Trustee exemption clauses, should they be permitted?
“In their usual form, trustee exemption clauses protect trustees from any liability for anything
except personal and individual fraud in an action by the trust beneficiaries claiming damages
against the trustees for breach of trust. However negligent, lazy or misguided the trustees
may have been, they cannot be held liable for the loss that they have caused to the trust
fund”.
Lord Goodhart, quoted in Hansard on the debate on Trustee Bill in 2000.
Critically analyse, in the light of this statement, the protection afforded to professional
trustees by exemption clauses in private trusts.
What are the advantages and disadvantages of their use? Would you advocate any
reform of their use?
PLAN
Introduction
Opening statement: This essay will examine trustee exemption clauses to assess the level of
protection which they offer professional trustees to evaluate their usefulness. Further
analysis will be undertaken to assess how far such provisions need to be reformed.
Define
Exemption clauses are a clause in a trust instrument which seeks to exclude/relieve trustees
from liability for negligent and innocent breaches but will remain invalid insofar it tries to
exclude liability for fraudulent or dishonest breaches (Armitage v Nurse)
Professional trustees are persons ( individuals or a company) who act as a trustee of a
scheme in the course of a business of being a trustee. For example, a solicitor’s firm may act
as a trustee for some client trusts.
Types of breach ? – There a three main types of breach:
- breach of trust – the is a breach of any obligation owed by the trustee and includes a
plethora of things such as misapplication of trust property or poor investment.
- breach of fiduciary duties: such duties include the trustees must act in good faith, not
make any unauthorised profits from the trust or place themselves in a position where
they are in competition/confliction with the trust interests.
- breach of duty of care. – s.1(1) Trustee act 2000 – trustees must exercise the
appropriate standard of care as would a prudent businessman, taking into account
special knowledge or business or professions – s.1(1)(a) and (b) TA 2000.
Academia
Millet LJ in (Armitage v Nurse) – “the view is widely held that these clauses have gone too
far”
“In their usual form, trustee exemption clauses protect trustees from any liability for anything
except personal and individual fraud in an action by the trust beneficiaries claiming damages
against the trustees for breach of trust. However negligent, lazy or misguided the trustees
may have been, they cannot be held liable for the loss that they have caused to the trust
fund”.
Lord Goodhart, quoted in Hansard on the debate on Trustee Bill in 2000.
Critically analyse, in the light of this statement, the protection afforded to professional
trustees by exemption clauses in private trusts.
What are the advantages and disadvantages of their use? Would you advocate any
reform of their use?
PLAN
Introduction
Opening statement: This essay will examine trustee exemption clauses to assess the level of
protection which they offer professional trustees to evaluate their usefulness. Further
analysis will be undertaken to assess how far such provisions need to be reformed.
Define
Exemption clauses are a clause in a trust instrument which seeks to exclude/relieve trustees
from liability for negligent and innocent breaches but will remain invalid insofar it tries to
exclude liability for fraudulent or dishonest breaches (Armitage v Nurse)
Professional trustees are persons ( individuals or a company) who act as a trustee of a
scheme in the course of a business of being a trustee. For example, a solicitor’s firm may act
as a trustee for some client trusts.
Types of breach ? – There a three main types of breach:
- breach of trust – the is a breach of any obligation owed by the trustee and includes a
plethora of things such as misapplication of trust property or poor investment.
- breach of fiduciary duties: such duties include the trustees must act in good faith, not
make any unauthorised profits from the trust or place themselves in a position where
they are in competition/confliction with the trust interests.
- breach of duty of care. – s.1(1) Trustee act 2000 – trustees must exercise the
appropriate standard of care as would a prudent businessman, taking into account
special knowledge or business or professions – s.1(1)(a) and (b) TA 2000.
Academia
Millet LJ in (Armitage v Nurse) – “the view is widely held that these clauses have gone too
far”
