Remedies for Breach of Trust on a Passing of Accounts

July 11, 2017 David M Smith Estate & Trust, Executors and Trustees, Passing of Accounts, Trustees Tags: , , , , , 0 Comments

Remedies for breach of trust are commonly sought in estate litigation, most notably in the context of a contested passing of accounts application.  An executor who mismanages the estate assets, makes a bad investment, or distributes to a stranger rather than a beneficiary can easily be found to be liable for either breach of trust or breach of fiduciary duty or both.

The remedies available to the disappointed beneficiary can, however, be complex.   AIB Group (UK) Plc v. Mark Redler & Co. Solicitors, a 2014 decision of the United Kingdom Supreme Court, provides a comprehensive multi-jurisdictional overview of this interesting area of law.

The case considered the remedies available to a bank when the solicitors it engaged to secure a loan against property failed to adequately secure the bank’s interest.  The Court noted that, in considering the remedies available for breach of trust, the Court must consider the different obligations of a trustee in order to evaluate the remedies that may be available for a given breach, such as:

(i) a custodial stewardship duty (to preserve the assets of the trust);

(ii) a management stewardship duty (to manage the property with care), and

(iii) a duty of undivided loyalty (prohibiting a trustee from taking advantage of his or her position without fully informed consent of beneficiaries).

What is interesting from the perspective of an estates litigator is the Court’s observation that, “historically, the remedies for such breaches took the form of orders made after a process of accounting.  The basis of the accounting would reflect the nature of the obligation.  The operation of the process involved the court having a power, where appropriate, to “falsify” and to “surcharge.”

Falsification is another word for “disallow”; the Court will “falsify” the unauthorized breach of the custodial stewardship duty and require the trustee to make good the loss to the trust.

Although the terms are less commonly referenced in modern practice, surcharge and falsification are great examples of how courts provide remedies for breach of trust in the context of a contested passing of accounts.

Thanks for reading.

David Morgan Smith

 

 

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