Breach of Trust: Are You Personally Liable as a Trustee?

A breach of trust occurs when the trustee’s duty to act precisely within the terms of his obligations is not fulfilled. If he fails in this, it is of no significance that he or she had no intention of departing from his duty. Trustees have been found in various conditions of blameworthiness — fraudulent, wilfully neglectful, slovenly, and incompetent — but none of these elements needs to be proven in order to establish a breach of trust. If the letter of the trustee’s obligation has not been adhered to for whatever reason, he is liable to his beneficiaries for any loss that has occurred as a result. (Waters On Trusts). The question in law then becomes: is the trustee personally liable in damages for the breach of trust, innocent or otherwise?

In Winslaw v Richter and Munro Crawford 1989 BCJ 1659 the court dealt with the situation of a lawyer who paid out excessive funds to a wrong party and was sued for that breach of trust:

33 This view, I believe, conforms to that expressed by Professor Waters in Law of Trusts in Canada, 2nd ed. (1984), at p. 401, where, after describing the two different types of constructive trustee under discussion here, he writes:

Both are constructive trustees in the generic sense, and the knowledge that each must have before liability can attach to him is the same. It is what he actually knows or ought as an honest, reasonable man to have known. Though he does not have actual or imputed knowledge (and such knowledge would, of course, bind him), an honest, reasonable man would make enquiries if there are suspicious circumstances surrounding property which is proffered to him, whether or not in the course of trade.

34 I conclude that in Canada honest negligence will not serve to render a solicitor, who acts as agent of a trustee, liable as a constructive trustee if, by reason thereof, he unwittingly assists in a breach of trust, but wilful blindness or actual knowledge will.

The trustee is obliged to follow the terms of the trust.

The principle is so basic that it does not need authority; however, it is described succinctly in Merrill Petroleum Ltd. v. Seaboard Oil Co. (1957), 22 W.W.R. 529 at 557 (Alta. S.C):

…While it is also true that there are certain general obligations imposed by law on any trustee (e.g.. the duty not to profit from the trust at the expense of the beneficiaries) the more specific obligations and duties of a trustee are set forth in the instrument creating the trust – in other words, except for those general duties imposed by law on all trustees, the terms of a trust are to be found within the four comers of the trust instrument…. In other words, the first duty of this trustee (as of all trustees) was to follow implicitly the terms of the trust instrument, and, secondly, to observe those general principles of trustee law which did not run counter to the express terms of the trust.