Questions marks are constantly raised over the performance of a
trustee's duties and whether the trustee in question has
discharged its obligations in fulfilling those duties. To assist
the trustee in protecting itself, the trustee in the majority of,
if not in all, cases will look to the protection afforded to it or
them by any exoneration clause included within the Trust Deed.
Given the ever increasing complexity of a trustee's duties in
the 21st century, this issue has been of great interest to
Exoneration clauses were introduced to give protection to
trustees from liability where the trustee had acted in good faith
and such clauses allowed trustees, who would not otherwise have
been prepared to accept such a position, to make decisions with the
requisite speed and confidence in an increasingly litigious
environment. But how sturdy are exoneration clauses in
The leading judgment on the protection afforded to trustees by
an exoneration clause historically is that provided by Millett LJ
in the Court of Appeal decision in Armitage v Nurse. It
was established in this case that a trustee which has a suitably
worded exemption clause can exempt itself from all liability for
breaches arising out of its own actions apart from in instances of
his own actual fraud or dishonest activity. It followed that a
clause which excluded liability for negligence or even "gross
negligence" was not, in the laws of England and Wales,
contrary to public policy.
With Armitage in mind, the position over exoneration
clauses was recently reconsidered in the Guernsey case of
Spread Trustee Company Limited v Sarah Ann Hutcheson and
others at all levels up to and now including the Privy
Council. In this case there was an examination of the standard
exoneration clause included in the Trust Deed in question which
"In the execution of the trusts and powers hereof no
Trustee shall be liable for any loss to the Trust Fund arising in
consequence of the failure, depreciation or loss of any investments
made in good faith or by reason of any mistake or omission made in
good faith or of any other matter or thing except wilful fraud and
wrongdoing on the part of the Trustee who is sought to be made
This exoneration clause in Guernsey was considered in light of
an amendment to the domestic Guernsey Law in 1991 under which Law
it was stated that exoneration clauses could not lawfully exclude
liability arising out of the Trustees fraud or wilful default and
the amendment to the Law extended this exclusion to gross
negligence as well. What made the case of Spread more
interesting, however, was that the alleged breaches of trust
against the Trustee arose before the date of amendment of the
Guernsey Law. It was therefore a question of what authority would
be used to determine whether the before mentioned exoneration
clause would cover the alleged breaches of Trust which were ones of
gross negligence rather than deliberate fraud or wrong doing.
The Privy Council considered that as a matter of Guernsey (and
also English) common law it was possible for a Trustee to exclude
liability for gross negligence thereby reaffirming the position
established in Armitage.
The Privy Council concluded that:
"Millett LJ summarized his view as being that [the
exoneration clause], which excluded liability for anything other
than fraud 'exempts the Trustee from liability for loss or
damage to the Trust property no matter how imprudent, lacking in
diligence, negligent or wilful he may have been so long as he has
not acted dishonestly'. The board agrees".
While this judgment provides a certain level of comfort for
Trustees when considering their position in a dispute over them
discharging their duties this case creates far from a certain
position in that it is possible that a Supreme Court board in a
future case may wish to re-examine Armitage v Nurse.
Further the majority decision by the Privy Council in this case was
far from a convincing majority with the board of the Privy Council
being spilt 3 to 2.
It was considered in this case that gross negligence does not
form part of the "irreducible core" of the Trustee
obligations and that an exoneration clause can therefore exclude
acts of gross negligence. In the case it was considered that
"...on the plain meaning of the words and as a matter of logic
and common sense the terms "negligence" and "gross
negligence" differ only in the degree or seriousness of the
want of due care they describe". Accordingly, it will be
important in cases that arise in the future for courts to consider
the definition of "gross negligence" closely and as such
it may be very useful when drafting trust deeds across
jurisdictions for the term gross negligence to be a defined
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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