PastPaperHero | Trustees: appointment, duties, powers, and liabilities - Protection of trustees and limitation periods

Learning Outcomes

This article outlines the protection of trustees from liability for breach of trust and the operation of limitation rules in trust disputes, including:

the scope and limits of trustee exemption clauses, their strict construction by the courts, and the “irreducible core” of honest performance that cannot be excluded;
how fully informed beneficiary consent or acquiescence can bar claims, the requirements for valid consent, and when a beneficiary’s interest may be impounded under s 62 Trustee Act 1925;
the circumstances in which the court may grant discretionary relief under s 61 Trustee Act 1925, with emphasis on the different expectations of lay and professional trustees;
the availability of indemnity and contribution between trustees and against instigating beneficiaries, and how responsibility for trust losses is allocated;
the standard six-year limitation period for breach of trust under s 21(3) Limitation Act 1980, including when the cause of action accrues for present and future interests;
the key exceptions to limitation, such as fraudulent breaches and recovery of trust property or its proceeds from a trustee, and postponement for disability, fraud, concealment, or mistake;
the role of the equitable doctrine of laches, its relationship with statutory limitation, and how delay and prejudice can defeat equitable remedies in exam-style problem questions.

SQE1 Syllabus

For SQE1, you are required to understand the protection of trustees from liability for breach of trust and the operation of statutory and equitable limitation rules, with a focus on the following syllabus points:

The effect and limitations of trustee exemption clauses, including the rule that liability for a trustee’s own actual fraud/dishonesty cannot be excluded and strict construction against trustees.
The defence of consent or acquiescence by beneficiaries, including capacity, informed consent, and the limited scope of the defence (only against consenting beneficiaries).
The court's discretionary power to relieve trustees under s 61 Trustee Act 1925 and factors influencing the exercise of discretion for lay and professional trustees.
Indemnity and contribution between trustees: equitable indemnity in specified circumstances and contribution under the Civil Liability (Contribution) Act 1978.
The statutory limitation period for breach of trust actions under the Limitation Act 1980 (s 21): six-year general rule and when time starts to run.
Exceptions to the standard limitation period, including fraudulent breaches of trust and recovery of trust property still in a trustee’s possession or converted to their own use.
Postponement rules for contingent or future interests, beneficiaries under disability (s 28), and fraud/concealment/mistake (s 32).
The equitable doctrine of laches and its application to equitable remedies and claims outside statutory limitation periods.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

Which of the following statements regarding trustee exemption clauses is most accurate?
1. They can exclude liability for all breaches, including fraud.
2. They are automatically void if they exclude liability for negligence.
3. They cannot exclude liability for a trustee's own actual fraud or dishonesty.
4. They only apply to professional trustees.
Under what section of the Trustee Act 1925 can the court grant relief to a trustee who acted honestly and reasonably?
1. Section 31
2. Section 32
3. Section 61
4. Section 62
What is the standard limitation period for a beneficiary to bring a claim against a trustee for a non-fraudulent breach of trust?
1. 3 years
2. 6 years
3. 12 years
4. There is no time limit.
True or False: The doctrine of laches operates independently of statutory limitation periods and can bar a claim even if the statutory period has not expired.

Introduction

Trusteeship carries significant responsibilities and potential liabilities. Trustees who breach their duties may be personally liable to compensate the trust for any resulting loss. Liability for breach of trust is strict in the sense that negligence is not a prerequisite; however, a claimant must establish both breach and causative loss to the trust fund. The court can also distinguish breaches of trust (e.g. investing outside the trust powers) from breaches of fiduciary duty (e.g. making unauthorised profits); remedies and defences differ across these categories.

The law recognises that trustees should not be insurers of the trust fund and provides several mechanisms for their protection. Trust instruments may contain properly drafted exemption clauses; beneficiaries may waive or consent to conduct constituting breach; and the court has a statutory discretion to relieve trustees who have acted honestly and reasonably. Furthermore, claims against trustees cannot be brought indefinitely; statutory time limits and equitable doctrines restrict the period within which beneficiaries can seek remedies. This article examines the key protections available to trustees and the limitation periods applicable to claims against them, with a focus on practical application and the boundaries of each defence.

Protection of Trustees

Several avenues exist to protect trustees from personal liability for breach of trust. These include provisions within the trust instrument itself, the actions of beneficiaries, and the intervention of the court. Where protection fails, trustees may still manage their exposure through indemnity or contribution against others who share responsibility for the loss.

Exemption Clauses

Trust instruments often contain clauses aiming to exempt trustees from liability for loss or damage to the trust fund.

Key Term: Exemption Clause
A clause in a trust instrument that seeks to exclude or limit a trustee's liability for breach of trust.

The effectiveness of such clauses is subject to limits. While they can validly exclude liability for negligence, even gross negligence (Armitage v Nurse [1998] Ch 241), they cannot exclude liability for the trustee's own actual fraud or dishonesty. The “irreducible core” of trusteeship requires honesty; a provision purporting to absolve a trustee from their own dishonesty would be ineffective because it would negate the essential obligation to act honestly for beneficiaries.

The courts construe exemption clauses strictly, often applying the contra proferentem principle where wording is ambiguous or drafted by the trustee seeking to rely on it. Any ambiguity is resolved against the trustee. Professional trustees are expected to take reasonable steps to ensure the settlor understands the meaning and effect of any exemption clause before the trust is created; failure to do so can weigh against a trustee’s reliance on such clauses.

Some regulatory contexts impose additional constraints. For example, certain statutory regimes limit or disapply exoneration for specific categories of trusts (e.g. particular pension scheme provisions). However, in general private trusts, well-drafted clauses can significantly narrow exposure, short of dishonesty.

Practical points when advising on exemption clauses:

Confirm the clause covers the specific breach alleged (e.g. “negligence” vs “wilful default”).
Check for carve-outs (fraud/dishonesty) and any definitions of “wilful default” or “recklessness”.
Consider the trustee’s status. A professional trustee will be held to a higher standard and may face stricter scrutiny.
Evaluate the clause alongside any duty-modifying provisions or management powers that were engaged.

Beneficiary Consent or Acquiescence

A trustee may have a defence to a claim for breach of trust if the beneficiary involved consented to or instigated the breach.

For this defence to apply:

The beneficiary must be sui juris (of full age and sound mind).
The beneficiary must have given free and fully informed consent to the specific act constituting the breach, understanding the material facts. It is not necessary for the beneficiary to know that the act is a breach of trust; it is sufficient that they understand what is proposed and its likely consequences.
The consent only protects the trustee against the consenting beneficiary; other beneficiaries who did not consent can still sue.

Alternatively, a beneficiary may lose their right to sue through acquiescence.

Key Term: Acquiescence
Where a beneficiary, with full knowledge of a breach of trust, either expressly or impliedly confirms they accept the breach or fails to take action against the trustee for an extended period, potentially waiving their right to sue.

What constitutes sufficient delay for acquiescence depends on the facts. The court assesses whether the beneficiary knowingly chose not to act and whether their conduct amounts to a waiver of rights. Acquiescence can intersect with laches, but the two defences are distinct: acquiescence turns on the beneficiary’s conduct and knowledge; laches centres on the claimant’s delay and resulting prejudice to the defendant.

Trustees should document beneficiary approvals and advice obtained before acting, particularly in transactions with risk or where trust powers are stretched. If a beneficiary instigated or requested a breach, or consented to it in writing, the court has a discretionary power under s 62 Trustee Act 1925 to impound all or part of that beneficiary's interest in the trust fund to indemnify the trustee. This impounding both reduces the trustee’s exposure and prevents the instigating beneficiary from turning around to sue.

Relief by the Court (Section 61 Trustee Act 1925)

The court has a statutory discretion under s 61 of the Trustee Act 1925 to relieve a trustee, either wholly or partly, from personal liability for a breach of trust if it appears to the court that the trustee:

acted honestly; and
acted reasonably; and
ought fairly to be excused for the breach and for omitting to obtain the directions of the court in the matter.

All three conditions must be satisfied. Acting honestly means acting in good faith. Acting reasonably requires the trustee to have acted with the level of care and prudence expected of a trustee in the circumstances, including obtaining proper advice where appropriate and keeping beneficiaries informed. The court is generally less willing to grant relief to a paid or professional trustee, who is expected to exercise a higher standard of diligence and knowledge, than to a lay trustee who acts gratuitously. Relief under s 61 is entirely at the court's discretion; even if the conditions are met, the court may still decide not to grant relief, particularly where trustees have been passive, failed to supervise co-trustees, or neglected to take advice.

Common factors the court weighs:

The trustee’s experience and professional status.
Whether appropriate advice was sought and considered.
The nature and seriousness of the breach (e.g. isolated error vs mismanagement).
The extent of transparency with beneficiaries and records kept.
Whether the trustee’s conduct contributed to or mitigated the loss.

Worked Example 1.1

Leo, a lay trustee, invests trust funds in a seemingly promising tech start-up based on a recommendation from a fellow golf club member, without taking formal financial advice. The company fails, causing significant loss to the trust. The trust instrument contains no relevant exemption clause. Can Leo potentially rely on s 61 TA 1925?

Answer:
Leo may have acted honestly, believing the investment was sound. However, failing to take proper advice or conduct due diligence may mean he did not act reasonably. A trustee, even a lay one, is expected to exercise prudence. It is unlikely the court would find he acted reasonably in relying solely on an informal recommendation for a significant investment. Therefore, relief under s 61 is improbable.

Worked Example 1.2

Maya is a professional trustee. Relying on her own interpretation of the trust instrument, she refuses to pay income to a 20-year-old contingent beneficiary, believing entitlement arises only at age 25. She does not take legal advice. A year later, she learns the default statutory regime required payment of intermediate income. Can she seek relief under s 61?

Answer:
Relief is unlikely. Maya acted honestly, but as a professional trustee she is held to a higher standard of care. She should have obtained legal advice on the effect of statutory default rules and the trust terms. The failure to seek advice means she did not act reasonably. The court is typically reluctant to excuse professional trustees for errors of law where advice was readily available.

Indemnity and Contribution

Where multiple trustees are liable for a breach, one trustee who pays compensation may seek to recover from the others.

Indemnity: A trustee may be entitled to a full indemnity (100% recovery) from a co-trustee in specific cases, such as where the co-trustee alone was fraudulent, or where the co-trustee was a solicitor who exerted controlling influence and advised the breach. If one trustee instigated the breach and exclusively benefited (e.g. a beneficiary-trustee using trust funds for personal purposes), indemnity may be available to the innocent trustee to the extent of the instigating trustee’s beneficial interest.
Contribution: Under the Civil Liability (Contribution) Act 1978, the court can order such contribution between liable trustees as is just and equitable, having regard to the extent of their respective responsibility for the loss. Contribution can range up to 100% against a particular trustee where the blameworthiness is overwhelming.

Additionally, under s 62 Trustee Act 1925, if a beneficiary instigated or requested a breach of trust, or consented to it in writing, the court has the discretion to impound all or part of that beneficiary's interest in the trust fund to indemnify the trustee. This remedy is often paired with a defence of consent/acquiescence, to ensure that a beneficiary who caused the breach cannot profit at the trustee’s expense.

Trustees should be aware that retiring to avoid responsibility is ineffective if the retirement facilitates a breach. A trustee remains liable for breaches committed during their tenure and may remain jointly liable if the retirement clearly enabled a planned breach to proceed.

Limitation Periods

Actions against trustees for breach of trust are subject to statutory time limits. These limits aim to balance the protection of beneficiaries with the need for finality in trust administration. In practice, the interaction of statutory limitation and equitable doctrines (notably laches) requires careful analysis of the remedy sought and the nature of the claim.

General Limitation Period (Limitation Act 1980)

Section 21(3) of the Limitation Act 1980 provides the general rule: an action by a beneficiary to recover trust property or in respect of any breach of trust must not be brought after the expiration of six years from the date on which the right of action accrued.

The 'right of action accrued' typically means the date the breach of trust occurred. However, where a beneficiary’s interest is future or contingent, accrual is postponed until the interest falls into possession (see below). The six-year period applies to personal claims for compensation, not necessarily to proprietary claims to specific property (addressed under exceptions).

Exceptions to the 6-Year Period

The standard six-year limitation period does not apply in two key situations outlined in s 21(1) of the Limitation Act 1980:

In respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or
To recover from the trustee trust property or the proceeds thereof still in the trustee's possession or previously received by the trustee and converted to their own use.

In these cases, there is no statutory time limit for bringing a claim against the trustee. That exemption covers proprietary claims for recovery of trust assets where the offending trustee still holds the property (or its traceable proceeds), and personal claims for fraudulent breaches. The beneficiary still faces potential equitable defences (e.g. laches) depending on the relief sought and the impact of delay, but the statutory bar under s 21(3) does not apply.

Furthermore, the start of the limitation period may be postponed:

Future Interests: For a beneficiary with a future interest (e.g., a remainder interest after a life interest), the six-year period does not begin to run until their interest falls into possession (s 21(3)). This protects remaindermen who otherwise cannot enforce while a prior life interest continues.
Disability: If the beneficiary was under a disability (e.g., a minor or lacking mental capacity) when the right of action accrued, the period does not start until the disability ceases (s 28). Minors have time calculated from their 18th birthday.
Fraud, Concealment, or Mistake: Where the action is based on the fraud of the defendant, or any fact relevant to the claimant's right of action was deliberately concealed, or the action is for relief from the consequences of a mistake, the limitation period does not begin until the claimant discovered the fraud, concealment, or mistake, or could with reasonable diligence have discovered it (s 32).

Practical application:

Distinguish the form of relief: proprietary recovery of property in a trustee’s possession may avoid the six-year period altogether; personal claims for non-fraudulent breaches face the six-year bar unless an extension applies.
Identify when accrual occurred: for remaindermen, timing hinges on the life tenant’s death; for minors, accrual is postponed until majority.
Consider s 32 where trustees conceal facts or make errors not apparent to beneficiaries.

Worked Example 1.3

A trust provides income to Ben for life, with the capital passing to Chloe on Ben's death. In 2015, the trustee, Tom, negligently made an unauthorised investment causing a loss. Ben discovered the breach in 2016 but took no action. Ben died in 2023. Chloe now wishes to sue Tom. Is her claim statute-barred?

Answer:
No. Although more than six years have passed since the breach in 2015, Chloe's interest was a future interest (remainder). Her right of action did not accrue until Ben's death in 2023 when her interest fell into possession. She has six years from 2023 to bring her claim against Tom under s 21(3) Limitation Act 1980. Ben's failure to act does not affect Chloe's right.

Worked Example 1.4

Priya, a trustee, used trust money to buy a rental flat registered in her name and has continued to hold the property. The beneficiaries only recently discovered the misuse and wish to recover the asset. Can Priya plead the six-year limitation period?

Answer:
No. A proprietary claim to recover trust property still in a trustee’s possession (or its proceeds) is outside the six-year bar (s 21(1)). The beneficiaries can seek recovery of the flat (or its traceable proceeds) without a statutory time limit, subject to equitable considerations such as laches. A personal compensation claim for non-fraudulent breach would ordinarily be time-limited, but proprietary recovery of the asset is not.

Laches

Even where no statutory limitation period applies (e.g., in cases of fraud under s 21(1) LA 1980), or where a claimant seeks a purely equitable remedy like an injunction or specific performance (to which statutory periods technically do not apply), a claim may still be barred by the equitable doctrine of laches.

Key Term: Laches
An equitable defence barring a claim due to unreasonable delay by the claimant in asserting their right, where such delay makes it unjust to grant the relief sought, often because it prejudices the defendant.

Laches applies where it would be inequitable to allow the claim due to the claimant's delay plus resulting prejudice to the defendant (e.g., loss of evidence, change in position). Mere delay alone is usually insufficient. The court will consider whether the claimant knew the facts and whether it is fair in all the circumstances to grant equitable relief after a prolonged delay. For example, if essential documents have been destroyed, witnesses have died, or the defendant has materially altered position, laches may be fatal to an otherwise permissible claim.

Importantly:

Laches can bar equitable remedies even within the statutory period (the court’s equitable discretion prevails over rigid chronology where justice demands).
Where equitable and legal remedies are both sought, the legal claim remains governed by statute; laches cannot bar a claim subject to a specific statutory time bar that has not expired. However, equitable relief may be refused while legal relief proceeds.

Worked Example 1.5

Two adult beneficiaries wait 14 years after discovering a trustee’s unauthorised property purchase to seek an account and an injunction to restrain further dealings. The trustee demonstrates that key records were innocently destroyed as part of routine archiving, material witnesses have died, and the beneficiaries acquiesced in the trustee’s management. What is the likely outcome?

Answer:
The court may refuse equitable relief on the basis of laches. The extended, unexplained delay coupled with prejudice (loss of key evidence and change of position) makes it inequitable to grant discretionary remedies such as injunctions or an account, even if the claim could otherwise be brought. The court will assess the totality of circumstances, including whether the beneficiaries’ conduct amounted to acquiescence.

Revision Tip

Focus on identifying the correct limitation period (usually six years) and the key exceptions (fraud, trustee retaining property, future interests, disability). Distinguish between personal and proprietary claims and remember the postponement rules for future interests, disability, and fraud/concealment/mistake. Understand that laches is a separate equitable defence based on delay and prejudice and may bar equitable remedies even where a statutory period has not expired.

Key Point Checklist

This article has covered the following key knowledge points:

Trustees face personal liability for breaches of trust that cause loss; breach must be shown together with loss.
Exemption clauses in trust instruments can protect trustees from liability for negligence but not for fraud or dishonesty; courts construe them strictly.
Professional trustees must ensure the settlor understands any exemption clause before the trust is created; ambiguity is resolved against the trustee.
Beneficiary consent (if fully informed and freely given by an adult beneficiary) or acquiescence can provide a defence to personal claims; it operates only against consenting beneficiaries.
The court has discretion under s 61 Trustee Act 1925 to relieve trustees who acted honestly and reasonably and ought fairly to be excused; relief is less likely for professional trustees or passive conduct.
Where multiple trustees are liable, contribution between trustees is available under the Civil Liability (Contribution) Act 1978; equitable indemnity can apply in defined circumstances (e.g. fraud, controlling solicitor-trustee).
The court may impound a consenting or instigating beneficiary’s interest under s 62 Trustee Act 1925 to indemnify the trustee.
The standard limitation period for breach of trust claims is six years from accrual (s 21(3) Limitation Act 1980); accrual for remaindermen occurs when their interest falls into possession.
There is no limitation period for fraudulent breaches or to recover trust property retained by the trustee (s 21(1) Limitation Act 1980).
Limitation can be postponed for beneficiaries with future interests, those under disability (s 28), and where there is fraud, concealment, or mistake (s 32).
The equitable doctrine of laches may bar a claim due to unreasonable delay causing prejudice, particularly for equitable remedies where no statutory time limit applies.

Key Terms and Concepts

Exemption Clause
Acquiescence
Laches

Trustees: appointment, duties, powers, and liabilities - Pro...