Learning Outcomes
This article outlines the primary ways trustees can be protected from liability for breach of trust and the time limits within which beneficiaries must bring claims. For the SQE1 assessment, you need to understand the scope and application of exemption clauses, the effect of beneficiary consent or acquiescence, the court's power to grant relief under s 61 Trustee Act 1925, and the statutory limitation periods under the Limitation Act 1980, including exceptions and the doctrine of laches. This knowledge will help you analyse scenarios involving trustee liability and advise on potential defences and time bars.
SQE1 Syllabus
For SQE1, you are required to understand the mechanisms that protect trustees from liability and the time constraints on bringing actions against them. Your revision should focus on:
- The effect and limitations of trustee exemption clauses.
- The defence of consent or acquiescence by beneficiaries.
- The court's discretionary power to relieve trustees under s 61 Trustee Act 1925.
- The statutory limitation period for breach of trust actions under the Limitation Act 1980.
- Exceptions to the standard limitation period, including fraud and recovery of trust property.
- The equitable doctrine of laches and its application.
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.
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Which of the following statements regarding trustee exemption clauses is most accurate?
- They can exclude liability for all breaches, including fraud.
- They are automatically void if they exclude liability for negligence.
- They cannot exclude liability for a trustee's own actual fraud or dishonesty.
- They only apply to professional trustees.
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Under what section of the Trustee Act 1925 can the court grant relief to a trustee who acted honestly and reasonably?
- Section 31
- Section 32
- Section 61
- Section 62
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What is the standard limitation period for a beneficiary to bring a claim against a trustee for a non-fraudulent breach of trust?
- 3 years
- 6 years
- 12 years
- There is no time limit.
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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. However, the law recognises that trustees should not be insurers of the trust fund and provides several mechanisms for their protection. 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.
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.
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 courts interpret exemption clauses strictly, particularly against professional trustees who drafted them. Professional trustees must also ensure the settlor understands the effect of any exemption clause before the trust is created.
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.
- 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 of the case.
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. 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.
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.
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.
- 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.
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.
Limitation Periods
Actions against trustees for breach of trust are subject to statutory time limits.
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.
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.
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)).
- 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).
- 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).
Worked Example 1.2
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.
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.
Revision Tip
For the SQE1 exam, focus on identifying the correct limitation period (usually six years) and the key exceptions (fraud, trustee retaining property, future interests, disability). Understand that laches is a separate equitable defence based on delay and prejudice.
Key Point Checklist
This article has covered the following key knowledge points:
- Trustees face personal liability for breaches of trust that cause loss.
- Exemption clauses in trust instruments can protect trustees from liability for negligence but not for fraud or dishonesty.
- Beneficiary consent (if fully informed and freely given by an adult beneficiary) or acquiescence can provide a defence for trustees.
- The court has discretion under s 61 Trustee Act 1925 to relieve trustees who acted honestly and reasonably.
- The standard limitation period for breach of trust claims is six years from the date the right of action accrued (s 21(3) Limitation Act 1980).
- There is no limitation period for fraudulent breaches or to recover trust property retained by the trustee (s 21(1) Limitation Act 1980).
- The limitation period may be postponed for beneficiaries with future interests or those under a disability.
- The equitable doctrine of laches may bar a claim due to unreasonable delay causing prejudice, particularly where no statutory time limit applies.
Key Terms and Concepts
- Exemption Clause
- Acquiescence
- Laches
