Protection of trustees: General Flashcards
(16 cards)
What is an ouster clause?
The trustees may be involved in the drafting of a trust instrument. The ouster clause entirely removes a duty that they would otherwise have, however, not all duties can be ousted.
How can an exemption clause protect trustees?
This limits or excludes trustee liability for particular sorts of breach. This is different from an ouster clause because the duty still exists but the trustees are protected from personal liability.
*An exemption clause can exclude liability for any sort of breach other than a fraudulent breach.
*A trustee cannot rely on an exemption clause if they have acted dishonestly.
Explain trustee liability insurance
Trustees may also choose to take out insurance against personal liability for breach of trust.
*Insurance can protect trustees against liability for negligence but not fraudulent breaches of trust.
*It will often be possible to have insurance premiums paid out of the trust fund as an expense of the trust.
Explain the option of seeking legal advice on the interpretation of trust terms
Relying on legal advice will not necessarily prevent the trustees from liability of breach of trust if they take action on the basis of legal advice that turns out to be incorrect.
Explain seeking court directions
The trustees can apply to the court for guidance on the matter.
Trustees who act in accordance with the directions of the court will not be liable even if there is a subsequent claim from a beneficiary.
Explain section 48 AJA 1985 application
Explain surrendering discretion to the court
In cases where the trustees are deadlocked or where they are precluded from acting due to a conflict of interest, they may surrender their discretion to the court. This is an exceptional course of action and can only be sought in relation to a specific problem which requires addressing. The trustees cannot simply give up all their powers and obligations and leave the court to administer the trust.
Explain seeking beneficiary consent
The trustees could seek the fully informed consent of the beneficiaries. This will only be an option if all of the beneficiaries are known, locatable and over 18.
It is essential that the beneficiaries are given full information to enable them to provide consent.
If consent is only obtained from some beneficiaries, the trustees will have a partial defence to breach of trust.
Explain the options for protecting trustees after breach
- Instigation, consent and acquiescence
- Impounding a beneficiary’s interest
- Statutory limitation
- Equitable defence of laches
- Section 61 TA 1925
- Claims against third parties
- Civil liability contribution act 1978
- Full indemnity
Explain consent
Trustees will not be liable if they receive the fully informed consent of all the beneficiaries.
Trustees will also have a defence against beneficiaries who instigate or request the breach.
The beneficiaries may subsequently affirm the action of trustees. Therefore, trustees may have the defence of acquiescence against beneficiaries who have indicated after the breach that they consent to the action taken.
Explain impounding a beneficiary’s interest
Where a beneficiary instigates or requests a breach, the trustees will only have a defence against that particular beneficiary.
The court has discretion to impound a beneficiary’s interest in such circumstances.
The statutory power also applies to cases where the beneficiary has consented to the breach but only where the consent was provided in writing.
The courts also have a common law discretion to impound a beneficial interest in cases of consent. The common law discretion does not require consent in writing but does require the beneficiary to have benefited from the breach.
What is the equitable defence of laches?
Where the statutory limitation period has not yet expired, trustees may be able to rely on this doctrine to argue a beneficiary has waited too long to bring a claim.
Requires the trustees to demonstrate that the beneficiary knew of a breach but has delayed their claim unacceptably, making it unconscionable for the beneficiary to asset their beneficial interest.
Explain section 61 TA 1925
This gives the court discretion to excuse a trustee in circumstances where the trustee ‘acted honestly and reasonably, and ought fairly to be excused for the breach of trust’.
More likely in cases involving a lay trustee
In particular if the lay trustee has sought advice before taking action
Explain claims against third parties
This could be the case where they rely on a professional’s advice. If they identify the negligence early, and take swift action against the adviser, they may be able to prevent a personal claim for breach of trust altogether.
Alternatively, they may need to bring a separate claim against the adviser alongside or following the proceedings for breach of trust.
Explain the civil liability contribution act
Explain the concept of a full indemnity
