Supreme Court and Court of Appeal weigh in on the duty to account for breach of trust

In Adlam v Savage [2017] NZSC 11, the New Zealand Supreme Court was asked to consider whether the profit derived from breach of trust ought to be apportioned between two related trusts.

In breach of trust, the Appellant (Adlam) made a profit of approximately $14m from power stations on land owned by Bath Trust. One of the stations (GDL station) drew geothermal resources from an adjacent property owned by a separate but related trust (Farm Trust).

The trustees of the Bath and Farm Trusts brought proceedings against Adlam in the Māori Land Court (MLC). Although the Farm Trust could not make out a claim against her, the Court ordered Adlam to account to the Bath Trust for the full amount of the profit.

Adlam appealed to the Māori Appellate Court, where she successfully argued that the profit from the GDL power station ought to be apportioned between the Bath and Farm Trusts, as the assets of both trusts had contributed to it. Given that Farm Trust could not make out a claim against her, Adlam therefore stood to retain a portion of the profit.

On appeal, the Court of Appeal reinstated the MLC's decision. The Court of Appeal concluded that:

  • A causal link was required, not between the breach of duty and the trust property (as observed by the Appellate Court), but between the breach of duty and the profit
  • The causal link in this case was clear; but for the breach of trust, a lease would not have been secured so that the power station could be built, and without the power station, there would have been no profit.

Adlam unsuccessfully sought leave to appeal to the Supreme Court. There was no valid reason why a deduction should be made for the Farm Trusts' contribution, the Court said. Nor was there any convincing reason why Adlam should keep any of the profit at the expense of innocent parties.

See the Supreme Court's decision here and the Court of Appeal's decision here.