Analysis
Privy Council (Lady Hale, Lord Mance, Lord Kerr, Lord Clarke and Sir Robin Auld)
The respondents made claims for breach of trust against the appellant in respect of breaches that occurred in Guernsey at a time when Guernsey customary law governed the duties of Guernsey trustees and also after the introduction of the Trusts (Guernsey) Law 1989 (the 1989 Law), but before that law was amended by the Trusts (Amendment) (Guernsey) Law 1990 (the 1990 Law). The trust instrument included an exoneration clause in respect of negligence by the trustee and the issue in the case was whether such an exoneration clause could extend to breaches of duty which were grossly negligent. The 1990 Law made the position clear; the exoneration clauses could not extend to gross negligence.
At first instance Lieutenant Bailiff Sir de Vic Carey held that the trustee could not be exonerated for breaches of trust which were grossly negligent either under the Guernsey customary law or under the un-amended 1989 Act. Although it had been common ground that Guernsey customary law permitted the exclusion of liability for negligence (including gross negligence) and the issue between the parties was whether the 1990 Law was retrospective, the Lieutenant Bailiff decided the matter on the basis of his own analysis, that under Guernsey customary law a trustee must act, inter alia, en bon père de famille. This duty was incompatible with the exoneration of a trustee for gross negligence and therefore Guernsey customary law did not permit exoneration of liability for gross negligence.
The Court of Appeal in Guernsey (John Martin QC, Geoffrey Vos QC and Clare Montgomery QC) dismissed the appeal. It was accepted by the beneficiaries that the Lieutenant Bailiff’s reasoning could not be sustained as it confused the content of the duty with exoneration for breach of duty and proved too much because it meant that liability could not be excluded for negligence at all under Guernsey law and that is patently not the case. The Court of Appeal held that neither relevant sections of the 1989 Law (s34(7)), nor the 1990 Law were retrospective. At the time prior to 1989 the English law on the subject of whether liability for gross negligence could be excluded was unclear; however the position under Scottish law was clear (liability could not be excluded). In any event, if English law permitted the exclusion of liability for gross negligence this was inconsistent with Guernsey customary law because this would have followed the Scottish law as it was based on the civilian law maxim culpa lata dolo aequiparatur (gross negligence is equivalent to fraud) as both Guernsey and Scotland are mixed legal systems with civilian and common law origins. It was a mistake that s34(7) of the 1989 Law did not expressly prevent the exclusion of liability for gross negligence, but in any event that section did prevent the exclusion of liability for gross negligence because gross negligence is equivalent to fraud.
Held (Lady Hale and Lord Kerr dissenting) – allowing the appeal
- In the context of a trusteeship the duty to act en bon père de famille was a duty to act as a prudent man of business, ie to act as a reasonable and prudent trustee would, that is with reasonable care and skill.
- Section 34(7) of the 1989 Law is clear: the terms of a trust could not lawfully include a term excluding the trustee’s liability for breach of his obligation to act en bon père de famille arising out of his own fraud or wilful misconduct. It is implicit that a trustee could relieve a trustee for a breach of trust arising from other causes. Therefore, it could relieve a trustee for a breach of trust arising from negligence or gross negligence.
- The failure to include a prohibition on relief of trustees for gross negligence under s34(7) of the 1989 Law was not a mistake, rather the 1990 Law was derived from amendments to the law of Jersey.
- Equally, under Guernsey customary law it was permissible to exonerate both negligent and grossly negligent breaches of duty by a trustee. There was no basis for the Guernsey Court of Appeal concluding that, as a matter of construction, the prohibition of a term excluding fraud also prohibits a term excluding gross negligence on the basis of the maxim culpa lata dolo aequiparatur. If the draftsman had intended this he would have prohibited such exclusion expressly.
- Moreover, as in Stuart-Hutcheson v Spread Trustee Co Ltd [2002] WTLR 1213, it is likely that before 1989 the Guernsey Courts would have been more likely to follow English law than Scots law. If they had done so they would have come to the same conclusion as Millett LJ did in Armitage v Nurse [1998] Ch 241, ie that it was permissible under English law to exclude liability for both negligence and gross negligence, which is an accurate description of English law. However, Millett LJ was wrong to suggest the relevant Scottish law is not clear; it is: exoneration for mere negligence is permitted but exoneration for gross negligence is not permitted.
- The suggestion that the duty to act en bon père de famille is, or may be, a fiduciary duty does not make any difference. Where what is alleged against a trustee is breach of the duty of care owed to the beneficiaries by the trustee, the fiduciary duties of the trustee are of no relevance. Nothing in the fiduciary duties owed by the trustees alters the standard of the duty of care owed by it. The suggestion that the standard of the duty of care owed by the trustee is somehow elevated by reference to the concomitant fiduciary duties elides the fundamental distinction between the fiduciary duties owed by the trustee on the one hand and the duty to exercise care and skill owed by the trustee on the other. The exemption from liability in respect of a trustee’s gross negligence is not inimical to the fiduciary duties owed by a trustee for the simple reason that the absence of honesty and good faith inherent in the failure to perform fiduciary duties would take such conduct outside the scope of such an exemption.
- The 1989 Law was not retrospective. The general position is that laws are not retrospective; there is nothing in the express terms of either the 1989 Law or the 1990 Law that expressly provides that it prohibits reliance on a clause in a trust which was valid when made and at the time of the alleged breach of trust. If that had been intended the meaning would have been made clear in the law. Furthermore, s39(7) of the currently in force Trust (Guernsey) Law 2007 equally does not have retrospective effect.
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