable for the proper administration of trust property.
References
Trustee Act 1925, s 25.
Trustee Act 2000, ss 1, 11, 15, 22 and 23.
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).
- Published on
SQE – Equity and Trust – Assessing the Extent of Trustee Liability
Introduction
Once a trustee has been found liable for a breach of trust, the next question is:
How much must the trustee pay?
The courts assess liability by reference to two principal measures:
The Two Main Measures of Liability
1. Loss to the Trust Fund
The first measure focuses on:
✅ restoring the trust fund.
The court asks:
What position would the trust have been in if the breach had never occurred?
If the trustee’s actions caused loss, the trustee must compensate the trust accordingly.
2. Unauthorised Gain
The second measure focuses on:
✅ stripping profits from the trustee.
The court asks:
What benefit did the trustee obtain through the breach?
The trustee may be ordered to surrender those profits even if the trust itself suffered little or no loss.
Compensatory Liability
Where a breach causes financial loss, the trustee must restore the trust fund.
This principle was applied in:
Bartlett v Barclays Bank Trust Co Ltd (No 2).
The objective is to put the trust in the position it would have occupied had the breach not occurred.
Equity vs Common Law Damages
Although equitable compensation resembles damages, important differences exist.
Common Law
Focuses primarily on:
✅ the claimant’s loss.
Equity
Focuses on:
✅ restoring the trust fund;
✅ protecting beneficiaries;
✅ preventing trustees from benefiting from wrongdoing.
Equity therefore tends to favour beneficiaries where uncertainty exists.
Assessment Date
One of the most important differences is the timing of assessment.
Common Law
Loss is usually assessed at the:
❌ date of breach.
Equity
Loss is generally assessed at the:
✅ date of judgment,
using the full benefit of hindsight.
Target Holdings v Redferns
This principle was considered in:
Target Holdings Ltd v Redferns.
The court recognised that equitable compensation seeks to restore the trust fund rather than simply measure loss at the moment of breach.
Hulbert v Avens
The principle was subsequently applied in:
Hulbert v Avens.
Example 1 – Compensatory Liability
Facts
Daniel is trustee of a trust.
He should have sold trust shares in:
2020
when they were worth:
£500,000.
Instead, he improperly retains them.
By trial in:
2025
the shares are worth:
£150,000.
Loss
£500,000 − £150,000
= £350,000
Remedy
Daniel must compensate the trust:
£350,000.
Fry v Fry
The principle is illustrated by:
Fry v Fry.
A trustee who improperly retained investments was liable for the difference between:
Gain-Based Liability
Sometimes the trustee personally profits from the breach.
In these cases, equity may focus on:
✅ the trustee’s gain rather than the trust’s loss.
Purpose
The objective is to ensure:
fiduciaries must not profit from their position.
Example 2 – Unauthorised Profit
Facts
Daniel uses trust information to purchase land personally.
Purchase price:
£200,000.
Land later worth:
£1.5 million.
Profit
£1.3 million.
Remedy
The court may order:
Highest Value Rule
Historically, courts sometimes calculated profit liability by reference to:
✅ the highest value achieved before judgment.
This approach appeared in:
Nant-y-glo and Blaina Ironworks Co v Grave.
However, this authority has not been consistently followed.
Election Between Loss and Gain
A crucial rule is that beneficiaries cannot usually recover:
❌ both compensation for loss and the trustee’s profit.
These remedies are generally:
alternative rather than cumulative.
Tang Man Sit v Capacious Investments
The leading authority is:
Tang Man Sit v Capacious Investments Ltd.
Facts
Tang agreed to transfer certain properties to the claimant.
Instead, he rented them out and retained the rental income.
Consequences
His conduct caused:
Claim
The claimant sought:
Decision
The Privy Council refused.
The claimant had to choose.
Principle
A claimant may elect either:
✅ compensatory relief;
or
✅ gain-based relief.
But generally not both.
Example 3 – Election
Facts
Trust property should have produced:
£300,000
for beneficiaries.
Instead, Daniel generates:
£600,000
personal profit.
Choice
Option A
Compensation:
£300,000
Option B
Account of profits:
£600,000
Sensible Election
The claimant chooses:
✅ £600,000.
Ramzan v Brookwide
The election principle was reaffirmed in:
Ramzan v Brookwide Ltd.
The court described loss-based and gain-based remedies as:
alternative and inconsistent remedies.
The court may treat the claimant as having elected the larger award.
Interest on Trustee Liability
Interest is generally payable.
Honest Trustee
Usually:
✅ simple interest.
Fraudulent Trustee
Usually:
✅ compound interest.
Why?
Fraudulent trustees should not benefit from retaining trust money over time.
Example 4 – Interest
Facts
Daniel misappropriates:
£500,000
for ten years.
Result
The court may order:
Set-Off of Gains Against Losses
A further issue arises where trustees have produced:
General Rule
A trustee cannot usually say:
“I lost £500,000 here, but made £500,000 elsewhere.”
The gains and losses remain separate.
Dimes v Scott
The traditional rule appears in:
Dimes v Scott.
Facts
A trustee generated profits through one investment but losses through another.
Decision
The trustee could not offset gains against losses.
Each breach was assessed independently.
Bartlett v Barclays Bank
A more flexible approach emerged in:
Bartlett v Barclays Bank Trust Co Ltd (No 2).
Principle
Set-off may be permitted where:
✅ gain and loss arise from the same transaction;
or
✅ form part of the same wrongful course of conduct.
Example 5 – Same Transaction
Facts
Daniel improperly manages one property development project.
Part A generates:
£200,000 profit.
Part B causes:
£150,000 loss.
Result
The court may permit set-off.
Net gain:
£50,000.
Criticism
The Bartlett approach has been criticised because:
“same transaction”
is difficult to define.
The resulting uncertainty makes outcomes less predictable.
Comprehensive Case Study
Facts
Daniel is trustee of the Carter Family Trust.
He improperly uses:
£1 million
to purchase commercial property.
Outcome 1
Property rises to:
£3 million.
Outcome 2
Daniel earns:
£500,000
rental income.
Outcome 3
Trust would otherwise have earned:
£700,000
through authorised investments.
Beneficiary’s Options
Proprietary Remedy
Constructive trust over property worth:
£3 million.
Account of Profits
Claim:
£500,000 rental income.
Equitable Compensation
Claim:
£700,000 lost investment return.
Election
The beneficiary cannot usually recover all three.
They must choose the most advantageous remedy.
In practice:
✅ the £3 million proprietary claim is likely preferable.
Key SQE Principles
Trustee liability is assessed by reference to:
✅ loss to the trust;
or
✅ gain to the trustee.
Loss-based remedies include:
Gain-based remedies include:
Generally:
❌ no double recovery.
The claimant must elect between inconsistent remedies.
Conclusion
The assessment of trustee liability reflects equity’s dual objectives of restoring trust property and preventing fiduciaries from profiting from wrongdoing. Where a breach causes loss, trustees must compensate the trust so that it is restored to the position it would have occupied had the breach not occurred. Where trustees obtain unauthorised gains, equity may require those gains to be surrendered through an account of profits or proprietary remedies. Cases such as Bartlett v Barclays Bank, Target Holdings, Tang Man Sit, and Ramzan demonstrate that beneficiaries must generally choose between compensatory and gain-based remedies, with the court seeking to prevent both trustee enrichment and unjust double recovery.
Sources of Reference
Bartlett v Barclays Bank Trust Co Ltd (No 2) [1980] Ch 515.
Target Holdings Ltd v Redferns [1996] AC 421.
Hulbert v Avens [2003] EWHC 76 (Ch).
Fry v Fry (1859) 54 ER 56.
Nant-y-glo and Blaina Ironworks Co v Grave (1878) 12 Ch D 738.
Tang Man Sit v Capacious Investments Ltd [1996] AC 514.
Ramzan v Brookwide Ltd [2011] 2 P & CR 32.
Dimes v Scott (1828) 38 ER 778.
Introduction
Once a trustee has been found liable for a breach of trust, the next question is:
How much must the trustee pay?
The courts assess liability by reference to two principal measures:
- Loss caused to the trust fund (compensatory liability); and
- Unauthorised gain made by the trustee (gain-based liability).
The Two Main Measures of Liability
1. Loss to the Trust Fund
The first measure focuses on:
✅ restoring the trust fund.
The court asks:
What position would the trust have been in if the breach had never occurred?
If the trustee’s actions caused loss, the trustee must compensate the trust accordingly.
2. Unauthorised Gain
The second measure focuses on:
✅ stripping profits from the trustee.
The court asks:
What benefit did the trustee obtain through the breach?
The trustee may be ordered to surrender those profits even if the trust itself suffered little or no loss.
Compensatory Liability
Where a breach causes financial loss, the trustee must restore the trust fund.
This principle was applied in:
Bartlett v Barclays Bank Trust Co Ltd (No 2).
The objective is to put the trust in the position it would have occupied had the breach not occurred.
Equity vs Common Law Damages
Although equitable compensation resembles damages, important differences exist.
Common Law
Focuses primarily on:
✅ the claimant’s loss.
Equity
Focuses on:
✅ restoring the trust fund;
✅ protecting beneficiaries;
✅ preventing trustees from benefiting from wrongdoing.
Equity therefore tends to favour beneficiaries where uncertainty exists.
Assessment Date
One of the most important differences is the timing of assessment.
Common Law
Loss is usually assessed at the:
❌ date of breach.
Equity
Loss is generally assessed at the:
✅ date of judgment,
using the full benefit of hindsight.
Target Holdings v Redferns
This principle was considered in:
Target Holdings Ltd v Redferns.
The court recognised that equitable compensation seeks to restore the trust fund rather than simply measure loss at the moment of breach.
Hulbert v Avens
The principle was subsequently applied in:
Hulbert v Avens.
Example 1 – Compensatory Liability
Facts
Daniel is trustee of a trust.
He should have sold trust shares in:
2020
when they were worth:
£500,000.
Instead, he improperly retains them.
By trial in:
2025
the shares are worth:
£150,000.
Loss
£500,000 − £150,000
= £350,000
Remedy
Daniel must compensate the trust:
£350,000.
Fry v Fry
The principle is illustrated by:
Fry v Fry.
A trustee who improperly retained investments was liable for the difference between:
- the value when they should have been sold;
and - their value at judgment.
Gain-Based Liability
Sometimes the trustee personally profits from the breach.
In these cases, equity may focus on:
✅ the trustee’s gain rather than the trust’s loss.
Purpose
The objective is to ensure:
fiduciaries must not profit from their position.
Example 2 – Unauthorised Profit
Facts
Daniel uses trust information to purchase land personally.
Purchase price:
£200,000.
Land later worth:
£1.5 million.
Profit
£1.3 million.
Remedy
The court may order:
- an account of profits;
or - a constructive trust over the land.
Highest Value Rule
Historically, courts sometimes calculated profit liability by reference to:
✅ the highest value achieved before judgment.
This approach appeared in:
Nant-y-glo and Blaina Ironworks Co v Grave.
However, this authority has not been consistently followed.
Election Between Loss and Gain
A crucial rule is that beneficiaries cannot usually recover:
❌ both compensation for loss and the trustee’s profit.
These remedies are generally:
alternative rather than cumulative.
Tang Man Sit v Capacious Investments
The leading authority is:
Tang Man Sit v Capacious Investments Ltd.
Facts
Tang agreed to transfer certain properties to the claimant.
Instead, he rented them out and retained the rental income.
Consequences
His conduct caused:
- loss to the claimant;
and - profit to Tang.
Claim
The claimant sought:
- compensation for loss;
and - surrender of profits.
Decision
The Privy Council refused.
The claimant had to choose.
Principle
A claimant may elect either:
✅ compensatory relief;
or
✅ gain-based relief.
But generally not both.
Example 3 – Election
Facts
Trust property should have produced:
£300,000
for beneficiaries.
Instead, Daniel generates:
£600,000
personal profit.
Choice
Option A
Compensation:
£300,000
Option B
Account of profits:
£600,000
Sensible Election
The claimant chooses:
✅ £600,000.
Ramzan v Brookwide
The election principle was reaffirmed in:
Ramzan v Brookwide Ltd.
The court described loss-based and gain-based remedies as:
alternative and inconsistent remedies.
The court may treat the claimant as having elected the larger award.
Interest on Trustee Liability
Interest is generally payable.
Honest Trustee
Usually:
✅ simple interest.
Fraudulent Trustee
Usually:
✅ compound interest.
Why?
Fraudulent trustees should not benefit from retaining trust money over time.
Example 4 – Interest
Facts
Daniel misappropriates:
£500,000
for ten years.
Result
The court may order:
- repayment of £500,000;
plus - compound interest.
Set-Off of Gains Against Losses
A further issue arises where trustees have produced:
- gains in some transactions;
and - losses in others.
General Rule
A trustee cannot usually say:
“I lost £500,000 here, but made £500,000 elsewhere.”
The gains and losses remain separate.
Dimes v Scott
The traditional rule appears in:
Dimes v Scott.
Facts
A trustee generated profits through one investment but losses through another.
Decision
The trustee could not offset gains against losses.
Each breach was assessed independently.
Bartlett v Barclays Bank
A more flexible approach emerged in:
Bartlett v Barclays Bank Trust Co Ltd (No 2).
Principle
Set-off may be permitted where:
✅ gain and loss arise from the same transaction;
or
✅ form part of the same wrongful course of conduct.
Example 5 – Same Transaction
Facts
Daniel improperly manages one property development project.
Part A generates:
£200,000 profit.
Part B causes:
£150,000 loss.
Result
The court may permit set-off.
Net gain:
£50,000.
Criticism
The Bartlett approach has been criticised because:
“same transaction”
is difficult to define.
The resulting uncertainty makes outcomes less predictable.
Comprehensive Case Study
Facts
Daniel is trustee of the Carter Family Trust.
He improperly uses:
£1 million
to purchase commercial property.
Outcome 1
Property rises to:
£3 million.
Outcome 2
Daniel earns:
£500,000
rental income.
Outcome 3
Trust would otherwise have earned:
£700,000
through authorised investments.
Beneficiary’s Options
Proprietary Remedy
Constructive trust over property worth:
£3 million.
Account of Profits
Claim:
£500,000 rental income.
Equitable Compensation
Claim:
£700,000 lost investment return.
Election
The beneficiary cannot usually recover all three.
They must choose the most advantageous remedy.
In practice:
✅ the £3 million proprietary claim is likely preferable.
Key SQE Principles
Trustee liability is assessed by reference to:
✅ loss to the trust;
or
✅ gain to the trustee.
Loss-based remedies include:
- equitable compensation;
- restoration of trust property;
- interest.
Gain-based remedies include:
- account of profits;
- constructive trusts;
- proprietary claims.
Generally:
❌ no double recovery.
The claimant must elect between inconsistent remedies.
Conclusion
The assessment of trustee liability reflects equity’s dual objectives of restoring trust property and preventing fiduciaries from profiting from wrongdoing. Where a breach causes loss, trustees must compensate the trust so that it is restored to the position it would have occupied had the breach not occurred. Where trustees obtain unauthorised gains, equity may require those gains to be surrendered through an account of profits or proprietary remedies. Cases such as Bartlett v Barclays Bank, Target Holdings, Tang Man Sit, and Ramzan demonstrate that beneficiaries must generally choose between compensatory and gain-based remedies, with the court seeking to prevent both trustee enrichment and unjust double recovery.
Sources of Reference
Bartlett v Barclays Bank Trust Co Ltd (No 2) [1980] Ch 515.
Target Holdings Ltd v Redferns [1996] AC 421.
Hulbert v Avens [2003] EWHC 76 (Ch).
Fry v Fry (1859) 54 ER 56.
Nant-y-glo and Blaina Ironworks Co v Grave (1878) 12 Ch D 738.
Tang Man Sit v Capacious Investments Ltd [1996] AC 514.
Ramzan v Brookwide Ltd [2011] 2 P & CR 32.
Dimes v Scott (1828) 38 ER 778.
- Published on
SQE – Equity and Trust – Limitation Periods and the Doctrine of Laches
Introduction
Even where a beneficiary has a strong claim for breach of trust, tracing, equitable compensation, or recovery of trust property, the claim may fail if it is brought too late. The law therefore imposes time limits within which legal proceedings must be commenced.
In trust law, limitation rules are primarily governed by the Limitation Act 1980, particularly section 21. Alongside the statutory rules, equity has developed the separate doctrine of laches, which prevents claimants from enforcing rights after unreasonable delay where it would be unfair or unconscionable to allow the claim to proceed.
The combined effect of statutory limitation and laches seeks to balance:
⸻
General Limitation Rule
The principal provision is section 21(3) of the Limitation Act 1980.
The general rule is that:
actions by beneficiaries for breach of trust must normally be brought within six years from the date on which the cause of action accrued.
The cause of action accrues when the breach occurs and the beneficiary first acquires the right to sue.
⸻
Example
Daniel, a trustee, improperly transfers:
£500,000
from the trust on:
1 January 2020.
The beneficiaries discover the breach immediately.
⸻
Limitation Period
The beneficiaries generally have until:
1 January 2026
to commence proceedings.
⸻
Disability Exception – Section 28
The law recognises that some beneficiaries may be unable to protect their rights.
Section 28 therefore postpones limitation periods where the claimant is under a legal disability.
⸻
Disability Includes
⸻
Effect
Time does not begin running until the disability ends.
⸻
Example
Lucy is a beneficiary aged:
12 years old.
A trustee commits breach of trust in:
Lucy reaches 18 in:
⸻
Result
The six-year limitation period begins in:
2031,
not 2025.
Lucy therefore generally has until:
2037
to bring proceedings.
⸻
Deliberate Concealment – Section 32
A trustee should not benefit from hiding wrongdoing.
Section 32(1) therefore postpones limitation periods where relevant facts have been deliberately concealed.
⸻
Rule
Time begins running only when:
✅ the beneficiary discovers the concealment;
or
✅ could reasonably have discovered it.
⸻
Example
Daniel secretly transfers:
£800,000
from a trust in 2015.
He falsifies accounts to conceal the transaction.
The beneficiaries discover the fraud in 2028.
⸻
Result
The limitation period begins in:
2028,
not 2015.
⸻
No Limitation Period for Fraud
Section 21(1) creates important exceptions.
No limitation period applies where:
⸻
Why?
Equity refuses to allow fraudulent trustees to escape liability merely because time has passed.
⸻
Example
Daniel fraudulently transfers:
£1 million
to his personal investment account in 2010.
The money remains under his control in 2040.
⸻
Result
The beneficiaries may still sue.
There is:
✅ no limitation period.
⸻
Trust Property Still in Trustee’s Possession
The same principle applies where the trustee continues to possess trust property.
⸻
Example
A trustee improperly transfers trust land into his own name.
The property remains registered in the trustee’s ownership for decades.
⸻
Result
The beneficiaries may seek recovery regardless of the passage of time.
⸻
Wassell v Leggatt
The principle that fraud and retained trust property fall outside ordinary limitation periods was recognised in:
Wassell v Leggatt.
⸻
First Subsea v Balltec
The Court of Appeal considered section 21(1)(a) in:
First Subsea Ltd v Balltec Ltd.
The case examined fraudulent transactions and confirmed the continuing importance of the statutory fraud exception.
⸻
Burnden Holdings v Fielding
The Supreme Court clarified section 21(1)(b) in:
Burnden Holdings (UK) Ltd v Fielding.
The Court confirmed that actions involving trust property retained by trustees fall outside ordinary limitation rules.
⸻
The Equitable Doctrine of Laches
Separate from statutory limitation periods is the equitable doctrine of:
laches.
The word derives from old French and refers to:
unreasonable delay combined with neglect.
⸻
Purpose of Laches
The doctrine prevents claimants from:
⸻
Re Sharpe
The classic formulation appears in:
Re Sharpe.
The court held that a claimant may be barred where delay renders the claim unconscionable.
⸻
Requirements for Laches
The defendant must generally show:
1. Significant Delay
The claimant delayed bringing proceedings.
⸻
2. Unfairness
The delay has caused prejudice or hardship.
⸻
3. Unconscionability
It would be unjust to permit the claim to proceed.
⸻
Case Scenario 1 – Laches Applies
Facts
Daniel commits fraud in:
The beneficiary discovers the fraud in:
The beneficiary waits until:
2022
to commence proceedings.
During that period:
⸻
Solution
The court may apply:
✅ laches.
The delay combined with prejudice to the defendant may make the claim unconscionable.
⸻
Whatley v Lougher
A modern example is:
Whatley v Lougher.
⸻
Facts
The claimant knew about fraudulent conduct but waited:
12 years
before issuing proceedings.
⸻
Decision
The court applied:
✅ laches
and struck out the claim.
⸻
Importance
The case illustrates that knowledge combined with lengthy inaction can be fatal.
⸻
Case Scenario 2 – Laches Does Not Apply
Facts
A beneficiary discovers a breach of trust in:
Proceedings are issued in:
⸻
Solution
There is no substantial delay.
Laches would almost certainly fail.
⸻
Patel v Shah
The modern approach was explained in:
Patel v Shah.
The court adopted a broad unconscionability analysis rather than applying rigid rules.
⸻
Relationship Between Limitation and Laches
This distinction is extremely important.
⸻
Statutory Limitation
Created by legislation.
Applies fixed periods.
⸻
Laches
Created by equity.
Depends upon fairness and unconscionability.
⸻
Can Both Apply?
Usually:
❌ No.
Where Parliament has prescribed a limitation period, the doctrine of laches generally does not apply.
⸻
Re Pauling’s Settlement Trusts (No 1)
In:
Re Pauling’s Settlement Trusts (No 1),
the court confirmed that laches does not override statutory limitation provisions.
⸻
Green v Gaul
The same principle was reinforced in:
Green v Gaul.
⸻
Comprehensive Case Study
Facts
Daniel is trustee of a family trust.
In 2015 he secretly transfers:
£2 million
into a company he controls.
The beneficiaries are:
Daniel falsifies trust accounts.
The fraud is discovered in:
⸻
Analysis
Emma
Because Daniel deliberately concealed the breach:
✅ section 32 applies.
Time begins running in:
⸻
Lucy
Lucy was under a disability.
Section 28 postpones limitation until she reaches:
18 years old.
⸻
Fraud
Daniel acted fraudulently.
Under section 21(1):
✅ no limitation period applies.
⸻
Result
Both beneficiaries may still sue successfully.
⸻
Key SQE Principles
Six-Year Rule
Section 21(3) normally imposes:
✅ six years.
⸻
Disability
Section 28 postpones time where claimants:
✅ are minors or lack capacity.
⸻
Concealment
Section 32 postpones time where facts are:
✅ deliberately concealed.
⸻
Fraud
Section 21(1) removes limitation periods for:
✅ fraudulent trustees.
⸻
Trust Property Retained
No limitation period where:
✅ trust property remains in the trustee’s possession.
⸻
Laches
Requires:
✅ substantial delay;
✅ prejudice;
✅ unconscionability.
⸻
Conclusion
Limitation periods and the doctrine of laches play an important role in balancing the rights of beneficiaries against the need for certainty and fairness in trust administration. While section 21 of the Limitation Act 1980 generally imposes a six-year limitation period for breach of trust claims, important exceptions exist for fraud, retained trust property, concealment, and beneficiaries under disability. Alongside these statutory protections, the equitable doctrine of laches prevents stale claims where delay has rendered proceedings unfair or unconscionable. Together, these rules ensure that trustees remain accountable while protecting defendants from prejudice caused by excessive delay.
Sources of Reference
Limitation Act 1980, ss 21, 28 and 32.
Wassell v Leggatt [1896] 1 Ch 554.
First Subsea Ltd v Balltec Ltd [2017] EWCA Civ 186.
Burnden Holdings (UK) Ltd v Fielding [2018] UKSC 14.
Re Sharpe [1892] 1 Ch 154.
Whatley v Lougher [2020] 4 WLUK 87.
Patel v Shah [2005] EWCA Civ 157.
Re Pauling’s Settlement Trusts (No 1) [1964] Ch 303.
Green v Gaul [2005] 1 WLR 1890.
Introduction
Even where a beneficiary has a strong claim for breach of trust, tracing, equitable compensation, or recovery of trust property, the claim may fail if it is brought too late. The law therefore imposes time limits within which legal proceedings must be commenced.
In trust law, limitation rules are primarily governed by the Limitation Act 1980, particularly section 21. Alongside the statutory rules, equity has developed the separate doctrine of laches, which prevents claimants from enforcing rights after unreasonable delay where it would be unfair or unconscionable to allow the claim to proceed.
The combined effect of statutory limitation and laches seeks to balance:
- the interests of beneficiaries;
- fairness to trustees and defendants;
- legal certainty;
- and the proper administration of justice.
⸻
General Limitation Rule
The principal provision is section 21(3) of the Limitation Act 1980.
The general rule is that:
actions by beneficiaries for breach of trust must normally be brought within six years from the date on which the cause of action accrued.
The cause of action accrues when the breach occurs and the beneficiary first acquires the right to sue.
⸻
Example
Daniel, a trustee, improperly transfers:
£500,000
from the trust on:
1 January 2020.
The beneficiaries discover the breach immediately.
⸻
Limitation Period
The beneficiaries generally have until:
1 January 2026
to commence proceedings.
⸻
Disability Exception – Section 28
The law recognises that some beneficiaries may be unable to protect their rights.
Section 28 therefore postpones limitation periods where the claimant is under a legal disability.
⸻
Disability Includes
- being under the age of 18;
- lacking mental capacity;
- being of unsound mind.
⸻
Effect
Time does not begin running until the disability ends.
⸻
Example
Lucy is a beneficiary aged:
12 years old.
A trustee commits breach of trust in:
Lucy reaches 18 in:
⸻
Result
The six-year limitation period begins in:
2031,
not 2025.
Lucy therefore generally has until:
2037
to bring proceedings.
⸻
Deliberate Concealment – Section 32
A trustee should not benefit from hiding wrongdoing.
Section 32(1) therefore postpones limitation periods where relevant facts have been deliberately concealed.
⸻
Rule
Time begins running only when:
✅ the beneficiary discovers the concealment;
or
✅ could reasonably have discovered it.
⸻
Example
Daniel secretly transfers:
£800,000
from a trust in 2015.
He falsifies accounts to conceal the transaction.
The beneficiaries discover the fraud in 2028.
⸻
Result
The limitation period begins in:
2028,
not 2015.
⸻
No Limitation Period for Fraud
Section 21(1) creates important exceptions.
No limitation period applies where:
- the trustee acted fraudulently;
- or trust property remains in the trustee’s possession.
⸻
Why?
Equity refuses to allow fraudulent trustees to escape liability merely because time has passed.
⸻
Example
Daniel fraudulently transfers:
£1 million
to his personal investment account in 2010.
The money remains under his control in 2040.
⸻
Result
The beneficiaries may still sue.
There is:
✅ no limitation period.
⸻
Trust Property Still in Trustee’s Possession
The same principle applies where the trustee continues to possess trust property.
⸻
Example
A trustee improperly transfers trust land into his own name.
The property remains registered in the trustee’s ownership for decades.
⸻
Result
The beneficiaries may seek recovery regardless of the passage of time.
⸻
Wassell v Leggatt
The principle that fraud and retained trust property fall outside ordinary limitation periods was recognised in:
Wassell v Leggatt.
⸻
First Subsea v Balltec
The Court of Appeal considered section 21(1)(a) in:
First Subsea Ltd v Balltec Ltd.
The case examined fraudulent transactions and confirmed the continuing importance of the statutory fraud exception.
⸻
Burnden Holdings v Fielding
The Supreme Court clarified section 21(1)(b) in:
Burnden Holdings (UK) Ltd v Fielding.
The Court confirmed that actions involving trust property retained by trustees fall outside ordinary limitation rules.
⸻
The Equitable Doctrine of Laches
Separate from statutory limitation periods is the equitable doctrine of:
laches.
The word derives from old French and refers to:
unreasonable delay combined with neglect.
⸻
Purpose of Laches
The doctrine prevents claimants from:
- sleeping on their rights;
- delaying unnecessarily;
- and then seeking equitable relief when circumstances have significantly changed.
⸻
Re Sharpe
The classic formulation appears in:
Re Sharpe.
The court held that a claimant may be barred where delay renders the claim unconscionable.
⸻
Requirements for Laches
The defendant must generally show:
1. Significant Delay
The claimant delayed bringing proceedings.
⸻
2. Unfairness
The delay has caused prejudice or hardship.
⸻
3. Unconscionability
It would be unjust to permit the claim to proceed.
⸻
Case Scenario 1 – Laches Applies
Facts
Daniel commits fraud in:
The beneficiary discovers the fraud in:
The beneficiary waits until:
2022
to commence proceedings.
During that period:
- witnesses die;
- documents disappear;
- records are lost.
⸻
Solution
The court may apply:
✅ laches.
The delay combined with prejudice to the defendant may make the claim unconscionable.
⸻
Whatley v Lougher
A modern example is:
Whatley v Lougher.
⸻
Facts
The claimant knew about fraudulent conduct but waited:
12 years
before issuing proceedings.
⸻
Decision
The court applied:
✅ laches
and struck out the claim.
⸻
Importance
The case illustrates that knowledge combined with lengthy inaction can be fatal.
⸻
Case Scenario 2 – Laches Does Not Apply
Facts
A beneficiary discovers a breach of trust in:
Proceedings are issued in:
⸻
Solution
There is no substantial delay.
Laches would almost certainly fail.
⸻
Patel v Shah
The modern approach was explained in:
Patel v Shah.
The court adopted a broad unconscionability analysis rather than applying rigid rules.
⸻
Relationship Between Limitation and Laches
This distinction is extremely important.
⸻
Statutory Limitation
Created by legislation.
Applies fixed periods.
⸻
Laches
Created by equity.
Depends upon fairness and unconscionability.
⸻
Can Both Apply?
Usually:
❌ No.
Where Parliament has prescribed a limitation period, the doctrine of laches generally does not apply.
⸻
Re Pauling’s Settlement Trusts (No 1)
In:
Re Pauling’s Settlement Trusts (No 1),
the court confirmed that laches does not override statutory limitation provisions.
⸻
Green v Gaul
The same principle was reinforced in:
Green v Gaul.
⸻
Comprehensive Case Study
Facts
Daniel is trustee of a family trust.
In 2015 he secretly transfers:
£2 million
into a company he controls.
The beneficiaries are:
- Emma (age 35);
- Lucy (age 14).
Daniel falsifies trust accounts.
The fraud is discovered in:
⸻
Analysis
Emma
Because Daniel deliberately concealed the breach:
✅ section 32 applies.
Time begins running in:
⸻
Lucy
Lucy was under a disability.
Section 28 postpones limitation until she reaches:
18 years old.
⸻
Fraud
Daniel acted fraudulently.
Under section 21(1):
✅ no limitation period applies.
⸻
Result
Both beneficiaries may still sue successfully.
⸻
Key SQE Principles
Six-Year Rule
Section 21(3) normally imposes:
✅ six years.
⸻
Disability
Section 28 postpones time where claimants:
✅ are minors or lack capacity.
⸻
Concealment
Section 32 postpones time where facts are:
✅ deliberately concealed.
⸻
Fraud
Section 21(1) removes limitation periods for:
✅ fraudulent trustees.
⸻
Trust Property Retained
No limitation period where:
✅ trust property remains in the trustee’s possession.
⸻
Laches
Requires:
✅ substantial delay;
✅ prejudice;
✅ unconscionability.
⸻
Conclusion
Limitation periods and the doctrine of laches play an important role in balancing the rights of beneficiaries against the need for certainty and fairness in trust administration. While section 21 of the Limitation Act 1980 generally imposes a six-year limitation period for breach of trust claims, important exceptions exist for fraud, retained trust property, concealment, and beneficiaries under disability. Alongside these statutory protections, the equitable doctrine of laches prevents stale claims where delay has rendered proceedings unfair or unconscionable. Together, these rules ensure that trustees remain accountable while protecting defendants from prejudice caused by excessive delay.
Sources of Reference
Limitation Act 1980, ss 21, 28 and 32.
Wassell v Leggatt [1896] 1 Ch 554.
First Subsea Ltd v Balltec Ltd [2017] EWCA Civ 186.
Burnden Holdings (UK) Ltd v Fielding [2018] UKSC 14.
Re Sharpe [1892] 1 Ch 154.
Whatley v Lougher [2020] 4 WLUK 87.
Patel v Shah [2005] EWCA Civ 157.
Re Pauling’s Settlement Trusts (No 1) [1964] Ch 303.
Green v Gaul [2005] 1 WLR 1890.
- Published on
SQE – Equity and Trust – Consent of the Beneficiaries as a Defence to Breach of Trust
Introduction
A trustee who commits a breach of trust will normally be personally liable to compensate the beneficiaries for any loss caused to the trust. However, one important defence available to trustees is the consent, acquiescence, or release of the beneficiaries.
The principle is based on fairness. If beneficiaries, knowing all the relevant facts, freely agree to a trustee’s conduct, it would generally be unjust to allow them later to complain about that same conduct and sue the trustee for breach of trust.
This defence may arise:
The General Rule
Where beneficiaries:
✅ have full legal capacity;
✅ possess full knowledge of the material facts;
✅ act freely and voluntarily;
then they may:
consent to, approve, release, or ratify a breach of trust.
If these requirements are satisfied, the trustee may be relieved from liability.
Re Pauling’s Settlement Trusts (No 1)
The leading authority is Re Pauling’s Settlement Trusts (No 1).
The case confirms that beneficiaries may consent to or release trustees from liability for breaches of trust.
Importantly, no special formalities are generally required.
Formal Requirements
Unlike some legal transactions, consent does not necessarily have to be:
❌ in writing;
❌ executed by deed;
❌ formally documented.
The court examines:
Requirement 1 – Full Legal Capacity
A beneficiary must have full legal capacity.
This means the beneficiary must:
✅ be an adult;
✅ possess sufficient mental capacity.
Overton v Banister
In Overton v Banister, the court confirmed that valid consent requires beneficiaries to possess legal capacity.
Example
Suppose a trustee proposes selling trust land below market value.
Two beneficiaries agree.
However:
Result
Their consent is ineffective.
The trustee remains exposed to liability for breach of trust.
Requirement 2 – Full Knowledge
The beneficiaries must possess:
✅ full knowledge of all material facts.
Consent obtained through incomplete disclosure will not protect the trustee.
Example
Daniel is trustee of a family trust.
He asks beneficiaries to approve the sale of trust shares.
Daniel tells them the shares are worth:
£100,000.
In reality they are worth:
£500,000.
The beneficiaries approve the sale.
Result
The consent is invalid.
The beneficiaries were not fully informed.
Daniel remains liable.
Requirement 3 – Free and Voluntary Consent
Consent must be given:
✅ freely;
✅ voluntarily;
✅ without coercion;
✅ without undue influence.
Boardman v Phipps
The importance of informed and voluntary consent was emphasised in:
Boardman v Phipps.
The court stressed that beneficiaries must act independently and with full understanding of the relevant circumstances.
Example
Suppose a trustee tells beneficiaries:
“If you do not approve this transaction, I will stop making distributions from the trust.”
The beneficiaries reluctantly agree.
Result
The consent may be invalid because it was not freely given.
Forms of Beneficiary Approval
Beneficiary approval may take several forms.
Prior Consent
Approval given before the trustee acts.
Example
The beneficiaries approve a risky investment strategy before the investment occurs.
If losses later arise, the trustee may rely upon that consent.
Acquiescence
The beneficiaries know about the breach but do nothing.
Over time, their conduct may amount to acceptance.
Example
The beneficiaries know for several years that trust property has been leased improperly but take no action.
Their prolonged silence may support a defence of acquiescence.
Release
A release occurs after the breach.
The beneficiaries expressly agree not to pursue the trustee.
Example
Daniel improperly distributes:
£100,000
from a trust.
After receiving full disclosure, the beneficiaries sign an agreement releasing him from liability.
Result
The trustee may rely on the release as a complete defence.
Case Scenario 1 – Valid Consent
Facts
Sarah is trustee of the Carter Family Trust.
The trust owns shares worth:
£500,000.
Sarah believes the shares are risky and recommends selling them.
She provides:
The shares are sold.
Six months later, the shares double in value.
The beneficiaries regret their decision and sue Sarah.
Solution
Sarah is likely protected.
The beneficiaries:
✅ had capacity;
✅ had full knowledge;
✅ acted voluntarily.
Their informed consent prevents them from complaining later.
Case Scenario 2 – Lack of Full Disclosure
Facts
Daniel wishes to sell trust land.
Actual value:
£1.2 million.
Daniel tells beneficiaries it is worth:
£700,000.
They approve the sale.
Solution
The consent is ineffective.
The beneficiaries lacked full knowledge of the facts.
Daniel may be liable for:
Case Scenario 3 – Undue Influence
Facts
Emma is trustee and sole source of financial support for beneficiaries.
She pressures beneficiaries into approving a transaction benefiting her personally.
The beneficiaries reluctantly agree.
Solution
The consent is unlikely to be valid.
The approval was not freely given.
Emma remains liable.
Case Scenario 4 – Beneficiary Release After Breach
Facts
A trustee mistakenly distributes:
£300,000
to the wrong beneficiary.
The trustee later explains the error fully and offers corrective measures.
The beneficiaries agree to release the trustee from liability.
Solution
The court will likely uphold the release.
The trustee may be fully protected.
Case Scenario 5 – Minor Beneficiary
Facts
A trust has three beneficiaries:
The investment loses:
£500,000.
Solution
Lucy lacks legal capacity.
Her consent is ineffective.
The trustee may still face liability in respect of Lucy’s beneficial interest.
Relationship With Section 61 Trustee Act 1925
Consent differs from statutory relief under section 61.
Consent Defence
Focuses on:
✅ the conduct of beneficiaries.
Section 61 Relief
Focuses on:
✅ the conduct of the trustee.
A trustee may rely on either defence depending on the circumstances.
Relationship With Exclusion Clauses
Consent also differs from exclusion clauses.
Exclusion Clause
Protection comes from:
✅ the trust instrument.
Consent Defence
Protection comes from:
✅ beneficiary approval.
Practical Importance
Consent is particularly useful where trustees must make:
Key SQE Principles
For valid beneficiary consent, the trustee must show:
✅ full legal capacity;
✅ full knowledge of material facts;
✅ voluntary agreement;
✅ absence of undue influence.
Consent may occur:
Conclusion
Consent of the beneficiaries is an important defence to breach of trust because it reflects the equitable principle that informed beneficiaries should be bound by decisions they freely approve. For consent to be effective, beneficiaries must possess legal capacity, full knowledge of the relevant facts, and act voluntarily without undue influence. Cases such as Re Pauling’s Settlement Trusts, Overton v Banister, and Boardman v Phipps demonstrate that courts carefully scrutinise whether consent was truly informed and freely given. Where these requirements are satisfied, trustees may be relieved from liability even though a technical breach of trust has occurred.
Sources of Reference
Re Pauling’s Settlement Trusts (No 1) [1962] 1 WLR 86.
Overton v Banister (1844) 67 ER 479.
Boardman v Phipps [1967] 2 AC 46.
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, OUP 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, OUP 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).
Introduction
A trustee who commits a breach of trust will normally be personally liable to compensate the beneficiaries for any loss caused to the trust. However, one important defence available to trustees is the consent, acquiescence, or release of the beneficiaries.
The principle is based on fairness. If beneficiaries, knowing all the relevant facts, freely agree to a trustee’s conduct, it would generally be unjust to allow them later to complain about that same conduct and sue the trustee for breach of trust.
This defence may arise:
- before the breach occurs (prior consent);
- during the transaction;
- or after the breach through a release or ratification.
The General Rule
Where beneficiaries:
✅ have full legal capacity;
✅ possess full knowledge of the material facts;
✅ act freely and voluntarily;
then they may:
consent to, approve, release, or ratify a breach of trust.
If these requirements are satisfied, the trustee may be relieved from liability.
Re Pauling’s Settlement Trusts (No 1)
The leading authority is Re Pauling’s Settlement Trusts (No 1).
The case confirms that beneficiaries may consent to or release trustees from liability for breaches of trust.
Importantly, no special formalities are generally required.
Formal Requirements
Unlike some legal transactions, consent does not necessarily have to be:
❌ in writing;
❌ executed by deed;
❌ formally documented.
The court examines:
- the conduct of the beneficiaries;
- surrounding circumstances;
- and available evidence.
Requirement 1 – Full Legal Capacity
A beneficiary must have full legal capacity.
This means the beneficiary must:
✅ be an adult;
✅ possess sufficient mental capacity.
Overton v Banister
In Overton v Banister, the court confirmed that valid consent requires beneficiaries to possess legal capacity.
Example
Suppose a trustee proposes selling trust land below market value.
Two beneficiaries agree.
However:
- one beneficiary is 14 years old;
- another lacks mental capacity.
Result
Their consent is ineffective.
The trustee remains exposed to liability for breach of trust.
Requirement 2 – Full Knowledge
The beneficiaries must possess:
✅ full knowledge of all material facts.
Consent obtained through incomplete disclosure will not protect the trustee.
Example
Daniel is trustee of a family trust.
He asks beneficiaries to approve the sale of trust shares.
Daniel tells them the shares are worth:
£100,000.
In reality they are worth:
£500,000.
The beneficiaries approve the sale.
Result
The consent is invalid.
The beneficiaries were not fully informed.
Daniel remains liable.
Requirement 3 – Free and Voluntary Consent
Consent must be given:
✅ freely;
✅ voluntarily;
✅ without coercion;
✅ without undue influence.
Boardman v Phipps
The importance of informed and voluntary consent was emphasised in:
Boardman v Phipps.
The court stressed that beneficiaries must act independently and with full understanding of the relevant circumstances.
Example
Suppose a trustee tells beneficiaries:
“If you do not approve this transaction, I will stop making distributions from the trust.”
The beneficiaries reluctantly agree.
Result
The consent may be invalid because it was not freely given.
Forms of Beneficiary Approval
Beneficiary approval may take several forms.
Prior Consent
Approval given before the trustee acts.
Example
The beneficiaries approve a risky investment strategy before the investment occurs.
If losses later arise, the trustee may rely upon that consent.
Acquiescence
The beneficiaries know about the breach but do nothing.
Over time, their conduct may amount to acceptance.
Example
The beneficiaries know for several years that trust property has been leased improperly but take no action.
Their prolonged silence may support a defence of acquiescence.
Release
A release occurs after the breach.
The beneficiaries expressly agree not to pursue the trustee.
Example
Daniel improperly distributes:
£100,000
from a trust.
After receiving full disclosure, the beneficiaries sign an agreement releasing him from liability.
Result
The trustee may rely on the release as a complete defence.
Case Scenario 1 – Valid Consent
Facts
Sarah is trustee of the Carter Family Trust.
The trust owns shares worth:
£500,000.
Sarah believes the shares are risky and recommends selling them.
She provides:
- valuation reports;
- financial advice;
- market analysis.
The shares are sold.
Six months later, the shares double in value.
The beneficiaries regret their decision and sue Sarah.
Solution
Sarah is likely protected.
The beneficiaries:
✅ had capacity;
✅ had full knowledge;
✅ acted voluntarily.
Their informed consent prevents them from complaining later.
Case Scenario 2 – Lack of Full Disclosure
Facts
Daniel wishes to sell trust land.
Actual value:
£1.2 million.
Daniel tells beneficiaries it is worth:
£700,000.
They approve the sale.
Solution
The consent is ineffective.
The beneficiaries lacked full knowledge of the facts.
Daniel may be liable for:
- breach of trust;
- equitable compensation;
- or proprietary remedies.
Case Scenario 3 – Undue Influence
Facts
Emma is trustee and sole source of financial support for beneficiaries.
She pressures beneficiaries into approving a transaction benefiting her personally.
The beneficiaries reluctantly agree.
Solution
The consent is unlikely to be valid.
The approval was not freely given.
Emma remains liable.
Case Scenario 4 – Beneficiary Release After Breach
Facts
A trustee mistakenly distributes:
£300,000
to the wrong beneficiary.
The trustee later explains the error fully and offers corrective measures.
The beneficiaries agree to release the trustee from liability.
Solution
The court will likely uphold the release.
The trustee may be fully protected.
Case Scenario 5 – Minor Beneficiary
Facts
A trust has three beneficiaries:
- Anna (35);
- Michael (40);
- Lucy (16).
The investment loses:
£500,000.
Solution
Lucy lacks legal capacity.
Her consent is ineffective.
The trustee may still face liability in respect of Lucy’s beneficial interest.
Relationship With Section 61 Trustee Act 1925
Consent differs from statutory relief under section 61.
Consent Defence
Focuses on:
✅ the conduct of beneficiaries.
Section 61 Relief
Focuses on:
✅ the conduct of the trustee.
A trustee may rely on either defence depending on the circumstances.
Relationship With Exclusion Clauses
Consent also differs from exclusion clauses.
Exclusion Clause
Protection comes from:
✅ the trust instrument.
Consent Defence
Protection comes from:
✅ beneficiary approval.
Practical Importance
Consent is particularly useful where trustees must make:
- difficult investment decisions;
- commercial decisions;
- compromises;
- or distributions involving uncertainty.
Key SQE Principles
For valid beneficiary consent, the trustee must show:
✅ full legal capacity;
✅ full knowledge of material facts;
✅ voluntary agreement;
✅ absence of undue influence.
Consent may occur:
- before the breach;
- during the transaction;
- or after the breach through release or ratification.
Conclusion
Consent of the beneficiaries is an important defence to breach of trust because it reflects the equitable principle that informed beneficiaries should be bound by decisions they freely approve. For consent to be effective, beneficiaries must possess legal capacity, full knowledge of the relevant facts, and act voluntarily without undue influence. Cases such as Re Pauling’s Settlement Trusts, Overton v Banister, and Boardman v Phipps demonstrate that courts carefully scrutinise whether consent was truly informed and freely given. Where these requirements are satisfied, trustees may be relieved from liability even though a technical breach of trust has occurred.
Sources of Reference
Re Pauling’s Settlement Trusts (No 1) [1962] 1 WLR 86.
Overton v Banister (1844) 67 ER 479.
Boardman v Phipps [1967] 2 AC 46.
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, OUP 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, OUP 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).
- Published on
SQE – Equity and Trust – Relief Granted by the Court Under Section 61 Trustee Act 1925
Introduction
Trustees who commit a breach of trust are normally personally liable for any loss caused to the trust. However, equity recognises that not every breach results from dishonesty, fraud, or deliberate misconduct. Trustees are often laypersons acting in good faith, faced with difficult decisions in complex circumstances.
To address this, Parliament enacted section 61 of the Trustee Act 1925, which gives courts a discretionary power to relieve trustees from personal liability where fairness requires it.
Section 61 provides an important safeguard for trustees who have acted honestly and reasonably but nevertheless find themselves technically in breach of trust.
Statutory Provision
Section 61 of the Trustee Act 1925 provides that:
the court may relieve a trustee from personal liability wholly or partly if the trustee has acted honestly and reasonably and ought fairly to be excused.
This means that even where a breach of trust has occurred, the court may decide that it would be unjust to impose full liability.
Requirements for Relief
The court generally considers three questions:
1. Did the Trustee Act Honestly?
The trustee must have acted in good faith.
Relief will not be available where the trustee acted:
2. Did the Trustee Act Reasonably?
The trustee’s conduct must be objectively reasonable.
The court considers:
3. Is It Fair to Excuse the Trustee?
Even where honesty and reasonableness are established, the court retains discretion.
The court asks whether:
it would be fair and equitable to excuse the trustee from liability.
Nature of the Relief
The court may grant:
Complete Relief
The trustee bears no personal liability.
Partial Relief
The trustee remains liable for part of the loss only.
No Relief
The trustee remains fully liable.
Re Evans (Deceased), Evans v Westcombe
The leading illustration is Re Evans (Deceased), Evans v Westcombe.
Facts
A woman acted as executor of her father’s estate.
The will directed that the estate should be divided equally between:
30 years.
Most people believed him to be dead.
Actions Taken by the Executor
Before distributing the estate, she:
The Problem
Several years later:
✅ the brother reappeared.
He demanded his half share of the estate.
Unfortunately, the insurance policy did not cover the entire amount owed.
Court Decision
The court held that the executor had technically breached her duties.
However, she had:
✅ acted honestly;
✅ sought professional legal advice;
✅ attempted to protect her brother’s interests through insurance;
✅ acted reasonably throughout.
Result
The court granted:
✅ partial relief under section 61.
She was required to pay only some interest rather than the full amount claimed.
Importance of Re Evans
The case demonstrates that:
a trustee may make a mistake and still obtain relief.
The crucial issue is whether the trustee acted responsibly and conscientiously.
Daniel v Tee
A more recent example is Daniel v Tee.
Facts
The case involved trustees who made poor investment decisions.
The investments performed badly and losses occurred.
Issue
Should trustees be personally liable for the losses?
Court Decision
The court accepted that:
Result
The court held that:
✅ section 61 relief could apply.
Importance
Daniel v Tee demonstrates that poor investment outcomes do not automatically create trustee liability.
A distinction exists between:
Relationship with Trustee Act 2000
Section 61 often operates alongside:
Trustee Act 2000.
The Trustee Act 2000 encourages trustees to seek professional advice under section 5 when dealing with investments.
If trustees:
Example 1 – Full Relief
Sarah is trustee of a trust worth:
£2 million.
Before investing, she obtains advice from a qualified investment manager.
The investment unexpectedly collapses due to a global financial crisis.
Loss:
£500,000.
Outcome
Sarah:
✅ full relief under section 61.
Example 2 – Partial Relief
Thomas distributes trust funds based on legal advice.
Later it emerges that the advice was incomplete.
Loss:
£100,000.
The court concludes Thomas should have made further enquiries.
Outcome
The court may grant:
✅ partial relief,
requiring Thomas to contribute only part of the loss.
Example 3 – No Relief
Daniel transfers trust money into his personal account because he believes he will repay it later.
Loss:
£300,000.
Outcome
Although Daniel claims he intended no harm:
❌ he acted improperly;
❌ he acted in conflict with beneficiaries’ interests.
Section 61 relief would almost certainly be refused.
Relationship with Exclusion Clauses
Section 61 differs from exclusion clauses.
Exclusion Clause
Protects trustees because the trust instrument says so.
Section 61 Relief
Protects trustees because the:
✅ court exercises discretion.
The court independently assesses fairness.
Policy Considerations
Section 61 reflects an important policy balance.
Without protection:
Key SQE Principles
To obtain relief under section 61 Trustee Act 1925, trustees must show:
✅ honesty;
✅ reasonableness;
✅ and that they ought fairly to be excused.
Relief may be:
Conclusion
Section 61 of the Trustee Act 1925 provides an important equitable safeguard for trustees who commit breaches of trust despite acting honestly and reasonably. The provision reflects the courts’ recognition that trustees often face difficult decisions and should not automatically be punished for every mistake. Cases such as Re Evans and Daniel v Tee demonstrate that trustees who seek professional advice, act conscientiously, and genuinely attempt to fulfil their duties may receive complete or partial relief from liability. The provision therefore balances accountability to beneficiaries with fairness toward trustees who act in good faith.
Sources of Reference
Trustee Act 1925, s 61.
Re Evans (Deceased), Evans v Westcombe [1999] 2 All ER 777.
Daniel v Tee [2016] EWHC 1538 (Ch).
Trustee Act 2000.
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, OUP 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, OUP 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).
Introduction
Trustees who commit a breach of trust are normally personally liable for any loss caused to the trust. However, equity recognises that not every breach results from dishonesty, fraud, or deliberate misconduct. Trustees are often laypersons acting in good faith, faced with difficult decisions in complex circumstances.
To address this, Parliament enacted section 61 of the Trustee Act 1925, which gives courts a discretionary power to relieve trustees from personal liability where fairness requires it.
Section 61 provides an important safeguard for trustees who have acted honestly and reasonably but nevertheless find themselves technically in breach of trust.
Statutory Provision
Section 61 of the Trustee Act 1925 provides that:
the court may relieve a trustee from personal liability wholly or partly if the trustee has acted honestly and reasonably and ought fairly to be excused.
This means that even where a breach of trust has occurred, the court may decide that it would be unjust to impose full liability.
Requirements for Relief
The court generally considers three questions:
1. Did the Trustee Act Honestly?
The trustee must have acted in good faith.
Relief will not be available where the trustee acted:
- fraudulently;
- dishonestly;
- recklessly;
- or for personal gain.
2. Did the Trustee Act Reasonably?
The trustee’s conduct must be objectively reasonable.
The court considers:
- the information available at the time;
- professional advice obtained;
- steps taken to protect beneficiaries;
- and the trustee’s level of experience.
3. Is It Fair to Excuse the Trustee?
Even where honesty and reasonableness are established, the court retains discretion.
The court asks whether:
it would be fair and equitable to excuse the trustee from liability.
Nature of the Relief
The court may grant:
Complete Relief
The trustee bears no personal liability.
Partial Relief
The trustee remains liable for part of the loss only.
No Relief
The trustee remains fully liable.
Re Evans (Deceased), Evans v Westcombe
The leading illustration is Re Evans (Deceased), Evans v Westcombe.
Facts
A woman acted as executor of her father’s estate.
The will directed that the estate should be divided equally between:
- herself;
- and her brother.
30 years.
Most people believed him to be dead.
Actions Taken by the Executor
Before distributing the estate, she:
- obtained legal advice;
- purchased an insurance policy;
- ensured the policy covered half of the estate value.
The Problem
Several years later:
✅ the brother reappeared.
He demanded his half share of the estate.
Unfortunately, the insurance policy did not cover the entire amount owed.
Court Decision
The court held that the executor had technically breached her duties.
However, she had:
✅ acted honestly;
✅ sought professional legal advice;
✅ attempted to protect her brother’s interests through insurance;
✅ acted reasonably throughout.
Result
The court granted:
✅ partial relief under section 61.
She was required to pay only some interest rather than the full amount claimed.
Importance of Re Evans
The case demonstrates that:
a trustee may make a mistake and still obtain relief.
The crucial issue is whether the trustee acted responsibly and conscientiously.
Daniel v Tee
A more recent example is Daniel v Tee.
Facts
The case involved trustees who made poor investment decisions.
The investments performed badly and losses occurred.
Issue
Should trustees be personally liable for the losses?
Court Decision
The court accepted that:
- the trustees acted honestly;
- they relied on professional advice;
- they believed the adviser was competent.
Result
The court held that:
✅ section 61 relief could apply.
Importance
Daniel v Tee demonstrates that poor investment outcomes do not automatically create trustee liability.
A distinction exists between:
- negligent conduct;
and - reasonable decisions that later prove unsuccessful.
Relationship with Trustee Act 2000
Section 61 often operates alongside:
Trustee Act 2000.
The Trustee Act 2000 encourages trustees to seek professional advice under section 5 when dealing with investments.
If trustees:
- obtain proper advice;
- act in accordance with it;
- and honestly believe it to be competent,
Example 1 – Full Relief
Sarah is trustee of a trust worth:
£2 million.
Before investing, she obtains advice from a qualified investment manager.
The investment unexpectedly collapses due to a global financial crisis.
Loss:
£500,000.
Outcome
Sarah:
- acted honestly;
- sought expert advice;
- acted reasonably.
✅ full relief under section 61.
Example 2 – Partial Relief
Thomas distributes trust funds based on legal advice.
Later it emerges that the advice was incomplete.
Loss:
£100,000.
The court concludes Thomas should have made further enquiries.
Outcome
The court may grant:
✅ partial relief,
requiring Thomas to contribute only part of the loss.
Example 3 – No Relief
Daniel transfers trust money into his personal account because he believes he will repay it later.
Loss:
£300,000.
Outcome
Although Daniel claims he intended no harm:
❌ he acted improperly;
❌ he acted in conflict with beneficiaries’ interests.
Section 61 relief would almost certainly be refused.
Relationship with Exclusion Clauses
Section 61 differs from exclusion clauses.
Exclusion Clause
Protects trustees because the trust instrument says so.
Section 61 Relief
Protects trustees because the:
✅ court exercises discretion.
The court independently assesses fairness.
Policy Considerations
Section 61 reflects an important policy balance.
Without protection:
- many individuals would refuse to act as trustees;
- trustees might become excessively cautious.
- incompetence;
- negligence;
- and mismanagement.
Key SQE Principles
To obtain relief under section 61 Trustee Act 1925, trustees must show:
✅ honesty;
✅ reasonableness;
✅ and that they ought fairly to be excused.
Relief may be:
- complete;
- partial;
- or refused entirely.
Conclusion
Section 61 of the Trustee Act 1925 provides an important equitable safeguard for trustees who commit breaches of trust despite acting honestly and reasonably. The provision reflects the courts’ recognition that trustees often face difficult decisions and should not automatically be punished for every mistake. Cases such as Re Evans and Daniel v Tee demonstrate that trustees who seek professional advice, act conscientiously, and genuinely attempt to fulfil their duties may receive complete or partial relief from liability. The provision therefore balances accountability to beneficiaries with fairness toward trustees who act in good faith.
Sources of Reference
Trustee Act 1925, s 61.
Re Evans (Deceased), Evans v Westcombe [1999] 2 All ER 777.
Daniel v Tee [2016] EWHC 1538 (Ch).
Trustee Act 2000.
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, OUP 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, OUP 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).