Consequences of Breaching Duties as a Commercial Trustee in England

If you serve as a trustee in a commercial capacity, you have certain duties which you must obey. This article will briefly outline your duties as a commercial trustee and consider the consequences of breaching these duties. 

Trustee Duties

All trustees, regardless of whether they are commercial trustees, owe several responsibilities to the trust and its beneficiaries. If you breach these duties, depending on the nature of the breach and its effect, you can face consequences as a trustee.

We outline the core duties of trustees below.

Duty of Care 

There is a general duty of care to act with utmost good faith in all dealings with and on behalf of the trust. In effect, the law requires you to make decisions for the trust with the same level of prudence and intent that you would exercise if you were making a commercial decision on your own behalf. 

Complying with the Trust Instrument 

The trust instrument is a document setting out the terms of the trusts and specifying how the trustees should manage the trust property. 

As a trustee, you must always comply with the trust instrument. For instance, if there is a term that states you cannot invest the trust money in tobacco companies or weapons manufacturers, you must comply with this term. 

Managing and Investing the Trust Assets 

The point of all trusts is for the trust property to grow. Sometimes, the trust instrument may not explicitly mention a responsibility to invest. Nevertheless, the law imposes a requirement on trustees to invest the trust property in suitable investments, depending on the beneficiaries’ entitlement to the trust property. Therefore, if you simply let the trust property sit in a bank account that pays a minimal interest amount, this would likely be a breach of your duties as a trustee. 

Acting with the Beneficiaries’ Interest in Mind 

Additionally, you must keep the beneficiaries in mind when acting for the trust. For instance, if you know one of the beneficiaries will be entitled to their share of the trust property in a year, but you invest all of the trust property in speculative shares, you would be breaching this duty. 

Acting Impartially 

You cannot show any favouritism or preference between the beneficiaries. Subject to the terms of the trust, you must treat them all the same.

Avoiding Conflicts of Interest 

Another duty is to avoid your personal interests conflicting with the interests of the trust. It does not matter if your intentions are pure. The law is strict about this duty. 

Examples of conflicts of interest include:

• selling your personal property to the trust or buying property from the trust; or
• using the information you gained as a trustee to your own benefit. 

Keeping Records 

You must keep track of all dealings with the trust property. In some cases, the beneficiaries can inspect certain records, like the trust’s accounts. You must make this available to them if they so request.

Avoiding Fraud and Dishonesty

As you can probably guess, if someone steals from a trust or behaves dishonestly, this is the most severe breach of trust and can carry severe civil and criminal consequences.

Consequences of Breaching your Trustee Duties 

In general, you must not cause loss to the trust for the beneficiaries or other trustees. Otherwise, you risk breaching your duties and facing a claim. 

For instance, if you make a speculative investment contrary to the interests of the beneficiaries, this is technically a breach of your duties. However, if you later sell the shares and do not lose any money, it is unlikely that you would be held liable. 

If you do cause a loss to the trust, the court has the power to impose several different penalties, including:

• holding you personally liable, meaning you will have to pay for the damage out of your own pocket;
• ordering you to cease acting in a certain way by issuing an injunction; and 
• if you have acted fraudulently, holding you criminally liable. 

Defences 

There are three possible defences to a breach of trust claim. First, the claim against you is outside the statutory (lawful) time limit to bring a claim. This is usually six years from the date of the breach of duty. However, note that this limitation period does not apply to fraudulent actions.

Another defence is that the trust instrument grants you an exemption from any personal liability. 

Further, a court may conclude that you acted honestly and reasonably and that you should be excused. 

Key Takeaways

Trustees have a general duty to exercise due care when fulfilling their role as a commercial trustee. Additionally, several other duties include properly investing the trust property and acting fairly to the beneficiaries. If you breach these duties, you can be held personally liable and may have to pay the trust back to make it whole again. There are limited defences to breaching the trust. 

For further information on the consequences of breaching your trustee duties, our experienced corporate lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. So call us today at 0808 196 8584 or visit our membership page.

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