Commentary on Sections Part 1 – Trusts Breach of duty etc.
59.Section 32 of the Act implements recommendation 57(2), which is that section 31 of the 1921 Act be re-enacted. It provides the Court of Session with discretion to order that, where a trustee is in breach of fiduciary duty at the request of a beneficiary or with the beneficiary’s written consent, some or all of that beneficiary’s interest in the trust property is to be used to make good any loss incurred by the trustee from liability arising out of the breach of fiduciary duty. This section applies irrespective of when the trust was created but only in relation to breaches of fiduciary duty occurring after commencement of section 32.
60.Section 33 of the Act implements recommendation 46. It regulates the consequences for a trustee of acting ultra vires (in other words, acting in a way which is outside the trustee’s power as set out in the trust deed). For example, a trustee might make a particular type of investment in the reasonable, but mistaken, belief that it is within their powers to do so. The current law is not wholly clear, but in general a trustee who acts beyond the trustee’s powers is open to personal liability. By subsection (2), the Court of Session may relieve a trustee of the consequences of ultra vires actings to the extent that the court considers that the trustee, after making appropriate efforts in this regard, believed that the acting in question was within the trustee’s power (subsection (3)). Subsection (4) preserves the right of a beneficiary or trustee to recover trust property paid out to someone other than a trustee when that payment would not have been made if the trustee had not acted ultra vires. By subsection (5), this section applies irrespective of when the trust was created but only in relation to actings occurring after commencement of section 33.
61.Section 34 of the Act, in implementation of recommendation 53, renders ineffective a provision in a trust deed which seeks to place a general limitation on a trustee’s liability for breach of a fiduciary duty, or to indemnify a trustee for such breach (that is, giving the trustee a right of recovery against the trust property for any claim against the trustee in a personal capacity following such breach). Subsection (2) makes an exception for a provision in the trust deed which authorises a particular action or decision, or a particular class of actions or decisions, which would otherwise be in breach of a fiduciary duty (for example, investments in a particular company owned by the trustee). This section applies irrespective of when the trust was created but only in relation to breaches of fiduciary duty occurring after commencement of section 34.
62.Section 35 of the Act implements recommendation 52. It deals with situations in which a trustee enters into a transaction in breach of the trustee’s fiduciary duty (or proposes to do so). For example, a trustee, in their personal capacity, may enter into a commercial agreement with a beneficiary under which the trustee, in their personal capacity, will make a profit. It empowers the Court of Session to relieve a trustee from the consequences of the breach, or the proposed breach, if it considers it just to do so, provided, firstly, that the transaction has benefited the trust property and the beneficiaries (or is likely to do so) and, secondly, that the terms of the transaction are at least as favourable to the trust property as a comparable commercial transaction between two unrelated parties would have been (or would be). Section 35 applies irrespective of when the trust was created but only in relation to transactions entered into (or to be entered into) after commencement of the section.