Armitage v Nurse [1998] Ch 521 (CA)

Facts

• The case concerned a trust established for the benefit of Paula, with land held in trust and farmed by a family company, GW Nurse.
• The trustees were Paula’s mother and grandmother, who were also the sole directors and shareholders of GW Nurse.
• Clause 15 of the trust instrument sought to exempt the trustees from liability for any loss or damage to the trust fund unless resulting from their own actual fraud.
• Paula alleged that the trustees had breached the trust by engaging the family company to farm the land, contrary to clause 12, which prohibited application of trust assets to benefit her mother or grandmother.
• It was also claimed that mismanagement of the land led to a decline in value of the trust assets.
• The key issue was whether Clause 15 protected the trustees from liability or was void for being repugnant to the essence of a trust or against public policy.

Issues

1. Whether a trustee exemption clause can exclude liability for negligence, imprudence, or deliberate breach of trust.
2. Whether there exists an irreducible core of trustee obligations that cannot be contracted out of.
3. How “actual fraud” should be defined in the context of trustee exemption clauses.
4. Whether Clause 15 of the trust instrument in this case was valid or void.

Decision

• The Court of Appeal held that trustee exemption clauses can validly exclude liability for negligence, lack of diligence, and even some deliberate breaches of trust, provided there is no dishonesty or lack of good faith.
• The court established that there is an irreducible core of obligations applicable to every trust: trustees must act honestly and in good faith for the beneficiaries.
• “Actual fraud” in this context was interpreted not as limited to deceit or personal gain, but as conduct not honestly believed to be in the beneficiaries’ best interests.
• Clause 15 was upheld, as it did not seek to absolve the trustees from fraud or dishonesty.
• The claim against the trustees was dismissed.

Legal Principles

• Trustee exemption clauses may protect against liability for negligence or imprudence, but not for fraudulent or dishonest conduct.
• There is an irreducible core of trust obligations, including the duty to act honestly and in good faith, which cannot be excluded by any clause.
• Actual fraud in trust law involves acting dishonestly or without honest belief in acting in the beneficiaries’ interests, not merely intention to deceive or gain.
• Later, Walker v Stones clarified that solicitor-trustees are held to an objective standard; exemption clauses will not protect unreasonable conduct even if honestly believed.

Conclusion

Armitage v Nurse [1998] established the limits of trustee exemption clauses, confirming that while trustees can be shielded from liability for negligence, the duty to act honestly and in good faith for beneficiaries cannot be excluded; any attempt to remove this irreducible core will make the clause invalid.