How do players play this? A Hell Hound breathing upon a hero standing on a tree:
Breath: Attacks with the Breath ability use the Breath template to determine which spaces they affect. [...] and all figures under the template are affected by the attack.
Shadowcloak: A figure with the Shadowcloak ability is only affected by attacks made by adjacent figures.
And similarly, Blast... which affects "every space within X spaces of the target space".