Wright v Morgan [1926] AC 788

Facts

• The dispute arose when a trustee sold trust property to himself at an undervalue, acting both as trustee and purchaser.
• The trustee purchased the property for less than its market value, depriving the trust estate of its full benefit.
• The beneficiaries sought to set aside the transaction and recover the property, claiming breach of fiduciary duty.
• The key issue was whether beneficiaries could assert a proprietary claim over property transferred to the trustee via the breach.
• The House of Lords was required to determine if the breach of duty resulted in a constructive trust and whether the beneficiaries could trace the property into the trustee’s hands.

Issues

1. Whether beneficiaries may assert a proprietary claim over trust property misappropriated by a trustee and transferred to himself.
2. Whether a constructive trust is imposed on property acquired by a trustee in breach of fiduciary duty.
3. What conditions enable beneficiaries to trace and recover trust property following a breach.
4. What is the distinction between personal and proprietary remedies in cases of breach of trust.

Decision

• The House of Lords held that proprietary remedies are available where beneficiaries can establish a direct link between trust property and property held by the defendant.
• It was held that a beneficiary can trace trust property into its substituted forms, provided the property can be clearly identified and has not become so mixed as to be indistinguishable.
• A constructive trust may be imposed when a fiduciary acquires property in breach of duty and it would be unconscionable for them to retain that property.
• The distinction between personal and proprietary remedies was clarified: proprietary remedies focus on recovering specific property, whereas personal remedies entail monetary compensation.
• The court ruled in favour of the beneficiaries, permitting recovery of the property from the trustee as it could be traced and was held in constructive trust.

Legal Principles

• Trust beneficiaries have the right to assert proprietary remedies when identifiable trust property is misappropriated.
• The doctrine of tracing enables following trust property into its substituted forms so long as a sufficient nexus remains.
• Constructive trusts may be imposed to prevent unjust enrichment resulting from a fiduciary’s breach.
• Proprietary remedies are only available where the claimant can demonstrate a proprietary interest and clear identification of the property in question.
• Breaches of fiduciary duty resulting in personal profit or advantage mandate that such benefit be held on constructive trust for the beneficiaries.

Conclusion

Wright v Morgan [1926] AC 788 is a landmark House of Lords decision affirming that proprietary remedies, including tracing and constructive trusts, are available to beneficiaries when trustees misappropriate and retain identifiable trust property, reinforcing the accountability of fiduciaries and the protection of beneficiaries’ rights.