Spread Trustee Company Ltd v Hutcheson and Others

JurisdictionUK Non-devolved
JudgeLADY HALE,LORD KERR,LORD CLARKE,LORD MANCE
Judgment Date15 June 2011
Neutral Citation[2011] UKPC 13
Date15 June 2011
Docket NumberAppeal No 0007 of 2010
CourtPrivy Council
Spread Trustee Company Limited
(Appellant)
and
Sarah Ann Hutcheson

& Others

(Respondent)

[2011] UKPC 13

before

Lady Hale

Lord Mance

Lord Kerr

Lord Clarke

Sir Robin Auld

Appeal No 0007 of 2010

Privy Council

Appellant

Phillip Jones QC

Jonathan Harris

David Johnston QC

Simon Howitt

(Instructed by Mayer Brown International LLP)

Respondent

Robert Hildyard QC

John Stephens

(Instructed by Harcus Sinclair)

LORD CLARKE

Introduction

1

This is the judgment of the Board with which Lord Mance and Sir Robin Auld have agreed but to which they have added concurring judgments, with which I agree.

2

On 22 April 1989 there came into force in Guernsey the Trusts (Guernsey) Law 1989 ("the 1989 Law"), which for the first time made statutory provision for Guernsey trusts. It provided by section 34(7):

"Nothing in the terms of a trust shall relieve a trustee of liability for a breach of trust arising from his own fraud or wilful misconduct."

Subsection (7) was amended by section 1(f) of the Trusts (Amendment) (Guernsey) Law 1990 ("the Amendment Law") by the addition of the words "or gross negligence" at the end. The Amendment Law came into force on 19 February 1991.

3

In the proceedings which have given rise to this appeal the respondents ("the beneficiaries") claim damages for breaches of trust in connection with two settlements made in November 1977. The claims are made against the appellant trustee company ("the trustee"), which is a professional trustee and was appointed as the sole trustee of the settlements on 10 July 1990. The beneficiaries allege that the trustee failed to identify and investigate breaches of trust on the part of previous trustees, some of which occurred before 22 April 1989 and some between 22 April 1989 and 10 July 1990. It appears that these allegations involve or may involve the question whether there were such breaches of trust on the part of the previous trustees. Some of the breaches of trust alleged directly against the trustee occurred between 10 July 1990 and 18 February 1991 and some occurred thereafter. The total claim is now just under £53.5m together with interest. It is not necessary to investigate the facts relevant to either liability or quantum in order to resolve the issues in this appeal.

4

Two issues were ordered to be tried as preliminary issues, which were somewhat inelegantly framed as follows:

  • i) whether the inability of the terms of a trust to relieve a trustee of liability for a breach of trust arising from his own gross negligence applies to breaches of trust occurring prior to 19 February 1991; and

  • ii) if it does, whether it applies to breaches of trust occurring prior to 22 April 1989.

5

Each of the settlements contained an exclusion or exoneration clause in these terms:

"In the execution of the trusts and powers hereof no trustee shall be liable for any loss to the Trust Fund arising in consequence of the failure depreciation or loss of any investments made in good faith or by reason of any mistake or omission made in good faith or of any other matter or thing except wilful and individual fraud and wrongdoing on the part of the trustee who is sought to be made liable."

The beneficiaries allege breaches of trust resulting, inter alia, from acts of gross negligence.

6

The preliminary issues were first heard and determined by Lieutenant Bailiff Sir de Vic Carey. He answered both preliminary issues in the affirmative. The trustee appealed to the Court of Appeal in Guernsey. The Court of Appeal, comprising Mr John Martin QC, Mr Geoffrey Vos QC and Ms Clare Montgomery QC, dismissed the appeal and refused permission to appeal to the Privy Council. Permission was however subsequently granted by the Judicial Committee.

First instance

7

Before the Lieutenant Bailiff it was common ground that, before the 1989 Law came into force, the law of Guernsey permitted a trust instrument to exclude liability for negligence or gross negligence but not liability for fraud or wilful misconduct. The issue between the parties was whether the Amendment Law was retrospective in effect so as to preclude the trustee from relying on the clauses as exonerating gross negligence in respect of any breaches of trust which had occurred before 19 February 1991 when the Amendment Law came into force. The beneficiaries argued that the legislation applied retrospectively to all such breaches of trust. The trustee argued that it did not.

8

The Lieutenant Bailiff answered both preliminary issues in the affirmative, but he did so on the basis of his own analysis of the position, which can be summarised in this way. Section 18(1) of the 1989 Law provides:

"(1) A trustee shall, in the exercise of his functions, observe the utmost good faith and act en bon pere de famille."

That provision is declaratory of the existing law. Before 1989 the responsibility of a paid trustee could not have been less than that of a person appointed by the court as tuteur or guardian of a minor. He then quoted at para 57 of his judgment an extract from the judgment of de Sausmarez B in the matter of Count Lothair Blucher von Wahlstatt in 1928, as translated in Dawes' "Laws of Guernsey" at p 124. The extract included this:

"They (Tuteurs)

… have the duty to oversee the maintenance, welfare and education of the said minors, according to their station, and full power and authority to hold, possess, manage and administer (acting always as a prudent head of the family) and to divide and determine the movable and immovable assets of the said minors and to invest and alter the investment of the said minors' monies and to approve and sign all legal documentation and instruments to the above effect…"

9

The Lieutenant Bailiff expressed his conclusions in paras 58 and 59 as follows:

"58. I cannot countenance the argument that the obligation to act en bon pere de famille did not attach to a paid trustee in the discharge of his duties as a trustee of a Guernsey trust established prior to 1989. Like section 34(7) in its original form section 18(1) was declaratory of the then existing law. Acting with gross negligence in the discharge of one's duties as a trustee cannot, in my judgment be compatible with acting en bon pere de famille.

59. I further cannot see how any clause in a Trust Deed completed before 1989, which purported to discharge a trustee from liability to the trust for failures to act en bon pere de famille could have been upheld by the Court. I conclude therefore that the change of emphasis introduced by the 1990 Law clarifying that a Trustee could not exclude liability for acts of gross negligence was a minor change. I have alluded to the uncertainty of the law defining the parameters between gross negligence and negligence, but it may well be that defining the extent of the duty to act en bon père de famille could be equally fraught with difficulty."

At para 60 he rejected the submission that it was unfair to hold that the effect of section 34(7) as amended was to negative the effect of the exoneration clause in respect of earlier failings of the trustee. He answered both preliminary questions in the affirmative.

10

It is accepted on behalf of the beneficiaries and was held by the Court of Appeal that the Lieutenant Bailiff's reasoning cannot be accepted. It proves too much. It confuses the content of the duty of the trustee under section 18(1) of the 1989 Law with the extent to which a trust instrument can relieve a trustee from liability for failure to comply with his duty. It is no doubt the duty of a trustee under the section to act prudently and thus to exercise all reasonable care and skill to be expected of a trustee. If the Lieutenant Bailiff's analysis were correct it would not be possible in law to exclude liability in respect of any breach of trust, as for example to exclude negligence. Yet it is common ground between the parties that a clause excluding what may be called ordinary negligence is and was always_in principle valid and enforceable under the law of Guernsey.

The Court of Appeal

11

The judgment of the Court of Appeal was given by Martin JA. It dismissed the appeal. Accordingly, like the Lieutenant Bailiff, it answered both preliminary issues in the affirmative. Its reasoning was not, however, the same as that of the Lieutenant Bailiff. It may, in very brief terms, be summarised in this way.

The issues

  • i) Neither section 34(7) of the 1989 Law, as originally enacted, nor section 34(7) as amended by the Amendment Law, applied as such to breaches of trust committed before the dates on which those enactments took effect, namely 22 April 1989 and 19 February 1991 respectively: para 38.

  • ii) The position under English law as to whether an exemption clause could validly exclude liability for gross negligence was, as at 1989, at best unclear, and a Guernsey lawyer asked to advise at that time on the position under English law would have been as likely as not to have come to the conclusion that under English law it was not possible for a trustee to avoid liability for gross negligence: paras 13, 25 and 26.

  • iii) The position under Scottish law was clear: as a matter of general principle it was not possible for a trust deed to exclude liability for culpa lata, that is for gross negligence: para 26.

  • iv) In any event, even if English law had permitted the exclusion of liability for gross negligence in 1989, such a principle was inconsistent with Guernsey customary law: para 34.

  • v) Although there was no Guernsey case or text prior to 1989 that said that a clause in a trust deed which excluded liability for gross negligence was invalid (or indeed valid), Guernsey customary law would have followed the Scottish model, based as it was on the civilian law maxim culpa lata dolo aequiparatur (gross negligence is equivalent to fraud) and because Guernsey had a mixed legal system like...

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