TRUSTEE EXEMPTION CLAUSES (A Consultation Paper) [2003] EWLC 171(4) (1 May 2003)

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URL: http://www.bailii.org/ew/other/EWLC/2003/171(4).html
Cite as: [2003] EWLC 171(4)

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PART IV

OPTIONS FOR REFORM

The Law Commission has been asked to examine the law governing trustee exemption clauses as a result of the increased presence of such clauses in modern trusts and the relative freedom accorded to trustees by the current law as stated in Armitage v Nurse

The factual background

The trust is a device which is now used in many different situations and with many different objectives. Traditionally employed in relation to wills and family settlements, it is now of increasing relevance in more commercial contexts such as international finance and corporate investment, and it is central to the management of pension and similar funds. It remains of particular significance to charities. In relation to these very different kinds of trust, the legitimate interests and expectations of the beneficiaries may vary considerably, from the beneficiaries of pension trust funds, who may be receiving benefits arising from and commensurate to their contribution, to beneficiaries of family settlements who, while they may come to rely upon trust income over a period of time, are essentially recipients of a gift.

As has already been noted, various types of clause can be used by trustees in an attempt to secure exemption from liability. As well as clauses which seek simply to exclude or restrict liability for breach of trust, there can be clauses which limit the scope of the trustees' duties (in particular the duty of care), clauses which extend the trustees' powers and clauses which entitle the trustees to indemnity from the trust fund. All such clauses can have the same practical effect from the point of view of the beneficiary who is seeking compensation as clauses which exclude or restrict liability simpliciter.

As there is almost an infinite variety of types and terms of trusts, the same can be said of the trustees who are obliged to administer them. The lay trustee is still of immense importance in relation to family trusts (where he or she will often be a family member) and in relation to charitable trusts. Such trusts often rely on the sense of duty and public- spiritedness of individuals to take on the responsibilities of trusteeship altruistically. Elsewhere, particularly where trusts are being used for commercial purposes, the professional trustee, who acts in order to obtain remuneration for services rendered, is now pre-eminent. Some of these are large trust corporations, such as banks and other financial institutions; some are individuals who may be employed by trust companies or who may be in private practice possibly as financial advisers, accountants or solicitors. There will be certain trusts which will be administered by a combination of professional and lay trustees.

Although the practical ramifications of the trust can be extremely complicated, the underlying concept is extremely simple. Indeed it is the very simplicity of the trust which facilitates its use in the wide range of circumstances which we have only been able to sketch here and which gives it its inherent attractiveness and popularity. These factors are enhanced by the freedom which is afforded to those promulgating the trust to stipulate the terms on which the trustees are to hold the property and to mould their powers and duties to fit the circumstances of the particular case. For instance, a rational settlor may well seek to restrict the potential liability of the trustees on whom reliance is placed on the basis that to do so will result in reduced insurance charges being met out of the trust fund.

Analysis of the problem

The current law as set out in Armitage v Nurse recognises that the consequence of the creation of a trust is that there is an irreducible core of obligations from which the trustees cannot escape, else the legal relationship will no longer be that of a trust at all. However, as that core of obligations comprises no more than a duty to act honestly and in good faith, it does not seriously impact upon the freedom of settlors to restrict trustees' liability by reference to trustee exemption clauses.

In seeking to identify what the objectives of the law should be in relation to the exemption of trustees from liability for breach of trust, it is important to recognise the various conflicting interests which are at stake. To consider first the parties to the trust relationship, there is the settlor who wishes to ensure that the trust which is being created is properly and effectively administered according to its terms, but who at the same time seeks to retain the widest possible freedom to stipulate what those terms are. There are the trustees who, as the likely focus of any enforcement action, would wish their liabilities to be carefully and clearly proscribed. Then there are the beneficiaries- the Attorney General in the case of charitable trusts- who do not want their rights to enforce the terms of the trust to be curtailed in any way. Any reform must balance the interests of the settlor, the trustees and the beneficiaries. We shall now look at each of these interests in turn.

The settlor

Paradoxically, a trust may well arise without there being an identifiable settlor. Furthermore, the dynamic of the trust is the relationship between the trustee and the beneficiary. Nonetheless, one of the most acute tensions which pervades modern trust practice emanates from the desire of the settlor to retain control over property which he or she, in order to constitute the trust, is necessarily transferring outright into the hands of the trustees. There are various means available to the settlor which may be used in an attempt to retain some residual power over the trust property. The settlor may declare him or herself to be the trustee or one of the trustees, or may direct that the settlor's consent is required for certain transactions by the trustees, or may appoint him or herself a "protector" with prescribed rights of consultation and possibly powers of intervention. However, it is important to realise that once the trust has been properly constituted, the status of settlor is an irrelevancy, a matter of no more than historical record.

Although the settlor is the architect of the trust, it is artificial to assume that the settlor has in all cases absolute freedom to dictate the terms on which the trustee or trustees are to hold the trust property. First, the very existence of the trust means that the settlor must have transferred title in the property to the trustees who are then holding that property subject to the fiduciary obligations owed to the beneficiaries. As we have observed, those obligations must have the "core content" of a trust relationship. Secondly, although the settlor may be extremely reluctant to do so, current market conditions may make it prudent for the settlor to include a trustee exemption clause in the trust instrument. The settlor may intend to employ the services of a professional trustee, who may refuse to act unless a sufficiently broad clause is included in the trust. Even if the settlor does not contemplate the appointment of a professional trustee at the moment of execution of the trust, it may be highly advisable to include such a clause to cater for the eventuality of the retirement or resignation of the trustees whom the settlor appoints, and for the possibility, at that stage, of the recruitment of professional trustees to take over the responsibilities of trusteeship. It may be that it is becoming customary for trusts draftsmen to include trustee exemption clauses, much as charging clauses have become standard in the majority of trust instruments, so as to facilitate the appointment of professional trustees should that become necessary or desirable at some future date.

The trustee

The obligations of trusteeship are voluntary, but onerous. A breach of trust may occur through the negligence or even fraud of the trustee, but it may also occur where the trustee has acted entirely innocently, albeit outside his powers (ultra vires). There is no doubt that the chance incurment of liability for breach of trust does not accord with the modern acceptance of fault- based liability and that it has led to the reluctance of those who appreciate and recognise the legal consequences of trusteeship to act without the comfort of either or both indemnity insurance and an exemption clause.

There is clearly a public interest in encouraging lay trustees to act. It is particularly evident in charities, but in relation to family trusts it is often more suitable to use the good offices of those who know the various individuals than to employ professional expertise. The threat of strict liability for breach of trust, or even liability for negligence, is likely to deter precisely those who would otherwise be ready to assume the role of trusteeship for reasons other than remuneration for the services provided. While it is possible for lay trustees to take out indemnity insurance, it is very difficult for individual trustees to obtain such insurance, as the usual means of securing protection is for a policy to be written for the trust as a whole.

Very different considerations apply where professional trustees are concerned. They are providing trustee services on a commercial basis. They are holding themselves out as being competent, experienced and prudent- indeed that is the basis upon which they justify charging the trust for the services which they provide. They will almost always have the protection of indemnity insurance, and if they do not, this is likely to be the result of a conscious commercial decision. As trustee exemption clauses have become more prevalent, it has no doubt become possible for certain professional trustees to require, as a condition of appointment, that the trust being executed contains such a clause. But in such cases, the professional trustee has "belt and braces" coverage- exemption from liability for breach of trust at least in so far as the trustee does not act fraudulently, plus indemnity insurance in any event.

The beneficiary

Of the three protagonists, the beneficiary is the least able to secure adequate protection of his or her interests. It is not simply a case of an inequality of bargaining power (such as supports the regulation of exemption clauses in consumer contracts). The beneficiary is not part of a "bargain" at all. The trust is created by the settlor, and its terms are accepted by the trustee on assumption of the trusteeship. The beneficiary has no right whatsoever to be consulted about the terms of the trust. Indeed, it is often the case that the beneficiary will be unaware of the detail of the terms, including the presence of a trustee exemption clause, until he or she seeks recompense for the misconduct of the trustees.

As with trustees, beneficiaries may encompass a very wide range of persons. There will be some who have made a significant financial contribution to the money now represented by the trust fund and who see the benefits which ultimately accrue to them through the trust as their entitlement. Then there are others who are essentially objects of largesse, being distributed among members of a family. It may be felt that such individuals should not be entitled to complain about the terms attached to acts of benevolence of which they are the fortunate recipients. They may however be relying on payments from the trust, perhaps towards their school or university education.

The trust obligations are those owed by the trustee to the beneficiary. Unless those obligations can be enforced against the trustee by the beneficiary, they are without meaning. The trustee exemption clause makes the enforcement of those obligations more difficult. The trustee may invoke the clause to argue that although he or she has been in breach of trust liability should not ensue. Reliance, or at least excessive reliance, on such clauses threatens the integrity of the trust relationship.

The objectives of reform

The broad objectives which we have identified can be listed as follows:

(1) It is essential to achieve a satisfactory balance between the rights and interests of the settlor, the trustees and the beneficiaries of the trust.

(2) In principle, the settlor should be free to make whatever lawful disposition of his or her property he or she wishes to make. However, the settlor should be aware not only of the existence of any provisions in the trust instrument which exclude trustees from liability for breaches of trust, but also of their legal consequences.

(3) In so far as the settlor creates a trust, it is appropriate to curtail the settlor's freedom by reference to the interests of the beneficiaries, in particular to recognise the right of the beneficiaries to enforce the terms of the trust by remedial action against the trustees.

(4) There is a public interest in encouraging lay persons to act as trustees without expectation or receipt of remuneration.

(5) At the same time, those who act as trustees in the course of their business or profession, while being entitled to receive fair recompense for their services, should be expected to achieve reasonable standards of competence for those services and should be accountable for their conduct.

Approaches to regulation of trustee exemption clauses

The options available range from imposing an absolute prohibition on all trustee exemption clauses to conferring total freedom on settlors to include such clauses in their trust instruments and on trustees to rely upon them to defend actions for breach of trust, limited only by the concept of the irreducible core of obligations. Between these options lies a wide range of possible methods of regulation.

We do not believe that an absolute prohibition on all trustee exemption clauses is justifiable at present. One of the advantages of the trust is its flexibility and its adaptability to different factual circumstances and to different kinds of relationship. To deny settlors all power to modify or to restrict the extent of the obligations and liabilities of the trustee would have a very significant impact on the nature of the trust relationship. The trust would inevitably become more inflexible and we are convinced that many who are at present willing to take up the duties of trusteeship would cease to be so. It must be emphasised that an absolute prohibition of trustee exemption clauses would result in trustees being liable for breaches of trust which could not be characterised as negligent and would have the practical effect of imposing a single, indefeasible standard of care on all trustees irrespective of the circumstances surrounding the particular trust and the specific wishes of the settlor.

As we shall explain in due course,

We do not consider that an outright prohibition of trustee exemption clauses is justified or necessary.

Do consultees agree?

At the same time, we do believe that there is a very strong case for some regulation of trustee exemption clauses. Their increased use in recent years has without doubt reduced the protection afforded to beneficiaries in the event of breach of trust. While there is a need to maintain a balance between the respective interests of settlor, trustee and beneficiary, we believe that the current law is too deferential to trustees, in particular professional trustees who hold themselves out as having special knowledge, skills and experience, charge for the services they provide and insure themselves against the risk of liability for breach of trust. It is on these trustees that this Paper will ultimately focus. However, we also believe there are important reforms to trust practice which should be considered, and which would impact on lay trustees as well.

We do consider that some legislative regulation of trustee exemption clauses is justified and necessary.

Do consultees agree?

We propose to consider three broad approaches which could be employed to restrict the use which could be made of trustee exemption clauses. They should not be viewed as being necessarily mutually exclusive. They are:

(1) Reforming trust practices with a view to ensuring that the settlor is aware of the existence and the legal consequences of any trustee exemption clause contained within the trust instrument.

(2) Imposing a reasonableness requirement on trustee exemption clauses such that a professional trustee is only permitted to rely upon such a clause in so far as the clause satisfies the requirement of reasonableness.

(3) Subjecting the conduct of the trustee in respect of the breach of trust to a regime of accountability by means of:

(a) prohibiting professional trustees from relying on trustee exemption clauses but permitting them to apply for exculpatory relief from the court; or

(b) prohibiting professional trustees from relying on trustee exemption clauses only in so far as they have been guilty of "gross negligence"; or

(c) prohibiting professional trustees from relying on trustee exemption clauses only in so far as they have been negligent in their conduct or dealings with trust property.

In due course, we shall consider each of these approaches in detail, and make provisional proposals. Before doing so, however, we intend further to consider the justification for distinguishing between lay and professional trustees, and the means by which such distinction should be made.

Lay and professional trustees

The professional trustee

It will already be apparent that we consider that any analysis of the possible regulation of trustee exemption clauses must take account of the wide range of persons who may assume the responsibility of trusteeship.

Not only is the professional trustee holding him or herself out as having special knowledge skills and expertise, he or she is also likely to be insured against the risk of professional liability. The cost of this insurance can be reflected in the fees charged. The New Zealand Law Commission, which recently recommended that professional trustees should not be able to rely upon any clause in the trust instrument which purports to exonerate them from liability for failure to exercise the degree of care, diligence and skill required by law, considered that the insurance perspective was extremely important:

The issue is whether losses should be borne by trustees or beneficiaries. It is appropriate in considering loss allocation, as between two classes, to take into account which class is in a better position to insure against the loss. The professional can be expected to insure (usually in practice as part of cover for all his professional activities) but the lay trustee may well either not realise the need to insure or find it difficult to obtain cover.^[8]

As professional trustees are likely to be covered by liability insurance, the effect of a trustee exemption clause is to lighten the burden on the trustees' insurer.

If trustee exemption clauses were to be controlled by legislation, trustees would be more vulnerable to successful action before the courts, insurance premiums would presumably rise, and the cost would no doubt be carried through to the beneficiaries in terms of the trustees' administration fee. Although the trust fund may be diminished in order to meet insurance premiums, the beneficiaries nevertheless stand to gain where the trustees are insured, in that the trustees have recourse to the insurance company to finance any judgement for damages which may be obtained against them.

Distinction is already made between professional and lay trustees in defining their respective duties of care. In our Report on Trustees' Powers and Duties we stated:

Professional trustees should be held to the high standard of skill and care which befits their qualifications and experience...

Every trustee should be required to exercise such care and skill as is reasonable in the circumstances. However, the level of care and skill which is reasonable may increase if the trustee has special knowledge or skills, (or holds him or herself out as having such knowledge or skills), or if the trustee is acting in the course of a business or profession.^[10]

In that Report, we considered that the existing law may have recognised a gradation as to standards according to whether the trustee was an unpaid layman, a paid professional or a professional trustee,

he must exercise such care and skill as is reasonable in the circumstances, having regard in particular-

(a) to any special knowledge or experience that he has or holds himself out as having, and

(b) if he acts as trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession.^[13]

The lay trustee

The contrast between the professional and the lay trustee is stark. Not only is the lay trustee professing no special expertise, he or she is unlikely to be aware of the opportunity of taking out indemnity insurance, and it would seem unreasonable to expect a lay trustee to pay for cover out of his or her own pocket.

It is essential that any reform we propose takes account of the special importance of lay trustees. Although it is a particular problem with charities, which frequently rely on the altruism of individuals who give freely of their time, many other trusts, in particular family trusts, depend on the voluntary assumption of trusteeship by those who do not expect to be paid. The task of finding lay trustees can be arduous, and the presence of a trustee exemption clause in the settlement may provide some solace for the vacillating individual. Any proposed reform should not make it any less attractive for lay persons to take on the burdens of trusteeship.

We should state here that if we propose restrictions on the use of trustee exemption clauses which would be applicable only to professional trustees, it would nevertheless be our intention that lay trustees remain subject to the general law. In other words, a lay trustee could not invoke a trustee exemption clause where he or she had been guilty of fraud: the reasoning of Armitage v Nurse would still apply.

We believe that consideration should be given to the introduction of provisions authorising lay trustees to finance liability insurance cover from the trust fund. Looking at the issue from the point of view of the beneficiaries, there is no doubt that the widespread use of professional indemnity insurance would be to their general benefit.

We provisionally propose that all trustees should be given power to make payments out of the trust fund to purchase indemnity insurance to cover their liability for breach of trust.

Do consultees agree?

The distinction between professional and lay trustees

Our approach to the subject of trustee exemption clauses, and hence our provisional proposals, builds upon the distinction between professional and lay trustees. That distinction itself is not, however, altogether straightforward. As Dr Dunn's research has indicated, there are several kinds of trustee who might fall within the ordinary meaning of the term "professional trustee", and it is important that we make some attempt to clarify how we would make a distinction between professional and lay trustees in any future legislative proposals.

There is the trust corporation. There are individual trustees who may be employed by trust corporations or others, or who may be in private practice. In either case, they will normally charge for their services as trustees. Then there are professionals (such as solicitors or accountants) who are not working in the trustee field as such but who will also charge for their services.

We have little doubt that it is appropriate to consider trust corporations as "professional trustees" in all circumstances. Individual trustees who are carrying on business as trustees we would expect to carry insurance covering their liability for professional negligence, and again it would seem proper that they too fall within the definition of "professional trustees". In relation to other professional persons, it may be necessary to examine more carefully the nature of their retainer.

We believe that the existing legislative definitions contained in section 28 of the Trustee Act 2000 would lend themselves adequately to these purposes. Indeed, unless a strong case can be made for some other definition, the interests of consistency should prevail. Section 28 sets out to distinguish "lay trustees" from others for the purposes of remuneration. A person acts as a lay trustee if he is not a trust corporation and does not act in a professional capacity.

Although not referred to as such in the legislation, a "professional trustee" would therefore comprise:

(1) a trust corporation; and

(2) any other trustee "acting in a professional capacity".

A trustee acts in a professional capacity if he acts in the course of a profession or business

which consists of or includes the provision of services in connection with-

(a) the management or administration of trusts generally or a particular kind of trust, or

(b) any particular aspect of the management or administration of trusts generally or a particular kind of trust,

and the services he provides to or on behalf of the trust fall within that description.^[16]

This definition requires there to be a close nexus between the profession or business in the course of which the trustee acts and the services provided as trustee. A solicitor, accountant or banker would meet the condition, as it is not necessary for the trustee's profession or business to have the management or administration of trusts as its primary focus.

The Trust Law Committee has proposed a rather more restricted definition based on whether the trustee was being remunerated in the particular circumstances for his or her services as trustee.

We consider that the case for regulation of the use of trustee exemption clauses by professional trustees is very strong, but that lay trustees should in general continue to be able to rely upon trustee exemption clauses. We provisionally propose therefore that any statutory regulation of such clauses should make a distinction, in broad terms, between professional trustees and lay trustees.

Do consultees agree?

Consultees are asked whether they agree with the provisional proposal that any distinction between lay trustees and professional trustees be made on the basis set out in paras 4.36 and 4.37 above.

We shall now consider the various forms regulation of trustee exemption clauses might take, drawing upon proposals which have been made and reform which has been effected in other jurisdictions.

• Reforms to trust practice

One criticism of the current law is that settlors may sometimes include a trustee exemption clause in their trust instrument without being fully aware of its consequences for the enforcement of the trust obligations by the beneficiaries. Lord Millett, speaking extra-judicially after Armitage v Nurse, wished:

to emphasise the heavy responsibility that the draftsman undertakes when he includes a trustee exemption clause in a trust instrument and to stress that the clause should not be taken from the nearest precedent book without considering the alternatives and discussing them with the client.^[20]

While it is clearly the responsibility of the settlor's legal advisers to bring such clauses to the attention of their client and to explain their implications, there is some evidence that in practice settlors are not well informed on trustee exemption clauses.

Bogg v Raper

The Trust Law Committee considered a proposal that special formalities be prescribed by law to support or establish the validity of trustee exemption clauses.

However, as the Trust Law Committee observed, this kind of reform has serious limitations. It would in itself provide no protection for beneficiaries in those cases (assumed to be the majority) where the legally advised settlor is made fully aware of the existence of the trustee exemption clause and consents to its inclusion in the trust instrument.

We accept that, as a matter of good practice, the draftsman of a trust should always bring the presence of a trustee exemption clause to the attention of the settlor, explain clearly its implications and discuss the alternatives which may be available for the protection of those who may be acting as trustees. We realise, however, that there would be considerable evidential difficulties facing a beneficiary who wished to prove that the settlor had not been made aware of the inclusion of the clause. This highlights the limitations of an approach based on the imposition of specific formality requirements in relation to trustee exemption clauses. It is only the settlor's consent to the inclusion of the clause which is material. The beneficiary has no say. To focus on the settlor is unlikely to achieve the desired objective of balancing the rights of trustees and beneficiaries.

While we consider that those advising a settlor (whether or not they are also the trustees) should be expected, as a matter of good practice, to bring the attention of their client to any trustee exemption clause and to explain its legal consequences, we do not consider that it is appropriate that this should be a statutory requirement.

Do consultees agree?

An assessment of the reasonableness of the clause

We have already made reference to the Unfair Contract Terms Act 1977 in Part II, where we came to the conclusion that it does not generally apply to trustee exemption clauses.

There is no doubt that such an approach would have the benefits of flexibility, sophistication and adaptability to the circumstances of each trust. The professional trustee would be permitted to rely on a trustee exemption clause contained in the trust instrument save and in so far as the clause was unreasonable or unfair. Legislation could indicate those factors which should be taken into account in determining the question of unreasonableness, setting out relatively sophisticated statutory guidance which would assist settlors and their advisers as to the steps which should be taken, and the circumstances in which restrictions of or exemptions from trustee liability would be likely to be upheld. The court could be required to have regard to matters such as the availability of liability insurance, whether different options were offered to the settlor, the value of the trust fund and the nature of the trust.

There is no doubt that it would take time for a meaningful body of precedent to build up in view of the various factors involved in each case. However, over a period of time, the courts would be able to indicate which clauses are likely to be upheld and which are likely to be struck down, and gradually some clarity would be introduced. This has been the experience of the application of the reasonableness requirement in relation to contracts under the 1977 Act. For these reasons, we are not overly concerned that introduction of a reasonableness requirement would cause excessive uncertainty.

An argument in favour of an approach focused on the wording of the specific clause is that once it becomes clear which clauses are viewed as excessively wide, settlors and trustees will be encouraged to modify the terms of their trusts so as to ensure compliance with the statutory requirements. The legislation would therefore have a salutary, "deterrent", effect on trusts draftsmanship. In due course, we shall invite views of consultees on the merits of legislation to such effect.

However, we do have certain reservations about this approach. First, we question whether it is appropriate, albeit logical, to confine application of the test to the circumstances prevailing at the date of the execution of the trust, by analogy to the "contract" model in the 1977 Act.

Secondly, we also note the transitional difficulties associated with such an approach. If provision were to be made (as would be desirable) that the reasonableness requirement would have to be met in relation to all trusts irrespective of their date of execution, there would be considerable difficulties with regard to existing trusts which contain trustee exemption clauses which might now be vulnerable to attack. Aware that the clause which purports to protect the trustee from liability might be struck down, trustees may be disinclined to continue to act without some form of lesser protection which may be extremely difficult to effect. It would of course be possible, although not we think desirable, to provide that the legislation should be limited in its application to trusts which are executed subsequent to its coming into force.

For these reasons- but also, and most significantly, because we consider the better approach is to focus on the conduct of the trustee- we do not think that strict application of a reasonableness requirement to trustee exemption clauses by reference to the circumstances prevailing at the date of the execution of the trust is the best way forward.

We invite views on statutory regulation of trustee exemption clauses such that a clause can only be relied upon by a trustee to exclude or restrict his or her liability for breach of trust in so far as the clause satisfies a requirement of reasonableness.

In so far as consultees support the imposition of a reasonableness requirement, do they consider it desirable that there be a list of matters to which regard is to be had in determining whether a particular clause satisfies the requirement?

If so, could they indicate the matters which they consider should be included in such a list?

An evaluation of the conduct of the trustee.

The question whether a trustee should be able to rely upon a particular trustee exemption clause may be asked in the abstract, or it may be asked in the light of the trustee's conduct which the claimant beneficiary is seeking to impugn. The obvious advantage of the latter approach is that it enables the court to take account of all relevant factors and to assess whether in those circumstances the trustee should be able to avoid the consequences of breach of trust by reference to a trustee exemption clause. It is an approach which has proved attractive both to other legislatures and to law reform bodies in other jurisdictions. We shall first summarise three particular approaches which have been adopted or proposed, and then consider the merits of regulation along similar lines in England and Wales.

Other jurisdictions

New Zealand

In April 2002, the New Zealand Law Commission recommended the adoption of a new approach to trustee exemption clauses.

A provision of a trust instrument purporting to exonerate a trustee who acts as such for reward from liability for failure to exercise the degree of care, diligence and skill required by law, shall have no effect.^[32]

The proposal is limited in its effect to trustees "for reward". But while it prohibits such trustees from invoking exemption clauses in order to escape liability for breach of trust, it does not mean that the trustee has no way out. The trustee who has acted "honestly and reasonably" and who "ought fairly to be excused" for the breach of trust may be relieved of liability by the court pursuant to its statutory power.

Jersey and Guernsey

The Jersey trust law was amended in 1989 by what is now Article 26(9) of the Trusts (Jersey) Law 1984:

Nothing in the terms of a trust shall relieve, release or exonerate a trustee from liability for breach of trust arising from his own fraud, wilful misconduct or gross negligence.^[34]

In 1990, Guernsey amended its trust law to prohibit the exclusion of gross negligence and thereby to bring it into line with that of Jersey.

British Columbia

In March 2002, the British Columbia Law Institute published a Report on Exculpation Clauses in Trust Instruments.

Where it appears to the court that the conduct of a trustee

(a) would constitute a breach of trust, and

(b) has been so unreasonable, irresponsible or incompetent that, in fairness to the beneficiary, the trustee ought not to be excused.^[37]

This approach would require the court to focus upon the breach of trust committed by the trustee rather than the terminology of the exemption clause. It would be a retrospective exercise. The penalty for excessively "unreasonable, irresponsible or incompetent" conduct is that the trustee will be unable to rely on the clause, and the trustee's liability will be determined as if the clause was not contained in the trust instrument.

Discussion

The common feature of the above proposals and reforms is that all require the court to examine and evaluate the conduct of the trustee. The New Zealand proposals deny efficacy to trustee exemption clauses as a matter of principle but permit trustees to make application to the court for exculpatory relief. The Jersey and Guernsey legislation, and the British Columbia proposals, allow limited effect to trustee exemption clauses (irrespective of the type of trustee) but restrict their invocation once the conduct of the trustee crosses a certain threshold. In the case of the Channel Islands, this threshold is set at fraud, wilful default or gross negligence; in the case of British Columbia, the conduct must be so unreasonable irresponsible or incompetent that in fairness to the beneficiary it should not be capable of being excused.

We shall now consider the possible adoption of approaches along similar lines in England and Wales.

Exculpatory relief

It would be possible to adopt the New Zealand model, denying efficacy to trustee exemption clauses where professional trustees are concerned but permitting such trustees to apply to the court to obtain relief at its discretion from liability for breach of trust where certain conditions are satisfied.

Section 61 of the Trustee Act 1925 already gives the court a discretion to relieve trustees from personal liability for breach of trust where they have acted "honestly and reasonably, and ought fairly to be excused". It is well known, however, that courts have been reluctant to relieve trustees under section 61, adopting a narrow construction of their jurisdiction and applying a high standard to the test of reasonableness.

...it would be a misconstruction of the section to say that it does not apply to professional trustees, but, as was pointed out in the Judicial Committee of the Privy Council in National Trustees Company of Australasia Ltd v General Finance Company of Australasia Ltd, "...without saying that the remedial provisions of the section should never be applied to a trustee in the position of the appellants, their Lordships think it is a circumstance to be taken into account...". Where a banker undertakes to act as a paid trustee of a settlement created by a customer, and so deliberately places itself in a position where its duty as trustee conflicts with its interest as a banker, we think that the court should be very slow to relieve such a trustee under the provisions of the section.^[42]

Unless there is a change of culture among the judiciary towards applications under section 61, professional trustees are unlikely to consider its invocation as a satisfactory alternative to the use of trustee exemption clauses.

A serious objection to vesting a discretionary power of this kind in the court is that it requires litigation to discover whether, in the circumstances which have happened, liability is to be incurred by the trustee. It would not be conducive to certainty or predictability. The Trust Law Committee considered a similar approach and concluded:

The problem with such a sophisticated system is that it is not only complex to operate and therefore puts up the cost, it also requires every case to be argued because professionals will not be able to advise in advance what will be the result of the application.^[44]

Given the current judicial attitude to applications under section 61 of the Trustee Act, we doubt that there is any real merit in seeking to expand the jurisdiction to grant relief to trustees. We also accept that to adopt and to develop such an approach would only increase uncertainty in the law.

We do not consider it satisfactory to combine an outright prohibition of trustee exemption clauses with the exercise of a judicial discretion to exculpate trustees who have acted honestly and reasonably and who ought fairly to be excused for their breach of trust (the New Zealand model).

Do consultees agree?

Denying exemption from liability for gross negligence

It would be possible to enact legislation which follows the example of Jersey and Guernsey and to invalidate any clause in a trust instrument which excludes or restricts the liability of trustees for gross negligence in the conduct of trust business. Such a reform would represent a compromise between the current law expounded in Armitage v Nurse

However, in order to be workable, such a reform would require the distinction between gross and ordinary negligence to be clear. In Armitage v Nurse, Millett LJ said of English law:

[While] we regard the difference between fraud on the one hand and mere negligence, however gross, on the other as a difference in kind, we regard the difference between negligence and gross negligence as merely one of degree. English lawyers have always had a healthy disrespect for the latter distinction.^[46]

It is true that gross negligence has a greater significance in civil law jurisdictions such as Scotland, where reliance is placed upon the maxim culpa lata dolo aequiparatur (gross negligence is equivalent to fraud). The classic formulation was enunciated by Lord Watson in Knox v MacKinnon: "It is settled in the law of Scotland that such a clause is ineffectual to protect a trustee against the consequences of culpa lata, or gross negligence on his part".

Armitage v Nurse

culpa lata

Armitage v Nurse

culpa lata

However the question which must be asked is whether "gross negligence" is a sufficiently clear concept such that courts would be able to establish whether a trustee's conduct in any particular case has crossed the border from the merely negligent to the grossly negligent. There is a risk that the adoption of this distinction as the basis of regulation of trustee exemption clauses would generate more litigation and uncertainty. As stated by the British Columbia Law Institute, it may be a matter of concern that:

...too often whether negligence so found is to be perceived as "gross" or "ordinary" lies in the eye of the beholder.^[50]

It has been argued that although "gross negligence" does not lend itself easily to definition, it is instantly recognisable when facts arise which fall within its scope and that although degrees of care are not definable, they are with some approach to certainty distinguishable. Before the demise of the jury trial in civil cases, this kind of question was perceived as one of fact and degree which the jury was expected to decide. In every case of this description, in which the evidence was left to the jury they were led by the cautious and discriminating direction of the judge to distinguish degrees of things which run more or less into each other.

It is remarkable, however, how lacking in consistency the definitions which have been made are. Some judges have refused to gloss the term itself, stating for instance that gross negligence is "some sort of carelessness which would appear to the plain man of common sense as being gross".

This interpretation of gross negligence can be contrasted with the view of Sir Godfray le Quesne QC, defining the term for the purposes of Jersey law in Midland Bank Trustee (Jersey) Ltd v Federated Pension Services Ltd,

mens rea

Gross negligence is of course an extremely important component of English criminal law, being one of the bases of liability for involuntary manslaughter. In this context, the issue whether the conduct which caused the death is to be characterised as grossly negligent has been held to be "supremely a jury question":

...having regard to the risk of death involved, [was] the conduct of the defendant...so bad in all the circumstances as to...amount to a criminal act or omission.^[60]

We doubt, however, the usefulness of comparisons with the criminal law. The jury in a criminal trial does not have to give reasons for its verdict, and in determining whether the defendant's conduct crosses the line of criminality, it is able to concentrate solely on the circumstances of an individual case without fear of setting a precedent for future occasions. The judge in a civil trial is charged with very different responsibilities. Moreover, the type of behaviour with which the criminal court is concerned is likely to be very far removed from the world of ill-judged investments of trust assets and ill- informed distributions of trust funds.

The potential complexity of gross negligence in civil claims was clearly appreciated by Mance J in The Hellespont Ardent,

"gross" negligence is clearly intended to represent something more fundamental than failure to exercise proper skill and/or care constituting negligence. But, as a matter of ordinary language and general impression, the concept of gross negligence seems to me capable of embracing not only conduct undertaken with actual appreciation of the risks involved, but also serious disregard of or indifference to an obvious risk...I see no difficulty in accepting that (a) the seriousness or otherwise of any injury that might arise, (b) the degree of likelihood of its arising and (c) the extent to which someone takes any care at all are all potentially material when considering whether particular conduct should be regarded as so aberrant as to attract the epithet of "gross" negligence.^[62]

We believe that any legislative provision denying professional trustees resort to exemption clauses where they have been guilty of gross negligence would have to reflect the fact that the definition is at best imprecise, and that the courts would inevitably be afforded an element of latitude in determining when trustee misconduct is sufficiently severe as to be termed gross negligence. This would lead once more to uncertainty as to the circumstances in which a professional trustee would be able to rely upon an exemption clause.

An alternative, albeit similar, approach would be to deny professional trustees resort to an exclusion clause where they have committed a particularly serious breach of trust. For the reasons we have explained above, this would not be characterised as "gross negligence". Adopting the proposals of the British Columbia Law Institute, it would be possible, for example, to provide that a professional trustee could not rely on a trustee exemption clause where his or her conduct has been so "unreasonable, irresponsible or incompetent" that, in fairness to the beneficiary, the trustee should not be excused. While this is not our currently favoured approach, we should be grateful to have the views of consultees on this alternative.

We do not consider that the concept of gross negligence is sufficiently clear or distinctive as to form the basis of regulation of trustee exemption clauses. We do not therefore propose that those who wish to claim for breach of trust should be obliged to establish that the trustees were guilty of gross negligence in order to deny them resort to any exemption clause in the trust instrument.

Do consultees agree?

We invite views of consultees on the proposal that professional trustees should be unable to rely upon a trustee exemption clause where their conduct has been so unreasonable, irresponsible or incompetent that in fairness to the beneficiary the trustee should not be excused.

Denying exclusion of liability for "ordinary" negligence

It can be argued that denying professional trustees the right to exemption from liability for ordinary negligence, which we now turn to consider, may result in more "defensive" trusteeship as professional trustees would tend to be more cautious in the manner of exercise of their powers, for example in their selection of appropriate trust investments. To allow professional trustees to rely upon exemption clauses in the trust instrument in so far as their conduct could not be described as "grossly negligent" would give trustees greater latitude and would prove more acceptable both to professional trustees and their insurers. As the Trust Law Committee has commented:

...in these litigious times a professional trustee will prefer only to be liable for gross negligence (and dishonesty) so that there is a certain amount of "clear water" between the trustee and any disgruntled beneficiary.^[63]

As stated above, however, we are not in favour of proposing reform based upon a distinction between ordinary and gross negligence. Not only do we consider that there are very real problems in defining the latter concept, but as a matter of consistency of principle we feel that if an approach based on an assessment of the trustee's conduct is to be adopted, it is appropriate to set the boundary of acceptability at ordinary negligence.

Negligence is the most common cause of loss to trust funds. It is in our view particularly inequitable that the risk of loss through the negligence of professional trustees should be borne by beneficiaries. As we have already noted, the expansion of professional negligence in relation to many areas makes it logical and consistent to visit professional trustees with liability for negligence and to deny them resort to exemption clauses when their conduct can be so characterised.

82 The argument was convincingly put by the Trust Law Committee in 1999:

There is much to be said for trust corporations and professional individuals paid for their services as trustees (like solicitors, barristers and accountants) to accept the price of liability for negligence in acting as a paid trustee and to insure against such risk, with the premiums being reflected (like other overheads) in the fees for the services provided. After all, solicitors, barristers, accountants and doctors proud of their expertise accept liability for negligence in exercising their professions and insure against such risk.^[64]

As we have already indicated, professional trustees for the most part benefit from liability insurance. The inclusion of a trustee exemption clause provides them with additional protection. This has the effect that many professional trustees pursue a "belt and braces" policy, being both insured and protected by an exemption clause. The current freedom to invoke wide trustee exemption clauses means that the likelihood of the insurer incurring any liability to the insured is low, and this is no doubt reflected in the level of premium which is charged. It would therefore follow that legislative restriction of the extent to which professional trustees can rely on trustee exemption clauses would be likely to result in increased premiums, and therefore higher administrative costs being carried forward and being paid out of the trust fund.

The case for prohibiting professional trustees from relying on trustee exemption clauses where they can be shown to have been guilty of negligence is in our view very strong. It may be that indemnity insurance premiums, and therefore the cost of employing professional trustees, would rise, but we believe that most beneficiaries would nevertheless consider the price to be one worth paying.

We accept that to hold all trustees, whether lay or professional, accountable for negligence and to deny them resort to trustee exemption clauses where negligence is established would be to transform the nature of the trust obligation in English law. But professional trustees- who hold themselves out as possessing special expertise, and as being proficient in fulfilling the obligations of trusteeship, and who are being remunerated for their services which they give on a commercial rather than gratuitous basis- should be expected to live up to the expectations which they have themselves engendered. The trust expertise which they offer is being paid for, as is, in most cases, indemnity insurance to cover the risks they are assuming. Where such trustees fail to act with reasonable care in the exercise of their fiduciary duties, there is in our view a very strong case that they should not be permitted to hide behind exemption clauses contained in the trust instrument.

We provisionally propose that a professional trustee should not be able to rely on any provision in a trust instrument excluding liability for breach of trust arising from negligence and that clauses purporting to should not be given effect.

Do consultees agree?

We believe, nevertheless, that it is useful to explore the level of support for a scheme whereby the question would be asked whether, in all the circumstances, including the conduct of the trustee which comprises the breach of trust, it is reasonable for the trustee to rely upon the exemption clause contained in the trust instrument. Not only would the court be able to take account of the nature of the trust and the type of trustee, it would also be able to consider all the other circumstances. The attractiveness of such a proposal is that it would confer very considerable flexibility in determining whether trustees should be rendered fully accountable for their conduct or should be able to invoke the protection of an exemption clause.

We invite views as to whether professional trustees should not be able to exclude liability for breach of trust where it is not reasonable for the trustees to rely upon a trustee exemption clause contained in the trust instrument by reference to all the circumstances including the nature and extent of the breach of trust itself.

Duty exclusion, extended powers and indemnity clauses

In Part II we explained how trustees may obtain protection from liability for breach of trust by other means than the simple expedient of a trustee exemption clause.

Indemnity clauses

Indemnity clauses do not pose a particularly difficult problem. It is strongly arguable that if the invocation of trustee exemption clauses by professional trustees is regulated, then it should follow that such trustees should not be able to obtain recompense from the trust fund in respect of their liabilities to the same extent. If, for example, our provisional proposal that professional trustees should not be able to exclude liability for breach of trust arising from negligence were to be adopted, it would follow that such trustees should not be able to be indemnified against such liability from the trust fund.

Duty exclusion clauses and extended powers clauses

There is a risk that limiting any regulation to clauses which expressly exempt a trustee from liability for breach of trust will simply lead to settlors utilising duty exclusion clauses or extended powers clauses to achieve the same ends. At the same time, however, the use of these clauses may be a perfectly reasonable expression of settlor autonomy. The trust is in essence a flexible device, and it should be open to settlors to restrict the scope of the duties owed by trustees in particular cases and to confer very wide powers on them. To date, English law has resisted the temptation to set the duties owed by trustees to beneficiaries in stone, and we do not consider that there is yet a very strong case to succumb to that temptation. The duties of the trustee are not absolute, they are variable within certain parameters at the behest of the settlor, and so we would wish it to remain.

The Trust Law Committee found the problem of duty exclusion clauses particularly difficult. They considered the viability of striking down clauses which purported to negative a positive duty to the extent that the trustee could not rely on an exemption clause purporting to relieve from liability for breach of such a duty. The justification for restricting regulation to clauses negativing positive duties was "to reduce as far as possible the area of settlor freedom of action with which it is necessary, in the public interest, to interfere". But ultimately, accepting the difficulties of making a somewhat artificial distinction between positive and negative duties, the Committee doubted its utility. The problem, as succinctly identified by the Committee, is that:

The circumstances of each trust can be so various that what normally cannot be justified can be justified in special circumstances.^[66]

In some cases, a trustee will be unable to rely upon duty exclusion clauses as a matter of construction of the particular clause. For example, the terms of a trust may provide that the trustee shall not be obliged to supervise or interfere in the management of any company in which he holds the majority shareholding. This duty exclusion clause does not prevent the trustee from supervising or interfering in the management of the company. It does mean that the trustee who fails to supervise or to interfere is not automatically in breach of trust. But if the failure to supervise amounts to negligence on the part of the trustee, the duty exclusion clause should not save the trustee from liability. A trustee who fails to exercise a power when he or she should do so commits a breach of trust. In this example, liability is incurred by the trustee without any need to strike down the duty exclusion clause. As a matter of construction, the clause does not apply where the trustee has acted negligently.

There may however be duty exclusion clauses which are of wider impact and which cannot simply be circumvented by reference to the rules of construction and interpretation. For example, a clause may simply provide that a trustee shall not be obliged to take reasonable care in the conduct of the affairs of the trust. It wholly excludes any duty of care. However negligent the trustee may be, that will not in itself comprise a breach of trust. Clearly, invocation of such clauses, in particular by professional trustees, would strike at the very heart of the trust relationship as they would deny the beneficiaries any remedy despite the failure of the trustees to conform to ordinary standards of reasonable conduct. Such clauses would provide a means whereby the impact of a rule that professional trustees should not be able to exclude liability for negligence could be avoided by a simple drafting expedient.

Extended powers clauses may also fail to protect the trustees on their true construction. As Lewin states, "It does not follow that because some act or transaction is of a kind which comes within the scope of an extended power, the trustee is necessarily authorised to perform that act or enter into that transaction".

But difficulties may also arise here, such as where the trust clearly allows the trustee to act in a manner which is objectively irresponsible. An example given by the Trust Law Committee is the provision that the trustee should be able to speculate freely with the assets of the trust. In some circumstances reliance on such a clause may be perfectly acceptable, in others it may be quite outrageous.

We accept that this is an area of formidable difficulty where the tension between settlor freedom and beneficiary protection is very great. We doubt that it is possible here to be overly prescriptive in terms of the limits to be set on clauses which provide for duty exclusion and extended powers, and we believe that any regulatory intervention must be sophisticated and responsive to the particular circumstances of each case. It may be that the appropriate degree of flexibility can only be achieved by a provision to the effect that a trustee cannot rely upon a duty exclusion clause or an extended powers clause where the actions or omissions of the trustee are inconsistent with the purposes of the trust and it is unreasonable in the circumstances for the trustee to be exempted from liability for breach of trust. This would give the court the power to strike down duty exclusion clauses and extended powers clauses which are excessively wide in circumstances where the trustee is abusing his or her fiduciary position.

We realise that this approach does give the court an element of discretion. It is tantamount to saying that the trustee can shelter behind a duty exclusion clause or an extended powers clause only where it is reasonable in the circumstances that it should do so. It may be argued that this element of flexibility, necessary in our view to deal with the immense variety of trusts, would introduce some uncertainty into the area. While we accept that this may be so, we do not consider this uncertainty excessive, and we do consider it justifiable. An element of uncertainty is inevitable wherever the court is called upon to examine the conduct of individuals, in this case trustees, after the event, in any attempt to discern whether they have been negligent.

We believe that adoption of this approach in relation to duty exclusion and extended powers clauses is consistent with the approach we have provisionally favoured in relation to trustee exemption clauses generally. We have made the distinction between an assessment of the reasonableness of the clause contained in the trust by reference solely to the circumstances existing at the date of its execution and an evaluation of the conduct of the trustee in the light of the provisions of the trust and the circumstances of the breach. We favour the latter approach, for the reasons we have outlined above.

We provisionally propose that in so far as professional trustees may not exclude liability for breach of trust they should not be permitted to claim indemnity from the trust fund.

We do not consider that duty exclusion clauses or extended powers clauses should be prohibited. However, we provisionally propose that in determining whether professional trustees have been negligent, the court should have the power to disapply duty exclusion clauses or extended powers clauses where reliance on such clauses would be inconsistent with the overall purposes of the trust and it would be unreasonable in the circumstances for the trustee to be exempted from liability.

Do consultees agree?

Jurisdiction and choice of law

The Recognition of Trusts Act 1987, enacting (with some modifications) the Hague Convention on the Law Applicable to Trusts and on their Recognition, allows the settlor to choose the law which is to govern the trust which he or she executes and does not require the chosen law to have any objective connection with the trust.

In order to prevent such steps being taken to avoid the impact of legislative regulation, we consider that any legislation concerning trustee exemption clauses should apply to all persons carrying on trust business in England and Wales (even though the particular trust may have a choice of law clause indicating that its governing law is that of some other jurisdiction).

We provisionally propose that any regulation of trustee exemption clauses should be made applicable not only to trusts governed by English law but also to persons carrying on a trust business in England and Wales.

Do consultees agree?

Transitional provisions

We consider that any legislative reform of trustee exemption clauses would be prospective in effect. By this, we mean that it should apply only to breaches of trust which are committed after the date any legislation comes into force. As a matter of principle, a trustee should not incur liability for actions (or omissions) committed at a time when the trustee had every cause to believe that a trustee exemption clause would deny the beneficiaries a remedy.

We do not see any reason why legislative reform should not apply to clauses contained in trust instruments executed before the date any legislation comes into force. It is incumbent on the trustee to keep under review the terms of his or her appointment, and it would be open to a trustee who wishes to retire from trusteeship in view of the legislative reform to do so. Such marginal inconvenience as there might be is in our view heavily outweighed by the undesirability of making legislation applicable only in relation to trusts which are created after the date it comes into force.

We provisionally propose that any legislative reform of trustee exemption clauses should apply to any breaches of trust which occur on or after the date when the legislation comes into force but that it should not apply to breaches of trust which precede that date.

Do consultees agree?

Human rights

We do not consider that any of the options for reform discussed in this Consultation Paper would contravene any rights contained in the European Convention on Human Rights.

Regulatory impact

Any legislative regulation of trustee exemption clauses is likely both to confer benefits and to impose costs on businesses, organisations and individuals. Current Government practice is to consider the impact of changes to regulatory structures on businesses, particularly small businesses, charities and other voluntary organisations by means of a regulatory impact assessment.

While the Law Commission does not provide its own regulatory impact assessments, it does seek to collect information and views which may be of assistance to Government in this regard. Part III of this Consultation Paper provides fairly detailed information of the factual background, and also records views of many affected parties as to the potential effect of legislative regulation of trustee exemption clauses.

We would welcome comments on the substance of Part III of this Paper from consultees, and we would find any information or views about the regulatory impact of our provisional proposals extremely helpful.

Note 1   [1998] Ch 241.    [Back]

Note 2   See, for example, Hayton & Marshall, The Law of Trusts and Equitable Remedies (11th ed 2001) para 1- 29(7)(a).    [Back]

Note 3   For the beneficiary’s right to trust information, see Lewin onTrusts (17th ed 2000) para 23- 03et seq.    [Back]

Note 4   See para 4.62 belowet seq.    [Back]

Note 5   See para 4.4 above.    [Back]

Note 6   See para 1.8 above.    [Back]

Note 7   Armitage v Nurse [1998] Ch 241, 256, per Millett LJ, quoted at para 1.6 above; Hansard (HL) 14 April 2000, vol 612, col 383 (Lord Goodhart), at para 1.10 above.    [Back]

Note 8   Some Problems in the Law of Trusts (2002) NZLC Report No 79, para 14.    [Back]

Note 9   J Kessler, Drafting Trusts and Will Trusts A Modern Approach (5th ed 2000) p 77.    [Back]

Note 10   (1999) Law Com No 260; Scot Law Com No 172, para 3.24.    [Back]

Note 11   Re Waterman’s Will Trusts [1952] 2 All ER 1054; Bartlett v Barclays Bank Trust Co Ltd (Nos 1 & 2) [1980] Ch 515, 531.    [Back]

Note 12   (1999) Law Com No 260; Scot Law Com No 172, para 3.25.    [Back]

Note 13   Trustee Act 2000, s 1(1), italicised here for emphasis.    [Back]

Note 14   See TLC Report (1999) para 7.10 (see para 4.39 below).    [Back]

Note 15   Trustee Act 2000, s 28(6).    [Back]

Note 16   Trustee Act 2000, s 28(5).    [Back]

Note 17   See Trustees’ Powers and Duties (1999) Law Com No 260; Scot Law Com No 172, p 115.    [Back]

Note 18   TLC Report (1999) para 7.7. See also Some Problems in the Law of Trusts (2002) NZLC Report No 79, para 14, restricting its proposals to “trustees for reward”.    [Back]

Note 19   TLC Report (1999) para 7.10.    [Back]

Note 20   “Trustee exemption clauses and other trusts subjects” (1999) Trusts & Estates Law Journal 6.    [Back]

Note 21   Dr Dunn’s report found that a number of respondents who advised settlors on setting up trusts have difficulties explaining the concept to their clients. A number of such respondents said that settlors are primarily concerned with achieving a specific goal with a trust and will take advice on the vehicle to be used to achieve that purpose. The end is what is important not the means. Additionally settlors accept the clauses as part of the package of the modern day trust.    [Back]

Note 22   (1998/99) 1 ITELR 267.    [Back]

Note 23   See para 2.49 aboveet seq.    [Back]

Note 24   TLC Report (1999) para 7.3.    [Back]

Note 25   TLC Report (1999) para 7.17et seq.    [Back]

Note 26   Ibid, thereby dealing with the issue raised inBogg v Raper, explained at para 2.49 above.    [Back]

Note 27   Ibid.    [Back]

Note 28   See para 2.57 above.    [Back]

Note 29   See para 2.57 above.    [Back]

Note 30   See further para 4.100 below.    [Back]

Note 31   Some Problems in the Law of Trusts (2002) NZLC Report No 79, para 14.    [Back]

Note 32   This would comprise section 73(2) of the New Zealand Trustee Act. It is proposed that the amended provision would come into effect 12 months after Royal Assent to enable existing professional trustees protected by an exculpation provision either to insure or to resign.    [Back]

Note 33   New Zealand Trustee Act 1956, s 73, modelled on the Judicial Trustees Act 1896, s 3.    [Back]

Note 34   This provision was inserted by Article 5 of the Trusts (Amendment) (Jersey) Law 1989. Jersey has taken note of the principles of English trust law for some time, but it was only in 1984 that legislation was passed to regulate the position. See generally Matthews & Sowden, The Jersey Law of Trusts (3rd ed 1994) and the decision in Midland Bank Trustee (Jersey) Ltd v Federated Pension Services Ltd [1996] PLR 179.    [Back]

Note 35   Trust Law 1990 s 1(f). The trust law of the Turks and Caicos also prohibits exclusion of liability for negligence.    [Back]

Note 36   (2002) BCLI Report No 17, p 11. The only Canadian authority on trustee exemption clauses, a decision of the Alberta Surrogate Court, holds that a clause cannot exclude a trustee from liability for gross negligence: Re Poche (1984) 6 DLR (4th) 40.    [Back]

Note 37   Proposed amendment to Trustee Act (RSBC 1999 C 464) s 96.    [Back]

Note 38   For a recent case where partial relief was ordered, see Re Evans [1999] 2 All ER 777.    [Back]

Note 39   Perrins v Bellamy [1899] 1 Ch 797; Re Houghton [1904] 1 Ch 622.    [Back]

Note 40   See Re Turner [1897] 1 Ch 536; Re Stuart [1897] 2 Ch 583; Re Barker [1898] 77 LT 712; and Chapman v Browne [1902] 1 Ch 785.    [Back]

Note 41   In National Trustees Co of Australasia Ltd v General Finance Co of Australasia Ltd [1905] AC 373, the fact that trustees acted under the wrong advice of their counsel or solicitor was held not to justify relief. Although the trustees acted honestly and reasonably, relief did not automatically follow. For three reasons it was held they ought not fairly to be relieved. First, the work was done for profit. Secondly, no effort was made to recover the property. Thirdly the trustees made no attempt to replace the funds.    [Back]

Note 42   Re Pauling’s Settlement Trusts [1964] Ch 303, 338, per Willmer LJ.    [Back]

Note 43   Fiduciary Duties and Regulatory Rules (1995) Law Com No 236, para 15.10.    [Back]

Note 44   TLC Report (1999) para 7.2.    [Back]

Note 45   [1998] Ch 241.    [Back]

Note 46   Ibid, at p 254.    [Back]

Note 47   (1888) 13 App Cas 753, 765.    [Back]

Note 48   [1998] Ch 241, 254.    [Back]

Note 49   Hayton & Marshall, The Law of Trusts and Equitable Remedies (11th ed 2001) para 9- 308. The seminal judgment is that of Holt CJ in Coggs v Barnard (1703) 2 Ld Raym 909, 913, asserting that a bailee “is not answerable, if they [the bailed goods] are stolen without any fault in him, neither will a common neglect make him chargeable, but he must be guilty of some gross neglect...”. See, for a detailed analysis of this decision and its subsequent impact, J Getzler, “The Duty of Care” in P Birks & A Pretto (eds), Breach of Trust (2002) ch 2.    [Back]

Note 50   Consultation Paper on Exculpation Clauses in Trust Instruments (2000) BCLI, p 10.    [Back]

Note 51   J Getzler, “The Duty of Care” in P Birks & A Pretto (eds), Breach of Trust (2002) ch 2.    [Back]

Note 52   Martin v London County Council [1947] KB 628, 631, per Henn-Collins J.    [Back]

Note 53   Grill v General Iron Screw Collier Co (1866) LR 1 600, 612, per Willes J.    [Back]

Note 54   Doorman v Jenkins (1834) 2 Ad & E 256, 262, per Taunton J.    [Back]

Note 55   Giblin v McMullen (1868) 5 Moo NS 434, 461, per Lord Chelmsford.    [Back]

Note 56   Charlesworth & Percy on Negligence (10th ed 2001) para 1- 11.    [Back]

Note 57   [1996] PLR 179, 206.    [Back]

Note 58   In many respects, the modern Jersey trust is closer to the English trust than to the Scots trust. In particular, it accords the beneficiary a right in rem whereas Scots law confers on the beneficiary no more than a personal right to sue the trustees. See Matthews & Sowden, The Jersey Law of Trusts (3rd ed 1994) paras 1.4 to 1.24, where the authors conclude that “a Jersey trust is essentially the same animal as is found in English law, subject to certain local modifications”.    [Back]

Note 59   Hunter v Hanley 1955 SC 200, 206, per the Lord President (Clyde)    [Back]

Note 60   Adomako [1995] 1 AC 171, 187, per Lord Mackay of Clashfern LC. See also Legislating the Criminal Code: Involuntary Manslaughter (1996) Law Com No 237.    [Back]

Note 61   (1997) 2 Lloyd’s Rep 547.    [Back]

Note 62   Ibid, at p 586.    [Back]

Note 63   TLC Report (1999) para 7.8.    [Back]

Note 64   TLC Report (1999) para 7.8.    [Back]

Note 65   See para 2.5 aboveet seq.    [Back]

Note 66   TLC Report (1999) para 7.15.    [Back]

Note 67   Lewin on Trusts (17th ed 2000) para 39- 78.    [Back]

Note 68   TLC Report (1999) para 7.15.    [Back]

Note 69   See generally Lewin on Trusts (17th ed 2000) para 11- 07et seq.    [Back]

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