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Trusts Law - Personal Liability of Trustees Summary
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Comprehensive summary/exam notes on personal liability of trustees in Trusts Law. This document covers the progression of the case law from Cocker v Quayle, to Target Holdings, AIB v Redler and beyond. It focuses on the question of whether the remedy of falsification is still available following th...

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  • October 7, 2024
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  • 2022/2023
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Personal Liabilities of Trustees
Lord Browne-Wilkinson in Target Holdings Ltd v Redferns purports to confine the beneficiary to a
claim in compensation.
An analysis of Target itself and subsequent case law will reveal that, with regard to situations
where the underlying commercial transaction of the trust is incomplete, the prior remedy of
falsification is still very much available.
This is desirable outcome:
Accepting Georgiou’s argument that, while LBW is right that we have brought the
law of trusts closer to the common law, it is not, as he thinks, by restricting a claim to
damages but by having this remedial dualism.

1. Prior to Target Holdings:
Where the trustee dispersed rights in breach of trust, the beneficiary had to call for
account and falsify the relevant disbursement.
Falsification simply involved putting a line through the transaction and
resulted in an order that the trustee put their hand in their pockets and make
up the rights they should have been holding on trust, either in specie or its
equivalent value.
Fundamental feature of such remedy is that it is not compensatory.
Cocker v Quayle –
Trust for a wife but under the terms, trustees had a power, with
written consent of the wife to lend trust money to husband, but only
authorised to do that if they got security from husband. Trustees
exercised this right but didn’t take any security. Husband went
bankrupt. Because they failed to get bond, this was a breach of trust –
wanted trustees to reconstitute trust fund.
Trustees argued that security would not have given the loan priority,
would never have gotten the loan back even if they had gotten
security and so, because there was no loss, they shouldn’t have to
pay.
The Court held that this didn’t matter, they still had to pay.
Therefore, clearly not a compensatory remedy.
2. Target Holdings itself:
Target Holdings v Redferns – the position was changed greatly.
Lord Browne-Wilkinson seen clearly to state that in equity the position is
exactly the same as common law and so the beneficiary is limited to a claim
for compensation where a breach of trust has occurred.
In this case, the claimants instructed the defendant solicitors to act for them
in the provision of a loan.
On the basis of a fraudulent valuation by the borrowers of the land to
be purchased, the claimants transferred £1.5million to the defendants,
who were to hold it on trust, the terms of which stated that they were
to transfer the money to the borrower only when title of the land had
been purchased and transferred to the claimant.
In breach of trust, the defendant solicitors transferred the money
before they received the relevant charge over the land.
BUT – as the court found, since the defendants received the relevant charge
shortly after they paid away the money, it was assumed that the breach of
trust caused no loss.
On this basis, LBW refused to grant the claimants the entirety of
money that the defendants paid to the borrowers; because there was
no loss, there could be no claim.

, Judgement marks a stark change from the previous, non-compensatory remedy of
falsification.
3. Is falsification still available?
Was LBW correct in limiting a beneficiary to a claim for compensation or is the
remedy of falsification still available?
Lord Millett –
Attempted to explain this judgement on the basis of falsification.
He argued that even though the money was technically paid out in breach of
trust, when the defendants later obtained the charge, the trust fund was
essentially rebalanced and so there was no breach transaction which the
beneficiaries could cross out and falsify.
While this argument has some merit, it cannot be given any weight, given its
express rejection by the SC in the subsequent case of AIB v Redler.
Such case was factually identical to Target Holdings except for one
crucial difference; in AIB, the trustees never obtained the relevant
charge, only an inferior one.
It was this fact that caused the claimants to propose Lord Millett’s
argument and argue that the trust fund is never balanced, as the
defendants never obtained what they were required to under the trust.
BUT – this was explicitly rejected by the court – were not prepared
to reinterpret LBW’s judgement.
Even though Target Holdings cannot be explained on the basis of falsification, the
following arguments show that, if we accept one, arguably the better, interpretation of
the claimants’ arguments in this case, it is apparent that falsification survives where
the underlying commercial transaction under the trust is incomplete.
Claimants in Target Holdings put forward two alternative arguments:
First that the beneficiaries were entitled to have the trust fund
restored by an order that the defendants reconstitute the trust fund by
paying back moneys paid away (‘Argument A’) and, in the
alternative, even if the order is compensation, there is a freeze in
time so that the loss is assessed at the time of breach, rather than with
the benefit of hindsight (‘Argument B’).
In handing down his judgement, LBW denied Argument A –
Stated that until the underlying transaction is completed, the solicitor
can be required to restore the client account moneys wrongly paid
away; in order words, Argument A was rejected only where the
transaction is complete.
Two different interpretations of such arguments are possible.
If we accept Interpretation 1 (as it will be argued we should), that A
is seeking falsification and B loss/compensation, then LBW’s
rejection of Argument A on the ground that the transaction was
complete leads to the conclusion that in situations where the
transaction is incomplete, falsification is still available.
BUT – if we accept the opposing interpretation that the distinction
between the arguments is not about quantum but rather who the
remedy should be paid to, his Lordship’s complete/incomplete
distinction has no relevance to falsification.
Georgiou – the first interpretation is clearly more convincing.
Seen most clearly by LBW’s reference to reconstitution of the trust
fund, rather than to the trust fund, thereby clearly discussing
falsification rather than a question of who the remedy is to be paid to.
ALSO – the fact that falsification is a primary remedy, thereby
ordering simply that the defendant conforms with their obligation,
means that the distinction drawn between complete and incomplete
trusts makes sense.

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