REMEDIES FOR BREACH

OF TRUST

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EQUITY & TRUST II

(DR. ZURAIDAH)

Learning Objectives
Students will be able ;
i) To know the remedies for breach of
trust
ii) To understand the concept of personal
remedies against the trustee
iii) To learn about proprietary remedies
and its advantages
iv) To understand the concept of tracing
and its implementation
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Introduction

Remedies are available to guard

against breach of trust.
These can be divided to two:
i) Personal remedies against trustee
ii) Proprietary remedies available to
the beneficiaries.

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Personal Remedies against

trustee

It can be divided to three;

i) Measure of liability
ii) Investments
iii) Interest

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Measure of liability
When there is a breach of trust, directly
or indirectly, there will be interest.
If there is unauthorised profit: trustee
will have to account for profit.
Trustee will be liable only for loses
arising form the breach of trust
They are not insurer to the trust
property
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Dimes v Scott (1928) 4 Russ

195
They are not allowed to set off profit made
in one transaction against loss in another.
Such profits belonged to beneficiaries
Trustee cannot claim the profit just to
lessen their own liability for loss caused
by a breach.
These will not apply if profit and loss can
be seen to be part of the same transaction

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Investment
1) If trustee make unauthorised
investment, they will be liable for
any loss which is incurred when the
investment is realised
2) Where unauthorised investment are
improperly retained, the measure of
liability is the difference between
the present value of investment and
the price
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3) If trustee are directed by trust instrument

to make a specific investment but they
either:
i) Make no investment or
ii) invest somewhere.
They will be liable to supply the amount of
the specific investment had they invested
at proper time.
4) A trustee used trust money for his own
business liable to hold for profit
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Interest
Replace a loss with an interest
Traditional rate 4 %
May be liable for higher rate at the
discretion of the court

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PROPRIETARY REMEDIES

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Meaning PR
A kind of remedy where the plaintiff
can claim that property in the hands
of the defendant is to be treated as
that of plaintiff.
It is not the same as real remedy.

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 It entitles the plaintiff to treat any

property, usually money, in the
hands of the defendant as being the
plaintiff to the extent that he can
claim repayment in full regardless of
the defendants insolvency.

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Advantages Proprietary
Remedy compared to
Personal Remedy

1) Satisfaction of the plaintiffs

demand does not depends on the
solvency of the defendant
2)The plaintiff will be able to take
advantages of the increase in value
of the said property

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 It concerns an income producing

assets whereby interest will be
calculated from the date on which
the property came to the defendants
hand.

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 Equitable Proprietary Remedy is

known as trustee
This is a kind of remedy which
entitles a claimant to treat specific
property as his own
Two types:
A) Tracing at Common Law
B) Tracing at Equity
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(i) Tracing at Common Law

The owner of property can claim for
the return of such property or its value
If the property had been converted to
other property and can be identifiable
on its physical sense, the beneficiary
still can claim against the trust
property
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 However, if the property has

changed either in cash/other
form/mixed with other money, the
tracing under common law is no
longer possible.
So long as the property is
identifiable, it can be recovered.
Once mixed, it is not traceable
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 Taylor v Plumer (1815) 3 M & S

562. Lord Ellenborough:
It makes no difference in reason or
law into what other form, different
from the original, the change may
have been made, whether into that
of promissory notes for the security
of the money which was produced
by the sale of goods if the
principal . . . for the product of or
substitute for the original thing still
fills the mature of the ting it self,
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 as long as it can be ascertainable to

be such and the right only ceases
when the means of ascertainment
fail, which is the case when the
subject is turned into money and
mixed and co-founded in a general
mass of the same direction.

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ii) Tracing Under Equity

The concept is more wider and
flexible
It applies not only when the property
is in the hands of trustees or other
fiduciaries, but also in a commercial
context.

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c)Who can trace

It is not confined to claims between
trustee and beneficiary but also
between fiduciaries.
This concept can be seen in few
cases.

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Re Hallet (1880) 13 Ch 696

A solicitor had deposited part of his
clients money into his account which
also comprised money from his marriage
settlement. He made various payment
from and into the account and also
incurred debts. At his death the account
was sufficient to meet claims of the
trustees in the marriage settlement and
the client but not his personal debts.
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 Held : Both the trustee and the client

were entitled to charge the money in the
account and they had priority over the
general creditors. Mr. Hallet , the
solicitor, stood in a fiduciary position
towards the client.
Jessel MR : Has it ever been suggested
until recently that there is any distinction
between an express trust or an agent or
a bailee or a collector of rents or
anybody else in a fiduciary position
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Sinclair v Brougham (1914)

AC 398
The need to determine the right of depositor
to trace into the general assets of the Society
which had been subject to winding up.
HOL : There was a fiduciary relation between
the depositors and the directors; the
directors had mixed the funds and the
depositors had the right to trace them into
the hands of the Society recognising an equal
claim if the shareholders with whom they
shared pari passu
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Re Diplock (1948) Ch 465

Next of kin were held entitled to
trace the money in equity into
charities hands because executors
clearly stood in a fiduciary
relationship to the estate.

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d) Tracing of Unmixed Fund

If the trustee has sold the trust
property, rightly or wrongly, the
beneficiary may take the proceeds if
he can identify them

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 If the proceeds of sale have been

used to purchase other property,
the beneficiary may
1) follow them and may elect either
to take the property purchased or
hold it as security for the amount
of trust laid out in the purchase
2) he is entitled at election either
to take the property
3) to have a charge on the property
for the amount of trust property.
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 The position can be seen in the case

of Re Hallets Estate (1880) 13 Ch
696
It shall never be valid against a bona
fide purchaser for value.

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e) Tracing of Mixed Fund

A complicated situation
This is when the trustee has mixed the
trust funds with other money or other
property.
The position on this unmixed fund
depends on different situations, eg
whether the ownership of the mixed fund
must be apportioned between two trust
or a trust and an innocent volunteer.
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i) When the whole blended

property is liable
The beneficiaries will have the first
charge over the mixed fund or any
property purchased with it unless of
the trustee can prove that the part of
the mixed fund is his own.
The burden is on the wrongdoer to
show that the asset or balance
represents his own money.
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 If the presumption in Re Hallet worked

unjustice, it should not be applied.
Re Oatway [1903] 2 Ch 356. Joyce J
It is, in my opinionj, equally clear that
when any of the money drawn out has been
invested and that investment remains in the
name or under the control of the trustee
he cannot maintain that the investment
which remains represent his own money
alone..
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ii) Position when funds of two

trusts are mixed or that of trust
and third party
This applies to the situation where
the trustee has mixed the funds of
two trusts, whether or not with his, or
he has transferred the funds to an
innocent volunteer, who has mixed
them with his own.

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 The rule here is that the two trusts or

trust and the volunteer, share pari
passe, i.e. rateably in the mixed
funds or any property purchased out
of term

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Sinclair v Brougham (1914) A.C

398
Claim between shareholders and
depositors in respect of assets
distributable by liquidator in the
winding up of a building society.
Held: The two classes shared
rateably

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iii) Mixing of money in the bank

account
In the course where there was a mixed
in a banking account, special rules will
apply
There is however necessary to
distinguish the position between
trustee and beneficiaries and as
between two trust and an innocent
volunteer
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i) Mixing in a bank account consisting

of the trust property and the trustees
own property
The principles as between
beneficiary and trustee is that the
trustee is presumed to spend his
money first.

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Re Hallets Estate
One of the question; how to allocate
the payments from the fund as
between Hallet and the client.
Held: The trustee must be presumed
to have spent his own money first
and to have preserved the trust
money.

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RE HALLETS ESTATE
Jessel MR : it seems to me perfectly
plain that he cannot be heard to say
that he took away the trust money
when he has a right to take away his
own money. His money was there,
and he had a right to draw it out and
why should the natural act of simply
drawing out the money be attributed
to anything except to his ownership
of money which was at the banker

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ii) Mixing in a bank account consisting

of the trust property and property of
an innocent volunteer
Applied the rule in Claytons case.
Claytons case presumes that money
is paid out of a current account in the
same order in which it had been
paid.

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 In other words the first money to be

spent from the account represents
the first money that was paid.
The rule is known as first in and
first out,
This rough rule is originally
developed in the banker and client
context.
The presumption is not absolute and
it will not be applicable if the result
would be unjust.
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f) Increase in value
A beneficiary would be able to claim
the original money taken with interest
and in priority to the creditors and
that the trustee would keep all the
profits.
If the trust increased in value, it
would be in his interest to do so and if
the fund decrease in value, it would
be in his interest to have a charge.
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f) Loss of right to trace

1) If property reaches the hands of bona
fide purchaser for value without
notice
2) If the claimants property disappears
or the property ceases to be
identifiable. eg when the trust fund or
the proceeds of this sale of the trust
have been dissipated.
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3) Where tracing would be inequitable

4) Payment of debt. : A trustee who
used trust property to discharge a
debt and nothing would be left that
could be said to represent the trust
property.
A debt is a choose in action and once
it has been paid it ceases to exist.
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