Trustees’ Liability

Introduction

Being a trustee is an **onerous responsibility**: it carries numerous duties, of both a **fiduciary** and a **non-fiduciary** nature. Where a trustee falls short, the beneficiaries are not without redress. This chapter examines the **remedies available for breach of trust** — the **personal claim** (against the trustee's own assets, by way of an account or **equitable compensation**) and the **proprietary claim** (to recover trust property or its traceable proceeds). It then turns to the **protection of trustees**: **exemption clauses**, the **consent** of beneficiaries, relief under **s. 61 of the Trustee Act 1925**, and the **limitation period** under **s. 21 of the Limitation Act 1980** (together with the equitable doctrine of **laches**).

Assessment focus

For the SQE1 FLK2 assessment you must apply the rules on **trustees' liability** at the level of a **competent newly qualified solicitor** to realistic client-based scenarios. The SRA Functioning Legal Knowledge statement for Trusts expressly covers the **liability of trustees** and the **remedies for breach of trust**, including **personal and proprietary claims** and the **defences** available to trustees. You should be able to distinguish a **personal claim** from a **proprietary claim**, identify when trustees are **jointly and severally liable**, apply the **'but for' causation** test for equitable compensation, and advise on **exemption clauses**, **s. 61 relief** and the **six-year limitation period** (with its exceptions for fraud and recovery of trust property). Questions are **single best answer questions (SBAQs)**; this is a **closed-book** assessment, so the leading cases and statutory provisions in this chapter must be recalled from memory.

Study tips

1) Liability for breach is **not** based on the trustee's intention (no **mens rea**): it turns on whether conduct fell below the required **standard of care** (the statutory duty in **s. 1 Trustee Act 2000**) and caused **loss** to the fund or an **unauthorised gain**. 2) Trustees are **jointly and severally liable**: beneficiaries may sue any one of them for the **whole loss** (often the wealthiest or an insured professional), with **contribution / indemnity** between trustees afterwards. 3) **Personal v proprietary**: a personal claim pursues the trustee's own assets (worthless if the trustee is insolvent); a proprietary claim follows the **trust property or its traceable proceeds** and survives insolvency. 4) **Causation**: equitable compensation requires only a **causal ('but for') connection** — the common-law rules on foreseeability and remoteness do **not** apply (**Target Holdings**; **AIB Group v Mark Redler**). 5) **Defences**: a valid **exemption clause** (cannot exclude fraud/dishonesty — **Armitage v Nurse**), fully informed **consent** of a *sui juris* beneficiary, **s. 61 Trustee Act 1925** relief (honest + reasonable + ought fairly to be excused), and **limitation**. 6) **Limitation**: **six years** from the breach (**s. 21 Limitation Act 1980**), but **no limit** for **fraudulent** breaches or to recover trust property/proceeds still held by the trustee; time runs from majority/possession for future interests.