Chapter 1 - Jurisdiction of the High Court

Civil actions for breach of trust

Beneficiaries are entitled to enforce a trust. Duties imposed on trustees can be enforced by beneficiaries pursuing equitable remedies through the courts.

The Commission’s previous Issues Paper, The Duties, Office and Powers of a Trustee, considered the duties of trustees.10 As discussed there, trustees must adhere strictly to the terms of their trust and carry out their duties as trustees in a diligent and prudent manner. If they fail to adhere to the terms of the trust, or fail to carry out their duties, they breach their trust.

The courts provides three remedies for claims in equity (including breach of trust claims):11

  • requiring trustees to account to the beneficiaries for their administration of the trust funds and assets (the remedy of account);
  • obligating trustees to put the trust estate in the same position as if the breach of trust had not been committed (the remedy of restitution); and
  • requiring trustees to make good the loss of trust property caused by wrongful acts or omissions (the remedy of compensation).

Equity is concerned to put the trust fund (and the beneficiaries) in the same position as if the breach had not occurred. The position is clearly summarised in an often cited passage from a Canadian case:12

In summary, compensation is an equitable monetary remedy which is available when the equitable remedies of restitution and account are not appropriate. By analogy with restitution, it attempts to restore to the plaintiff what has been lost as a result of the breach i.e., the plaintiff’s loss of opportunity. The plaintiff’s actual loss as a consequence of the breach is to be assessed with the full benefit of hindsight. Foreseeability is not a concern in assessing compensation but it is essential the losses made good are only those which, on a common sense view of causation, were caused by the breach.

In a more recent New Zealand Court of Appeal case Tipping J said that where the breach of duty by a trustee has directly caused loss or damage to the trust property:13

[t]he relief sought by the beneficiary is usually in such circumstances of a restitutionary kind. The trustee is asked to restore the trust estate, either in specie or by value. The policy of the law in these circumstances is generally to hold the trustee responsible if, but for the breach, the loss or damage would not have occurred. This approach is designed to encourage trustees to observe to the full their duties in relation to trust property by imposing upon them a stringent concept of causation. Questions of foreseeability and remoteness do not come into such an assessment.

A breach of trust is primarily a breach of an equitable obligation by trustees and may lead to civil liability. Where they breach their duties, trustees are personally liable for any losses that would not have arisen if they had not done so. Beneficiaries can bring a civil claim against trustees to restore the trust funds and to make good any loss caused by the breach of trust.14 If there is no loss to beneficiaries or to the trust fund or no gain to the trustee, then there will normally be no grounds for action.15

Law Commission The Duties, Office and Powers of a Trustee: Review of the Law of Trusts Fourth Issues Paper (NZLC IP26, 2011) [The Duties, Office and Powers of a Trustee].

N Kelly, C Kelly and G Kelly Garrow and Kelly Law of Trusts and Trustees (6th ed, LexisNexis, Wellington, 2005) at [27.3.1] [Garrow and Kelly].

Canson Enterprises Ltd v Boughton & Co [1991] 85 DLR (4th) 129 at 164.

Bank of New Zealand v New Zealand Guardian Trust Co [1999] 1 NZLR 664 at 687.

Kelly, Kelly and Kelly Garrow and Kelly, above n 11, at [27.4.1].

Chris Kelly “Supervision of Trustees: Enforcement or Problem Solving” (LLM Thesis, Victoria University of Wellington, 2009) at 77.