Trustees

Trustees have diverse duties that are imposed by the state, equity, or the trust instrument. Concerning trustees’ duty, they ought to act honestly, with good intentions and in an unselfish manner. This is in honour of the 1726 Maugham quote that “Honesty, zeal, intelligence, care, prudence, have all alike been unable to preserve him from loss in cases where the law or the facts have rendered human error possible.”[1] From that, the Trustee Act 1925 has acknowledged the no-fault liability, despite the possible argument that some draconian dispositions are unjust or unreasonable. Since the Act is arguably easy to defended in multidimensional approaches, this paper will address the exemption clause, limitations, the laches, consent of beneficially, and statutory reliefs and their degree of favour to the trustee.

In cases of loss of trust instrument such as funds, the Trustee Act positions the trustee into several liable breaches of trust to their beneficially. In the UK, the breach may be alleged in any of the following occurrences:

• The trustee invests the asset or trust instruments against the equity trust agreement or various statutory regulation.[2]
• The trustee distributes or discloses the beneficiary’s assets to unauthorized parties.[3]
• A trustee breaches any fiduciary duty.[4]
• A trustee violates the prevailing laws regarding the duty of care or exercising skills in unreasonable circumstances.[5]

Nevertheless, the trustee often defends their actions to peruse the relief from personal liability. The defence strategy, also better known as an attempt to safeguard trustee is better pronounced in the Trustee Act, s.61. It states that:

“If it appears to the court that a trustee, whether appointed by the court or otherwise, is or may be personally liable for any breach of trust, whether the transaction alleged to be a breach of trust occurred before or after the commencement of this Act, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the court in the matter in which he committed such breach, then the court may relieve him either wholly or partly from personal liability for the same.”[6]

The following is a worthy example of the breach, that will help in backing some trustee defences. A claimant of the breach occurrence bought a house in Wimbledon from a fraudster who claimed not to be another popular fraudster. That way, the claimant had trusted the fraudster and consented to transact. A ransom was paid to the fraudster’s solicitors through a bank in Dubai.^[7] While the money was not recovered, the court entered a case against the fraudster’s solicitors, since the money was paid in a breach of trust.

Further, the court ordered the accused (fraudster) to apply for a relief as per the s.61 of the Trustee Act 1925. The court found that only the claimant’s conveyancer had breached trust.

According to Maugham, A breach of trust before the Act remains a breach of trust after it.”[8] Therefore, the defences feasible in this example, applies to a trustee, who has not acted dishonestly, to avoid or reduce liability for an act or omission that is in breach of trust.

Exemption Clause

The first defence available in the above example and other breaches of trust as per s.61 is the exemption of clause. It is common in equity and trust issues and is a potential resource to indemnify the trustee if a claim is raised when they are honest. However, the trustee does not shed their statutory duty of care when they enter into trust backed by the exemption clause. They have to act and advise their beneficiaries honestly and in good faith for the beneficence of their beneficiaries. It is applicable where the professional records of the trustee are fewer cases of omissions or violation of trusts. Overall, an exemption clause could protect the trustee from claims due to breach of trust. In the example above, had the trustee included the exemption that they were liable for breaches that occurred due to loss of the funds in their hands, they would have been protected.

Limitation

Limitation works to compliment where the exemption cause is not applicable, to shed off liability if a claim is time-barred. It is a legal normative in the UK that for a period of time, within the legal proceedings, a defendant is not subject to any significant outcomes.[9] The limitation is backed by the Limitation Act of 1980, which sets a time limit within which a claimant must file a case. Therefore, limitations could serve as a defence for a trustee, and it must be pleaded as it is – a limitation of time. Upon raise of a limitation, the claimant must then convince the court that their claim is not barred by any statutory regulation.[10] For instance, section 21(3) of the Limitation Act 1980 requires that a breach be claimed within six years since the date of occurrence.[11] Therefore, a trustee who has not acted dishonestly may have limited liability for an act or omission that is in breach of trust for six years since the occurrence of a possible breach. However, this limitation is subject to section 21(1) of the same Act, if and only if the breach occurred due to their direct or immediate personal actions without the beneficiary’s consent.[12]

Consent of The Beneficiaries

During a claim, a trustee may defend themselves against the claims if the breach occurred when the claimant beneficiary had consented with the decision that caused the breach. Therefore, a beneficially who files a claim for a breach in which they participate is less likely to succeed. For instance, one of the reasons that led the claims made in the example given is that the beneficiary consented to send money to the here-said solicitors. The rationale underscoring this defence is that the claim arises from the failure of plans to succeed, but not necessarily lack honesty, good intention, or benefit for the beneficiary. Therefore, a trustee who has not acted dishonestly may avoid or reduce liability for an act or omission that is in breach of trust in the occasion that the beneficially took part in the breach. However, the beneficially must be an adult and in considerably adequate capacity, must have consented freely without influence, and were informed of the implications of the consent.[13]

Laches

If both exemption clauses and limitations do not provide adequate protection for the trustee against a claim, one may use laches. By the philosophies of equity in laches, the court may bar the claims from proceeding if the claimant takes unreasonable delay to pursue the claim.[14] Hence, where a trustee has not acted dishonestly, laches may help avoid or reduce liability for an act or omission that is in breach of trust if the claimant delays for an unreasonable amount of time.

Statutory Relief

The state provides relief for trustees who have not acted dishonestly for an act or omission that is in breach of trust in section 61 and section 62 of the Trustee Act 1925. In the S61, it is the court’s discretion to determine whether the trustee is liable for the bream, thereby claimed by the claimant, as the trustee has honestly.[15] Thus, the court may accuse wholly or partially as it is its discretion. In the example given, the court was at discretion to decide whether the fraudster, his solicitors, or both were liable and to what extent they were liable for the breach.[16] Further, where the breach occurs after the trustee has requested to act in writing, the S62 of the Trustee Act puts the court at the discretion of indemnifying them. Thus, The Trustee Act 1925 facilitates the protection of the trustee, given that they have acted honestly.

Which Defence Affords A Greater Amount of Protection?

Of all the defences, it is arguable that some may afford a more significant amount of protection than others. For instance, the exemption clause is viable only in instances where it is included in the equity and trust agreement. However, it does not shed the trustee’s legal obligation for care of their beneficiary’s instruments. Thus, its utility is limited. Concerning limitation and laches, the defence is significant only when the time-lapse after the breach is more than six years. While it is consistently backed, it does not entirely protect trustees, especially those seeking prior protection against claims. Statutory reliefs compare better with the former defences. Firstly, the defence is backed by the constitution. Secondly, the outcome is influenced by the court’s discretion. Therefore, there us a chance to prove or else convince the court regarding the reason for indemnification.

To sum up, a trustee, who has not acted dishonestly, may avoid or reduce liability for an act or omission that is in breach of trust by reliance on the Trustee Act, s.61 s.62 or an exemption clause. Of all the statutory relief and exemption clause, the trustee may defend themselves to be partially, wholly, or not be relieved the liability. The Statutory reliefs compare better with the other defences since it is backed by the constitution, and the decision is mostly a court’s discretion.

Bibliography

 “Breach of Trust,” ‘Breach of Trust and The Defences Available | Lexology’ (Lexology.com, 2020) <https://www.lexology.com/library/detail.aspx?g=b9ccb241-ca22-4ff2-b722-48fa8939f34a> accessed 10 June 2020

“Limitation Act 1980”, ‘UK Public General Acts: Limitation Act 1980’ (Legislation.gov.uk, 2020) <http://www.legislation.gov.uk/ukpga/1980/58> accessed 10 June 2020

“Limitation”, ‘Limitation: Amending Statements Of Case, Adding N Changing Parties After The Limitation Period Claims Or Has Expired’ (Uk.practicallaw.thomsonreuters.com, 2020) <https://uk.practicallaw.thomsonreuters.com/0-500-0957?transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1> accessed 10 June 2020

Armitage v Nurse [1998] Ch. 241 (19 March 1997)

Basha G, ‘Important High Court Decision For Trustees Commencing Or Defending Legal Proceedings | Bartier Perry Lawyers’ (Bartier.com.au, 2008) <https://www.bartier.com.au/insights/articles/important-high-court-decision-for-trustees-commencing-or-defending-legal-proceedings/> accessed 10 June 2020

Betts E, ‘Equitable Remedies And The Limitation Act 1980: Is A Claim For “Equitable Compensation” A Debt “Or Other Liquidated Pecuniary Claim”?’ (Dispute Resolution blog, 2020) <http://disputeresolutionblog.practicallaw.com/equitable-remedies-and-the-limitation-act-1980-is-a-claim-for-equitable-compensation-a-debt-or-other-liquidated-pecuniary-claim/> accessed 10 June 2020

Cain O, Dawson N, and SCA ONTIER LLP, ‘Litigation And Enforcement In The UK (England And Wales): Overview’ (Uk.practicallaw.thomsonreuters.com, 2020) <https://uk.practicallaw.thomsonreuters.com/7-502-0631?transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1> accessed 10 June 2020

Ibrahim A, ‘The Doctrine Of Laches In International Law’ (1997) 83 Virginia Law Review

Maugham, “Excusable Breaches of Trust,” p. 159

Paxton M, and Murrin P, ‘Breach Of Trust, S.61 Of The Trustee Act 1925 And Due Diligence – The Ball Is In Whose Court? – DAC Beachcroft’ (DAC Beachcroft, 2016) <https://www.dacbeachcroft.com/en/gb/articles/2016/june/breach-of-trust-s61-of-the-trustee-act-1925-and-due-diligence-the-ball-is-in-whose-court/> accessed 10 June 2020

Trustee Act 1925, ‘UK Public General Acts: Trustee Act 1925’ (Legislation.gov.uk, 2020) <http://www.legislation.gov.uk/ukpga/Geo5/15-16/19/section/61> accessed 10 June 2020

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[1] Keech v Sandford (1726) Sel. Cas. Ch 61.

[2] “Breach of Trust”, ‘Breach Of Trust And The Defences Available | Lexology’ (Lexology.com, 2020) <https://www.lexology.com/library/detail.aspx?g=b9ccb241-ca22-4ff2-b722-48fa8939f34a> accessed 10 June 2020.

[3] Ibid.

[4] Ibid.

[5] Ibid.

[6] Trustee Act 1925, ‘UK Public General Acts: Trustee Act 1925’ (Legislation.gov.uk, 2020) <http://www.legislation.gov.uk/ukpga/Geo5/15-16/19/section/61> accessed 10 June 2020.

[7] Martin Paxton and Philip Murrin, ‘Breach Of Trust, S.61 Of The Trustee Act 1925 And Due Diligence – The Ball Is In Whose Court? – DAC Beachcroft’ (DAC Beachcroft, 2016) <https://www.dacbeachcroft.com/en/gb/articles/2016/june/breach-of-trust-s61-of-the-trustee-act-1925-and-due-diligence-the-ball-is-in-whose-court/> accessed 10 June 2020.

[8] Maugham, “Excusable Breaches of Trust”, p. 159

[9] Oliver Cain, Nicholas Dawson and SCA ONTIER LLP, ‘Litigation And Enforcement In The UK (England And Wales): Overview’ (Uk.practicallaw.thomsonreuters.com, 2020) <https://uk.practicallaw.thomsonreuters.com/7-502-0631?transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1> accessed 10 June 2020.

[10] “Limitation”, ‘Limitation: Amending Statements Of Case, Adding N Changing Parties After The Limitation Periodew Claims Or Has Expired’ (Uk.practicallaw.thomsonreuters.com, 2020) <https://uk.practicallaw.thomsonreuters.com/0-500-0957?transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1> accessed 10 June 2020.

[11] “Limitation Act 1980”, ‘UK Public General Acts: Limitation Act 1980’ (Legislation.gov.uk, 2020) <http://www.legislation.gov.uk/ukpga/1980/58> accessed 10 June 2020.

[12] Armitage v Nurse [1998] Ch. 241 (19 March 1997).

[13] Emily Betts, ‘Equitable Remedies And The Limitation Act 1980: Is A Claim For “Equitable Compensation” A Debt “Or Other Liquidated Pecuniary Claim”?’ (Dispute Resolution blog, 2020) <http://disputeresolutionblog.practicallaw.com/equitable-remedies-and-the-limitation-act-1980-is-a-claim-for-equitable-compensation-a-debt-or-other-liquidated-pecuniary-claim/> accessed 10 June 2020.

[14] Ashraf Ray Ibrahim, ‘The Doctrine Of Laches In International Law’ (1997) 83 Virginia Law Review.

[15] Gerard Basha, ‘Important High Court Decision For Trustees Commencing Or Defending Legal Proceedings | Bartier Perry Lawyers’ (Bartier.com.au, 2008) <https://www.bartier.com.au/insights/articles/important-high-court-decision-for-trustees-commencing-or-defending-legal-proceedings/> accessed 10 June 2020.

[16] Martin Paxton and Philip Murrin, ‘Breach Of Trust, S.61 Of The Trustee Act 1925 And Due Diligence – The Ball Is In Whose Court? – DAC Beachcroft’ (DAC Beachcroft, 2016) <https://www.dacbeachcroft.com/en/gb/articles/2016/june/breach-of-trust-s61-of-the-trustee-act-1925-and-due-diligence-the-ball-is-in-whose-court/> accessed 10 June 2020.