Summary

The court considered the proper interpretation of an exoneration clause contained in a will to relieve trustees under trusts set out in the will of personal liability in respect of certain breaches of duty by them.

Facts

The appellants (B and G) appealed against the dismissal of their claim for equitable compensation against the respondent (P).

P and his brother had owned a business and property portfolio. Following the brother's death, P and the appellants were appointed as executors. Negotiations for a demerger took place with the aim of dividing the organisation so that, broadly, P acquired the business assets and G acquired the property assets. Prior to the demerger it was discovered that some of the businesses had possible claims for VAT repayments arising from judgments pending in the ECJ. Following the demerger, the appellants considered that P had misled them as to the value of the VAT repayment claims that he would acquire as part of the business assets. The appellants contended that P had acted in breach of fiduciary duty by acting in breach of the self-dealing rule and failing to disclose all relevant information concerning the VAT repayment to them. The court held that P was covered by an exoneration clause which stated that "in the professed execution of the trusts ... no trustee shall be liable for any loss to the trust premises arising by reason of any improper investment made in good faith ... or by reason of any other matter or thing except wilful and individual fraud or wrongdoing on the part of the trustee ...".

The appellants argued that (1) the exoneration clause did not apply to the self-dealing rule because only the transactions clause modified the impact of that rule; (2) the exoneration clause did not apply because P had not acted "in the professed execution of the trusts and powers" of the will; (3) in giving effect to the demerger, P had engaged in "wilful and individual fraud or wrongdoing" and could not rely on the exoneration clause, and "wilful" translated to "intentional".

Held

(1) (Per The Chancellor of the High Court) The exoneration clause in the instant case was in common use and, up to the final proviso, was to be found in the Encyclopedia of Forms and Precedents. It was untenable to argue that it had no application because the transactions clause was a self-contained code on self-dealing. The transactions clause and the exoneration clause addressed different matters. The former conferred powers of self-dealing if the conditions therein were satisfied. If the conditions were not satisfied, the transaction was voidable by any beneficiary as of right. The latter, as appeared from its express wording, addressed the issue of personal liability of the defaulting trustee for loss to the trust consequent on breach of the trustee's duty (see paras 46-47 of judgment).

(2) The appellants' argument that P had never consciously thought that he was acting pursuant to the transactions clause in the discussions and decisions concerning the treatment of the VAT repayments in the context of the demerger was incorrect in fact and law. That argument would turn the analysis in Walker v Stones [2001] Q.B. 902 on its head by depriving an honest and conscientious non-professional trustee, who acted without a particular provision of the trust deed in mind, of the benefit of the exoneration clause even though the breach of trust was entirely unconscious or accidental, Walker considered. The only capacity P thought he was acting in was as executor of the will. The discussion with B and the decision about entitlement to the VAT repayments took place in the context of the demerger for the purposes of administering the estate. Further, P formally and expressly executed the relevant documents relating to the demerger in his capacity as executor (paras 48-51)..

(3) The meaning of the words "wilful wrongdoing" required an awareness of wrongdoing, Armitage v Nurse [1998] Ch. 241 considered. The fact that "wilful" governed "fraud" as well as "wrongdoing" supported the conclusion that "wilful" imported a requirement of conscious wrongdoing. The expression "wilful fraud" in the exoneration clause made it clear that such conduct would only fall outside the scope of the clause if it had been carried out with awareness that it was wrongful. The exoneration clause divided into five parts: (a) an improper investment made in good faith; (b) the negligence or fraud of any agent employed by the trustee; (c) any mistake or omission made in good faith by the trustee; (d) any other matter or thing except wilful and individual fraud; (e) provided that nothing exonerates a remunerated professional trustee from liability for negligence or other wrongdoing. The appellants' interpretation produced an inconsistency between (a) and (c) on one hand, and (d) on the other. If that was correct, the trustee was not exonerated in relation to any other breach of duty if the act was intentional, even if the trustee acted in complete honesty and good faith and even in reliance on legal advice. There was no logic to such a distinction. Further, since (d) comprised the largest category of breaches, it would deprive a non-professional trustee of the most practical benefit of the exoneration clause. P had not deliberately held back information from B knowing that he ought to disclose it, and he was not deliberately or consciously acting in a way he knew to be wrong (paras 54-67), Walker considered.

Appeal dismissed