The varying liabilities of a trustee

Trustees play a crucial role in managing assets and safeguarding the interests of beneficiaries. However, the extent of a trustee's duties and liabilities can vary depending on the negotiated terms between the settlor (the donor) and the trustee. One significant aspect that has emerged from case law is the concept of ‘anti-Bartlett clauses’, which limit a trustee's duties and potential liability. 

Here we explore how these clauses came about, their implications for trustees, and recent legal developments in this area.

The origin of anti-Bartlett clauses 

The case of Bartlett v Barclays Bank Trust Co Ltd [1980] Ch 515 focused attention on the potential range of liability faced by trustees. In this case, a trustee failed to intervene in a speculative building project, this led to substantial losses for the trust. The judge ruled that the trustee should be allowed to offset the loss with a gain from a different investment. As a result of the ruling, draftspersons of trusts began to utilise anti-Bartlett clauses which limit a trustee’s duty of supervision over controlled underlying companies.

Understanding anti-Bartlett clauses

An anti-Bartlett clause typically states that the trustee is not bound or required to interfere in the management or conduct of a company in which the trust fund is invested. The trustee can leave the management to the company's directors without being liable for any resulting loss, as long as they have no actual knowledge of fraud or dishonesty. These clauses aim to shield trustees from liability when they have no breach of duty, thus preserving the negotiated terms of the trusteeship.

IQEQ (NTC) Trustees Asia (Jersey) Ltd v Arboit and Sutton [2019] HKFCA 45: In the case of IQEQ, the Hong Kong High Court and Court of Appeal upheld an anti-Bartlett clause, rejecting the existence of a residual obligation for a trustee to intervene in certain circumstances. The Court of Final Appeal firmly stated that such an obligation is inconsistent with the purpose of anti-Bartlett provisions. This ruling emphasised the importance of respecting the terms agreed upon between the settlor and trustee in determining the trustee's duties and liabilities.

Obligation to intervene

While anti-Bartlett clauses limit a trustee's duties, they cannot completely override the core obligation to intervene when the trustee has actual knowledge of dishonesty. Trust law maintains that trustees must act if they possess such knowledge, regardless of any exoneration clauses in place. This ensures that trustees cannot evade responsibility in cases of dishonesty.

Onus of proof

When a trustee tries to rely on an exoneration clause, it is the claimant's burden to prove that the trustee had actual knowledge of dishonesty, thus nullifying the protection provided by the clause. The statement of claim must provide full particulars of the trustee's actual knowledge, which requires an understanding of what constitutes such knowledge. Recent case law emphasises that blind-eye knowledge, where a person deliberately avoids confirming suspicious facts, can be considered as actual knowledge.

The implications for donors and trustees

The case of IQEQ highlights the importance of the donor's role in determining the extent of their bounty for beneficiaries. When creating a trust, both the settlor and trustee have the right to negotiate and agree upon the terms of the trusteeship. The level of risk involved in implementing the settlor's investment strategy should be considered, with anti-Bartlett clauses providing protection for trustees taking on such risky ventures. Once the terms have been agreed upon, beneficiaries cannot challenge the extent of the trustee's duties as determined by the Trust Deed.

Crucial protection whilst not removing core obligations

Anti-Bartlett clauses have become an important tool in trust planning, allowing donors and trustees to define the scope of a trustee's duties and potential liability. While these clauses provide crucial protection for trustees, they cannot absolve them of their core obligation to intervene in cases of dishonesty. The recent case of IQEQ reaffirmed the importance of respecting the negotiated terms of a trusteeship, emphasising that donors have the authority to shape the extent of their gifts to beneficiaries. By understanding the implications of anti-Bartlett clauses, both donors and trustees can navigate the complex landscape of trust law and protect their respective interests.