Commentary on Sections Part 1 – Trusts Trustees’ duty of care
54.Section 31 specifies the duty of care to be exercised by trustees. It also sets out the extent to which the trust deed can validly provide immunity from breaches of that duty, and indemnity in that regard.
55.Section 31(1), which implements recommendation 47(a), contains the basic duty, which is that a trustee should manage trust affairs with the care and diligence which a person of an ordinary degree of care and attention would be expected to exercise in managing another person’s affairs. This represents the minimum standard and subsection (4)(a) states that it may not be lessened by provision in the trust deed. It is, though, subject to two exceptions, in each of which a higher standard of care will apply. First, subsection (2) provides that a trustee who is a person – whether a natural person or a legal person such as a trust company – offering professional services in relation to trust management and is remunerated for doing so, must meet the standard of care which it is reasonable to expect from a member of that profession. This implements recommendation 47(c).
56.Secondly, section 31(3) provides that a trustee who has professional qualifications of any kind must exercise the standard of care reasonably expected of a member of that profession if (but only if) he or she is instructed by the trustees as a body to provide professional services. This implements recommendation 47(b). The effect of this is that, where a trustee happens to be, say, an accountant or an investment advisor, the trustee is only bound to exercise a duty of care which exceeds the basic one set out in subsection (1) if instructed by or on behalf of the trustees to provide accountancy services or investment advice. The payment of remuneration is not determinative, though in many cases the acceptance of instructions, which marks the relationship out as being a formal and professional one, will be dependent on an agreement about payment for services to be rendered. Generally, the acceptance of instructions by a professional will also engage his or her professional indemnity insurance, and thus there will be some protection for the beneficiaries against professional services which turn out to be negligent.
57.Section 31(4) implements recommendations 48 to 50 on immunity clauses restricting trustees’ liability. Paragraph (a) provides that the standards of care in subsections (1) to (3) may not be reduced. Recommendation 48 is effected by paragraph (b), which states that a provision of a trust deed is of no effect to the extent that it relieves a trustee of the higher standard of care relating to professionals in certain situations. In implementation of recommendation 49, paragraph (c) provides that the trust deed may relieve a trustee who is subject to the basic duty of care in subsection (1) of negligence, but that there can be no relief against gross negligence; this would be incompatible with the trustee exercising the minimum level of care required of any person holding office as trustee. Paragraphs (d), (f), (g) and (h) implement recommendation 50 and ensure that a person seeking to enforce the trustees’ standard of care is not unduly hampered in doing so. Paragraph (e) implements recommendation 51 and provides that indemnity clauses should also be ineffective to the extent that they would indemnify a professional trustee to whom the higher standard of care applies for any liability arising from a failure to exercise that higher standard of care, or that they would indemnify an ordinary trustee for liability arising out of the trustee’s gross negligence.
58.By section 31(5) this provision applies irrespective of when the trust was created but only in respect of managing the affairs of a trust after commencement of section 31.