Key point
Trustee exemption of liability clauses are valid insofar as they exclude liability for negligence, but not actual fraud; good faith and honesty are irreducible trustee obligations.
Facts
- The plaintiff became entitled in remainder to agricultural land of which her mother was tenant for life.
- The plaintiff was 17 at the time. Her portion was to be held on trust until she reached 40.
- The value of the land fell unexpectedly. The trustees had failed to supervise or enquire as to why the value had fallen.
- Clause 15 of the trust deed stated that no trustee shall be liable for loss or damage to the fund/income unless caused by ‘actual’ fraud.
- P brought an action for breach of trust.
Held (Court of Appeal)
Appeal dismissed; clause 15 operated to exclude trustee liability for negligence
Millett LJ
Core trustee obligations
- ‘there is an irreducible core of obligations owed by the trustees to the beneficiaries and enforceable by them which is fundamental to the concept of a trust. If the beneficiaries have no rights enforceable against the trustees there are no trusts. But I do not accept the further submission that these core obligations include the duties of skill and care, prudence and diligence. The duty of the trustees to perform the trusts honestly and in good faith for the benefit of the beneficiaries is the minimum necessary to give substance to the trusts’: [253]
Current case
- “Actual fraud” means what it says. It does not mean “constructive fraud” or “equitable fraud.” The word “actual” is deliberately chosen to exclude them: [250]
- The respondents are absolved by clause 15 from liability for all loss or damage to the trust estate except for loss caused by dishonesty: [256]
- No dishonesty has been pleaded in this case
- If clauses such as clause 15 should be denied effect, this should be done by Parliament: [256]