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Released or Not? Informed release required for breaches of trust

This week’s TGIF considers Bullhead Pty Ltd v Brickmakers Place Pty Ltd (in liq) [2018] VSCA 316, where the Victorian Court of Appeal held that a release for breach of trust was ineffective because the beneficiary was not fully informed about the facts of the breach.


An investor was invited by his (once) close friend, a property developer, to invest in a 43-apartment development in Essendon, Victoria. The investor put in around $600,000 by subscribing for 600,000 units in a unit trust that held the development’s assets.

Other investors also subscribed for units in the unit trust. These other investors included companies controlled by the developer, his family members, his solicitor and his real estate agent, all of whom subscribed for 600,000 units each.

Unbeknown to the initial investor, a number of these unitholders acquired their units at a very substantial discount. Contrary to the trust deed and unitholders agreement, they paid only $65,000 for the same 600,000 units – or around 11% of what the initial investor paid for the same rights.

Once the developed properties were sold, the trustee proposed a “finalisation agreement” to redeem the units and conclude the affairs of the unit trust. All of the unitholders except the initial investor supported the finalisation agreement. By this point, the initial investor had discovered that the discounted units had been issued and had not been given a satisfactory explanation as to what happened.


The initial investor sued the developer and other unitholders for breach of trust and breach of fiduciary duty. The initial investor sought equitable compensation that would give him a share of the development profits that disregarded the discounted units.

A key defence relied upon by the developer and unitholders was that the initial investor had released them from all claims under the terms of the finalisation agreement.

The initial investor denied that the finalisation agreement existed or, alternatively, that it was unenforceable because it purported to release equitable claims for breach of trust and fiduciary duty where:

  • the investor had not been fully informed of the facts and circumstances about the discounted units; and
  • the developer had deliberately misrepresented facts, frustrating the investor’s attempts to acquire that knowledge.


The Court of Appeal held that, as a matter of fact, the finalisation agreement (including the release) did exist and that the investor had agreed to be bound it.

However, the Court then held that the release was unenforceable because the investor did not have full knowledge of the circumstances giving rise to his claims for breach of trust and fiduciary duty.

It is a long-established rule of equity that, because a trustee owes strict duties to beneficiaries, a defaulting trustee cannot rely on a release unless the beneficiary had full knowledge of the circumstances constituting the breach of trust, and of the rights and claims they had against the trustee. Furthermore, the trustee bears the onus of proving that the beneficiary had that knowledge.[1] This principle also applies to fiduciaries (such as the co-unitholders in the unit trust) and those who knowingly assist a breach of trust or duty.

In other words, it is not enough to show the beneficiary gave a release – for a release to be effective, the trustee must prove that the beneficiary gave an informed release.

In this case, the Court held that the initial investor had been deliberately lied to in an attempt to deflect inquiries about why the discounted units had been issued. So, even though the investor knew the discounted units had been issued, the developer’s lies meant that the investor lacked the knowledge required to give an informed (and effective) release.

In those circumstances, the Court held that the investor was able to sue for breach of trust and fiduciary duty which, on the facts of the case, were clearly made out.


The position of trustee carries with it strict duties to beneficiaries that cannot be easily overcome by a release. A release that would be effective in other commercial arrangements may not suffice in a trust or fiduciary arrangement – the requirement for informed release for breaches of trust and fiduciary duty means that you may have to go behind the release and inquire closely into the circumstances in which it was given.

This is particularly important to insolvency practitioners tasked with appointments involving trustee companies and individuals. They may be presented with releases that look complete and comprehensive on their face – but ascertaining the true position will require further investigation and analysis.

[1] Farrant v Blanchford (1863) 46 ER 42.


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