Explainer series — What happens if a trustee breaches their legal duties?

A trustee is the legal owner of, and has full control over, a trust's assets with many duties that they must comply with, including a duty of care to protect the trust property for the beneficiaries' benefit.

For more background, the first article in this series sets the scene.

Breach of trustees’ duties

This isn't an exhaustive list, but examples of breach of trustees' duties include —

• Distributing trust assets to a beneficiary, person or entity who is not entitled to them

• Investing trust funds in a way that's not permitted under the express powers of investment

• Failure to pursue for recovery of a debt the trust is owed

• Failure to take professional advice on trust intromissions (unauthorised assumptions of ownership, or other interference with the rights of an estate)

• Profiting from the trust

• Granting a loan from the trust estate to one of the trustees

What can I do if a trustee is in breach?

There are various remedies available where a trustee fails to comply with their duties.

The most appropriate one in any specific situation depends on the nature of the breach.

The four main remedies are —

Interdict

A beneficiary or co-trustee can seek an interdict order (the Scottish equivalent of an injunction order) against a trustee who threatens or appears likely to breach their trustee duties, or where a breach has happened and is ongoing.

However, if the transgression was essentially a "one off" and there is nothing to indicate it'll happen again, an interdict is unlikely to be suitable.

Damages

If a breach of trustees' duties causes loss, a trustee may be responsible for paying damages.

Here, the extent of the loss determines how much this might be. For example, in the case of Foreman v Burns, an executor failed to call in a debt of an estate for £250 until after the debtor was sequestrated. The estate eventually recovered £50, and the executor had to make up the £200 shortfall.

It's worth bearing in mind though, a breach of trust can often result in a benefit.

For instance, if the breach is an unauthorised but successful investment, damages will not be available as a remedy. However, the trustee will be obliged to account for the extra profit: ensuring the beneficiaries have visibility of the calculation as well as the amount of profit, and that the sums form part of the trust estate.

Accounting

One of a trustee’s main obligations is to account to each beneficiary for their share of the trust estate.

If a trustee refuses to do this, a beneficiary can raise an action of count, reckoning and payment — also known as an accounting action. This calls on the trustee to account for all intromissions with estate property.

In the same court action, a beneficiary can recover any shortfall in their entitlement.

Removal of a trustee

The Court of Session can remove a trustee through the exercise of the nobile officium (the noble office or duty of the Court of Session).

And it has done this in cases where there has been constant disregard for, or refusal to carry out, trustees' duties. However, this won't happen simply because of minor irregularities, disagreement or disharmony between the trustees or beneficiaries. The court is focused on protecting the beneficiaries, and we'll explore this more later in this series.

Recap

In situations where a trustee has failed in his or her duties, co-trustees or beneficiaries can take court action —

• To prevent an imminent breach

• For payment of damages where the breach has caused a loss

• To force the trustee to account for their intromissions with trust assets

• To remove the trustee

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