Is a Trustee Always Liable for a Breach of Trust?

September 16, 2016 Stuart Clark Trustees Tags: , , , , , , , , 0 Comments

I blogged earlier this week about the availability for a trustee to bring an Application for the opinion, advice and direction of the court under section 60(1) of the Trustee Act, and, in so doing, potentially alleviate themselves from liability concerning the decision so long as they act in accordance with the court’s direction. But what should happen if, when confronted with a difficult decision, the trustee does not ask the court for direction, but rather should act of their own volition? If a beneficiary should later successfully argue that the trustee acted improperly in making such a decision, and committed a breach of trust, will the trustee always be liable for such a decision?

Trustee Liability and Breach of Trust
“What should happen if, when confronted with a decision, the trustee does not ask the court for direction, but rather should act of their own volition?”

The Trustee Act is clear that just because a trustee commits a technical breach of trust, it does not necessarily follow that the trustee will be held liable for any corresponding damages. Section 35(1) of the Trustee Act provides:

“If in any proceeding affecting a trustee or trust property it appears to the court that a trustee, or that any person who may be held to be fiduciarily responsible as a trustee, is or may be personally liable for any breach of trust whenever the transaction alleged or found to be a breach of trust occurred, 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 the trustee committed the breach, the court may relieve the trustee either wholly or partly from personal liability for the same.” [emphasis added]

As is made clear by section 35(1) of the Trustee Act, so long as the trustee acted “honestly and reasonably” in committing the breach of trust, the court may in its discretion relieve the trustee from liability concerning such a decision. The leading authority regarding what is to be considered “honestly and reasonably” is the British decision of Cocks v. Chapman, [1896] 2 Ch. 763, at 777, where the court states:

“It is very easy to be wise after the event; but in order to exercise a fair judgment with regard to the conduct of trustees at a particular time, we must place ourselves in the position they occupied at that time, and determine for ourselves what, having regard to the opinion prevalent at that time, would have been considered the prudent course for them to have adopted.” [emphasis added]

If the court is of the opinion that the opinion prevalent at the time would have considered the decision prudent, it may alleviate the trustee fr
om liability concerning such a decision in accordance with section 35(1) of the Trustee Act. If not, the trustee may continue to be liable for the decision.

Thank you for reading.

Stuart Clark

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