Spread Trustee Company Ltd v Hutcheson
[2011] UKPC 13
Independent editorial summary — not the official judgment. Read the full judgment via the source link.
Ratio Decidendi
A trustee exemption clause that excludes liability for gross negligence, as opposed to dishonesty or wilful misconduct, is not contrary to public policy and is capable of being valid and enforceable; a later statutory amendment removing that freedom does not apply retrospectively to breaches of trust that occurred before the amendment came into force absent clear words.
Facts
The beneficiaries of two Guernsey trust settlements made in 1977 claimed just under £53.5m in damages from Spread Trustee Company, alleging it had failed to identify and investigate breaches of trust by previous trustees, including breaches said to have occurred before the Trusts (Amendment) (Guernsey) Law 1990 came into force on 19 February 1991. That 1990 amendment added gross negligence to the matters a Guernsey trust instrument could not exclude. Spread relied on an exoneration clause in the trust instruments excusing it from liability for anything except 'wilful and individual fraud and wrongdoing.' Two preliminary issues were tried: whether the 1990 amendment applied retrospectively to breaches occurring before it came into force, and if so whether it reached back even further, before the original 1989 Guernsey trusts law.
Judgment Summary
By a majority, the Privy Council allowed the trustee's appeal and answered the first preliminary issue in the negative. The Board held that, before the Guernsey legislature intervened in 1990, Guernsey customary law -- following English law as stated by the Court of Appeal in Armitage v Nurse -- permitted a trust instrument to exclude a trustee's liability for gross negligence, short of dishonesty or wilful misconduct, and that such an exclusion is not contrary to public policy. It followed that the 1990 amendment did not apply retrospectively to breaches of trust that occurred before it came into force.
Key Quotes
"But I think it improbable that they would be read as involving or giving rise to an absolutely inflexible rule, effectively one of public policy, precluding any trustee from exempting him, her or itself from liability for gross negligence not involving either subjective dishonesty or recklessness or dishonesty in the extended and partially objective sense recognised in this context in Walker v Stones ."
— Lord Mance(verbatim, verified against the judgment)
Subsequent Treatment
Considered in Law Commission recommendations on trustee exemption clauses.
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