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You are here: BAILII >> Databases >> The Law Commission >> TRUSTEE EXEMPTION CLAUSES (A Consultation Paper) [2003] EWLC 171(APPENDIX) (1 May 2003) URL: http://www.bailii.org/ew/other/EWLC/2003/171(APPENDIX).html Cite as: [2003] EWLC 171(APPENDIX)

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APPENDIX

STANDARD TRUST CLAUSES AVOIDING TRUSTEE LIABILITY

Clauses exempting trustees from liability for breach of trust

A.1      The following are a selection of typical trustee exemption clauses found in standard trust precedents:

(1) No Trustee shall be liable for any loss or damage which may happen to the Trust Fund or any part thereof or the income thereof at any time or from any cause whatsoever unless such loss or damage shall be caused by his own actual fraud.^[1]

(2) A Trustee shall not be liable for a loss to the Trust Fund unless that loss was caused by his own actual fraud or negligence.^[2]

(3) In the professed execution of this settlement no Trustee shall be liable for any loss to the Trust Fund arising by reason of any mistake or omission made in good faith or by reason of any other matter except wilful and individual fault or wrongdoing on the part of the trustee who is sought to be made so liable.^[3]

(4) No trustee being an individual [who gives his services gratuitously] shall be liable for any loss to the capital or income of the Trust Fund caused by any improper investment or purchase made by him in good faith or for the negligence or fraud of any agent employed by him or by any other Trustee although the employment of such an agent may not have been strictly necessary or resulting from any other cause whatever other than wilful and individual fraud or wrongdoing on the part of the Trustee who is sought to be made liable.^[4]

(5) In the professed execution of the trusts and powers hereof no Trustee shall be liable for any loss to the trust premises arising by reason of any improper investment made in good faith or for the negligence or fraud of any agent employed by him or by any other Trustee hereof although the employment of such agent was not strictly necessary or expedient or by reason of any mistake or omission made in good faith by any Trustee who is sought to be made liable.^[5]

(6) No Trustee (being an individual) shall be liable for any loss or damage which may happen to the Trust Fund or the income thereof arising from any improper investment or purchase made by him in good faith or for the negligence or fraud of any agent employed by him or by any other Trustee hereof although his employment was not strictly necessary or expedient or by reason of any mistake or omission made in good faith by any Trustee hereof.^[6]

(7) In the professed execution of the trusts and powers hereof no trustee shall be liable for any loss to the trust premises arising by reason of any improper investment made in good faith, or for the negligence or fraud of any agent employed by him, or by any other trustee hereof, although the employment of such an agent was not strictly necessary or expedient, or by reason of any mistake or omission made in good faith by any trustee hereof, or by reason of any other matter or thing except wilful and individual fraud or wrongdoing on the part of the trustee who is sought to be made liable.^[7]

(8) Clause 12 of the Standard Provisions of the Society of Trust and Estate Practitioners (1st edition 1992)^[8] provides:

(1) A Trustee (other than a Professional Trustee) shall not be liable for a loss to the Trust Fund unless that loss was caused by his own fraud or negligence.

(2) A Trustee shall not be liable for acting in accordance with the advice of Counsel of at least five years standing, with respect to the Settlement, unless, when he does so:

(a) he knows or has reasonable cause to suspect that the advice was given in ignorance of the material facts; or

(b) proceedings are pending to obtain the decision of the court on the matter.

Trustee indemnity clauses

A.2      The following are a selection of typical trustee indemnity clauses found in standard trust precedents:

(1) A trustee shall be entitled to exoneration and indemnity out of the Trust Fund for any liability loss or expense incurred under this settlement and for any judgment recovered against and paid by such Trustee other than liability loss expense or judgment arising out of his own wilful and individual fraud wrongdoing or neglect.^[9]

(2) In this deed the following terms shall have the following meanings.

"Settlement" means a settlement created by a deed...

"Breach" means the breach described in the schedule of the Trustees' duties under the Settlement.

The Beneficiaries shall compensate the Trustees in full on demand for all liability resulting from the Breach.^[10]

Clauses excluding the duties of trustees

A.3      The following are a selection of typical duty exclusion clauses found in standard trust precedents:

(1) The duty of care contained in the Trustee Act 2000 section 1 shall not apply to the Trustees in the exercise of any of the powers conferred on them by this settlement nor to any duties relating to the exercise of such powers nor to the exercise by the Trustees of any powers contained in or duties imposed by the Trustee Act 2000 the Trustee Act 1925 the Trusts of Land and Appointment of Trustees Act 1996 or any other statute where that duty of care is expressed to be applicable.^[11]

(2) The Trustees shall not be bound or required to interfere in the management or conduct of the affairs or business of any company or corporation in which the Trust Fund or any part of it may for the time being be invested (whether or not they have the control of such company or corporation) but so long as they shall have no notice of any act of dishonesty or misappropriation or misapplication of money or other property on the part of the directors or other persons having such management or conduct they may leave the same (including the payment or non-payment of dividends) wholly to such directors or other persons and no beneficiary shall be entitled as such beneficiary in any way whatsoever to compel control or forbid the exercise or the exercise in any particular manner of any voting or other rights which may at any time be vested in the Trustees with regard to such company or corporation.^[12]

(3) The Trustees are under no duty to enquire into the conduct of a company in which they are interested, unless they have knowledge of circumstances which call for enquiry.^[13]

(4) The Trustees are under no duty to enquire into the use of income paid to a parent or guardian on behalf of a minor unless they have knowledge of circumstances which call for enquiry.^[14]

(5) The Trustees shall be responsible only for so much of the Trust Fund as shall be actually paid and transferred to them respectively and nothing contained in this settlement shall cast any obligation upon the Trustees or any of them to investigate the accounts of the trustees of the will of the [testator] or to recover or...sue for the money stocks funds securities and property forming part of the Trust Fund or any part or parts of it respectively as shall not have been paid or transferred to them by the trustees of the above will and no neglect or omission in that respect shall be chargeable as a breach of trust.^[15]

Clauses extending the powers of trustees

A.4      The following are a selection of typical extended powers clauses or authorisation clauses found in standard trust precedents:

(1) Money liable to be invested or any part thereof under the trusts hereof may be applied or invested in the subscription or purchase of or at interest upon the security of such stocks, funds, shares, securities, or other investments or property of whatsoever nature and wheresoever...and whether involving liabilities or not or upon such personal credit with or without security as the Trustees shall in their absolute discretion think fit to the intent that the Trustees shall have the same powers in all respects as if they were absolute beneficial owners.^[16]

(2) The purchase of or at interest upon the security of such investments and property of whatsoever nature and wheresoever situated as the Trustees shall in their absolute discretion think fit

PROVIDED that the Trustee in making any investment shall have regard to the need for diversification of investments so far as is appropriate to the circumstances of the trust created by this settlement and to the suitability to the trust of investments of the description of the investment proposed and that the investment proposed is an investment of that description

AND PROVIDED also that before exercising any power of investment authorised by this settlement the Trustees shall have obtained and considered proper advice on the question whether the investment is satisfactory having regard to the need for diversification and to the suitability.^[17]

(3) The purchase of a residential property or an interest in a timeshare scheme (whether villa apartment or otherwise) ("the property") situated in any of the following countries...and in making such purchase the Trustees shall not be liable for any loss incurred as a result of the exercise of this power and the Trustees may expend trust capital or income on the improvement or maintenance of the Property and may either let the Property for such period on such conditions and at such rent as they think fit...or may permit any one or more of the Beneficiaries to occupy the same as a holiday residence... .^[18]

(4) Chattels for the decoration furnishing and equipment of the residence of any of the Beneficiaries [which has been purchased pursuant to clause...].^[19]

(5) The Trustees may invest Trust Property in any manner as if they were beneficial owners. In particular the Trustees may invest in property in any part of the world and unsecured loans.

The Trustees are under no obligation to diversify the Trust Fund.^[20]

(6) Clause 9 of the Standard Provisions of the Society of Trust and Estate Practitioners (1st edition 1992)^[21] provides:

(1) In this paragraph:

(a) "A Fiduciary" means a Person subject to fiduciary duties under the Settlement.

(b) "An Independent Trustee", in relation to a Person, means a Trustee who is not:

(i) a brother, sister, ancestor, descendant or dependent of the Person;

(ii) a spouse of the Person of (i) above;

(iii) a company controlled by one or more of the above.

(2) A Fiduciary may:

(a) enter into a transaction with the Trustees, or

(b) be interested in an arrangement in which the Trustees are or might have been interested, or

(c) act (or not act) in any other circumstances;

Provided that :

(i) The Fiduciary first discloses to the Trustees the nature and extent of any material interest conflicting with his fiduciary duties, and

(ii) There is an Independent Trustee in respect of whom there is no conflict or interest, and he considers that the transaction arrangement or action is not contrary to the general interest of the settlement.

(7) Notwithstanding any rule of law or equity to the contrary the Trustees may validly effect any of the following transactions PROVIDED that every trustee personally interested in the transaction shall have acted in good faith and that at least one of the trustees shall have no interest in the transaction save in his capacity as one of the trustees of the settlement:

0.1 the sale or other disposal of any property or any estate right or interest in or over any property to the Trustees as part of the Trust Fund

0.2 the purchase of any property forming part of the Trust Fund or any estate right or interest in or over such property

0.3 the loan of money to the Trustees as part of the Trust Fund on the security of the Trust Fund or otherwise and on such terms as to interest and repayment as may be agreed between the Trustees

0.4 the borrowing of money forming part of the Trust Fund on such terms as to interest and repayment as may be agreed between the trustees.^[22]

Note 1   Butterworth’s Encyclopaedia of Forms and Precedents (5th ed 2001 Reissue) vol 40(1) p 473.    [Back]

Note 2   J Kessler, Drafting Trusts and Will Trusts: A Modern Approach (5th ed 2000) p 76. Although here Kessler is of the opinion that liability for negligence should not be excluded, in previous editions of his book he deliberated over the use of wider exemption clauses: see para A.1(3) below.    [Back]

Note 3   J Kessler, Drafting Trusts and Will Trusts: A Modern Approach (2nd ed 1995) pp 60- 61.    [Back]

Note 4   Butterworth’s Encyclopaedia of Forms and Precedents (5th ed 2001 Reissue) vol 40(1) p 473.    [Back]

Note 5   Potter & Monroe’s Tax Planning with Precedents (10th ed 1987) pp 164- 165.    [Back]

Note 6   Hallett’s Conveyancing Precedents (1965) p 801.    [Back]

Note 7   Prideaux, Precedents in Conveyancing (25th ed 1959) vol 3 p 158.    [Back]

Note 8   The Standard Provisions of the Society of Trust and Estate Practitioners (1st ed 1992) can be found in J Kessler, Drafting Trusts and Will Trusts: A Modern Approach (2nd ed 1995) p 339 et seq and Butterworth’s Encyclopaedia of Forms and Precedents (5th ed 2001 Reissue) vol 40(1) p 274. For an annotated version of the STEP standard provisions see Precedents for the Conveyancer (Issue 151 1996) para 11- 18et seq.    [Back]

Note 9   Butterworth’s Encyclopaedia of Forms and Precedents (5th ed 2001 Reissue) vol 40(1) p 475.    [Back]

Note 10   Kelly’s Draftsman (17th ed 1998) p 1249.    [Back]

Note 11   Butterworth’s Encyclopaedia of Forms and Precedents (5th ed 2001 Reissue) vol 40(1) p 472. Since the Trustee Act 2000, which introduced the statutory general duty of care, was enacted only relatively recently, there are as yet few examples of this type of clause.    [Back]

Note 12   Butterworth’s Encyclopaedia of Forms and Precedents (5th ed 2001 Reissue) vol 40(1) p 462.    [Back]

Note 13   J Kessler, Drafting Trusts and Will Trusts: A Modern Approach (5th ed 2000) p 80.    [Back]

Note 14   J Kessler, Drafting Trusts and Will Trusts: A Modern Approach (5th ed 2000) p 80.    [Back]

Note 15   Butterworth’s Encyclopaedia of Forms and Precedents (5th ed 2001 Reissue) vol 40(1) p 474.    [Back]

Note 16   Prideaux, Precedents in Conveyancing (25th ed 1959) vol 3 p 150. It must be noted that section 3(1) of the Trustee Act 2000 provides for a “general power of investment” which is similar in scope to these traditional clauses expressly conferring wide powers of investment on trustees. Therefore it is likely that such clauses have now been rendered redundant.    [Back]

Note 17   Butterworth's Encyclopaedia of Forms and Precedents (5th ed 2001 Reissue) vol 40(1) p 429. Although this clause is clearly derived from sections 3 to 5 of the Trustee Act 2000, it is submitted that the power to invest or to purchase property “of whatsoever nature and wheresoever situated” is wider than the power given by sections 3 and 8 of the Trustee Act 2000.    [Back]

Note 18   Butterworth's Encyclopaedia of Forms and Precedents (5th ed 2001 Reissue) vol 40(1) p 428.    [Back]

Note 19   Butterworth's Encyclopaedia of Forms and Precedents (5th ed 2001 Reissue) vol 40(1) p 430.    [Back]

Note 20   J Kessler, Drafting Trusts and Will Trusts: A Modern Approach (2nd ed 1995) p 236.    [Back]

Note 21   See n 8 above.    [Back]

Note 22   Butterworth's Encyclopaedia of Forms and Precedents (5th ed 2001 Reissue) vol 40(1) p 454.    [Back]