Criminalizing Covid-19 Public Health Crises: Draconian punishment produces 'draconian' failure

Where a trustee fails to exercise the requisite degree of care and diligence1 so as to cause losses to the trust fund, his obligation is to make reparation by augmenting the trust fund by the amount of the loss. This obligation arises by way of surcharging the trust accounts with the extra amount of money needed to make up the value of the trust fund to the value it would have had but for the trustee’s lack of care and diligence2. The trustee then has to pay over this amount into the trust fund, whether it is still held by him or (more likely) vested in replacement trustees. If there is a beneficiary or beneficiaries of full capacity absolutely entitled to the trust fund they can claim the money directly.

Historically, it seems that the duty of care and diligence was regarded as if arising under a positive undertaking always to perform such duty, so that negligent behaviour was unauthorised conduct and there was a strict liability by way of a substitutive performance claim to restore the trust fund to the value it would have had if there had been no such unauthorised conduct3. It now appears that where a defendant’s conduct amounts to both (1) a negligent breach of a contractual or tortious duty; and (2) a negligent breach of a trust or fiduciary duty, equitable compensation for breach of the latter duty is analogous to common law damages for breach of such a duty at common law, so there is no reason why the common law rules of causation, remoteness of damages and measure of damages should not apply by analogy4 (although allegations of contributory negligence should not be open to the trustee or fiduciary5).

Where, however, there is just the negligent breach of a trust the position is unclear. One view is that claimants should not be able to obtain higher awards of compensation merely because their claim is characterised as a breach of trust or other fiduciary duty and is not a breach of contract or a tort limited by common law rules6. The more conservative view is that the relationship between trustee and beneficiary, or between fiduciary and his principal, is not a relationship between equal and independent actors, both concerned with their self-interest, but rather is a special relationship where one party pledges itself to act in the best interests of the other and if it does not carry out that pledge the balance favours the wronged party7. This prophylactic pressure deters loss-making conduct just as it makes trustees or fiduciaries strictly liable for profits, although, as Lord Browne-Wilkinson has pointed out, the principles applicable in a claim for an account of profits should not be applied to a claim for compensation for loss8.

  • 1     As to the trustee’s duties of diligence, prudence and care see para 387 et seq.
  • 2     Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch) at [1513], [2005] All ER (D) 397 (Jul).
  • 3     Caffrey v Darby (1801) 6 Ves Jun 488 at 496; Maguire v Makaronis (1997) 188 CLR 449, 144 ALR 729, Aus HC. Compare Holt CJ in Coggs v Bernard (1703) 2 Ld Raym 909 at 919, regarding a bailee’s negligent breach of his undertaking for diligent management of bailed goods as a fraud upon the bailor’s trust in him.
  • 4     Bristol & West Building Society v Mothew (t/a Stapley & Co) [1998] Ch 1, [1996] 4 All ER 698, CA; Bank of New Zealand v New Zealand Guardian Trust Co Ltd [1999] 1 NZLR 664 at 681, NZ CA. See also AIB Group (UK) plc v Mark Redler & Co Solicitors [2013] EWCA Civ 45, [2013] All ER (D) 142 (Feb). In Hilton v Barker Booth and Eastwood (a firm) [2005] UKHL 8, [2005] 1 All ER 651, [2005] 1 WLR 567, both parties were content to have the matter dealt with as a breach of contract although the solicitor had broken his fiduciary proscriptive ‘no conflict’ duty.
  • 5     Lloyds Bank plc v Markandan & Uddin (a firm) [2010] EWHC 2517 (Ch) at [42], [2010] 42 LS Gaz R 19 (accepted on appeal [2012] EWCA Civ 65 at [55], [2012] 2 All ER 884 at [55]); Pilmer v Duke Group Ltd [2001] 2 BCLC 773, [2001] 5 LRC 417, Aus HC.
  • 6     Canson Enterprises v Broughton & Co [1991] SCR 534 at 587, 85 DLR (4th) 129 at 162, Can SC; Waxman v Waxman (2004) 7 ITELR 162 at [660]–[662], Ont CA; Cassis v Kalfus (No 2) [2004] NSWCA 315 at [99].
  • 7     Canson Enterprises v Broughton & Co [1991] SCR 534, 85 DLR (4th) 129, Can SC; Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484 at [39]–[40], Aus HC; Pilmer v Duke Group Ltd [2001] 2 BCLC 773, [2001] 5 LRC 417, Aus HC; Quality Assurance Management Asia Pte Ltd v Zhang Qing [2013] SGHC 96, Sing HC, at [38], [41], [42], [49], [50], [59]–[61]. There was strict liability for a negligent breach of trust in Caffrey v Darby (1801) 6 Ves 488 (endorsed in Re Dawson, Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211, NSW SC; and cited in Target Holdings Ltd v Redferns (a firm) [1996] AC 421 at 434, [1995] 3 All ER 785 at 794, HL).
  • 8     Target Holdings Ltd v Redferns (a firm) [1996] AC 421 at 440, [1995] 3 All ER 785 at 799, HL.

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