Contents

Chapter 12
Other powers of the court

Section 74 – Beneficiary indemnity for breach of trust

RECOMMENDATION

R35 The new Trusts Act should:
(1) Re-enact section 74 of the Trustee Act 1956, under which the court may, where a trustee has committed a breach of trust at the instigation or request or with the consent in writing of a beneficiary, make any order the court considers just indemnifying the trustee from the beneficiary’s interest in the trust property.
(2) Remove the antiquated reference to “married women restrained from anticipation”.

12.13Section 74 currently provides that if a trustee commits a breach of trust at the instigation, request or with the written consent of a beneficiary, the court may indemnify the trustee. All of the beneficiary’s entitlements may be confiscated or impounded by the court in order to make good the loss and indemnify the trustee. The right to confiscate a beneficiary’s interest is subject to the discretion of the court.

12.14In practice the provision enables trustees to give effect to compromises and settlements reached by beneficiaries. The most common use made of it is where a Family Protection Act 1955 or similar claim is settled. In such cases a compromise arrangement may require the trustees to depart quite substantially from the terms of the trust stated in a will. Where the beneficiaries have agreed to such an arrangement and the trustee acts on this at their behest, it seems only right that the beneficiaries should accept responsibility for any departure from the terms of the trust. Although mainly applicable to trusts under a will, interests under lifetime trusts may also be compromised by agreement with the beneficiaries.

12.15In cases where beneficiaries simply consent to a breach of trust, but do not do this in writing, section 74 is not available and beneficiaries cannot be made to indemnify trustees. However, at equity they may not be able to sue the trustees for any loss they suffer as a result of any breach to which they consented. In such circumstances the beneficiaries may also be liable to account to the trust for any profit they may have made from the breach of trust.

12.16We recommend retaining the provision. The few submitters who commented on this issue agreed that the current provision should be retained largely unchanged in scope. All considered this type of provision necessary to deal with the types of compromise situations noted above.

12.17Finally, section 74, as currently drafted, contains a now very antiquated reference to a beneficiary “who may be a married woman restrained from anticipation”. This presumably predates legislative changes giving married women full and equal status under law and is now unnecessary.