Commentary on Sections Part 1 – Trusts Personal liability of trustees
63.Section 36 of the Act, which implements recommendation 58, re-enacts section 3(d) of the 1921 Act. It provides that, as a default provision, a trustee is only personally liable for any loss to a beneficiary which arises either from the trustee’s own acts or omissions, or any loss to a beneficiary which arises from one of the other trustees’ (who can also be referred to as a co-trustee) breach of trust or breach of fiduciary duty in circumstances where the trustee failed to take reasonable steps to ensure that the co-trustee did not commit that breach. For example, trustees who sign a receipt for money due to the trust estate but leave that money in the hands of one trustee for many years without enquiring about it may be liable to make good the loss if it transpires that the trustee has appropriated the funds and subsequently becomes insolvent. (The trustee who appropriated the funds will also be personally liable, but the beneficiary may choose to pursue both.) By subsection (2), the section applies irrespective of when the trust was created, but only in respect of acts, omissions or breaches committed after commencement of section 36. Subsection (3) makes clear that section 36 is subject to other applicable provisions of the Act concerning the personal liability of trustees (in particular sections 39, 40, and 70). This means that where those sections apply, they qualify the rights of beneficiaries to claim for loss under section 36.
64.Section 37 of the Act restates section 29A of the 1921 Act. This section sets out the protections available to trustees where they distribute property, or income of property, in ignorance of certain facts which would affect proper distribution of the property or income. Subsection (1)(b) provides that in order for the trustee not to be personally liable, the distribution requires to be made in good faith after having made reasonable enquiries, or, in accordance with an order of the Court of Session. What amounts to ‘reasonable enquiries’ will be dictated by the particular circumstances of each case. There is no express requirement to advertise for beneficiaries. Whether this is appropriate will depend on the circumstances and is a matter for the discretion of the trustees tasked with distributing the property or income. Subsection (2) protects the right of a person, under the law of unjustified enrichment, to seek restitution in respect of the property or income from persons to whom it has been distributed in error. Subsection (3) clarifies that the right to seek recovery in relation to an unlawful distribution under subsection (2) does not affect the protections afforded to persons (under section 24 of the Succession (Scotland) Act 2016) who may come to purchase, in good faith, property vested in an executor. Section 37(3) makes clear that those protections in the 2016 Act (for the buyer from an executor) hold good, even where there may be a claim to the property in unjustified enrichment from a beneficiary, which results from an erroneous distribution of trust property and for which the trustee is not liable. Subsection (4) provides that section 37 applies only to distributions which occur after the section comes into force (i.e. it does not catch distributions which have already occurred).