Commission reviews trustees' liability

Discussion paper proposes to restrict scope for personal liability

News, 9 May 2008

Trustees should have greater protection from the law, with fewer instances where personal liability is proposed, according to the Scottish Law Commission.

A new discussion paper (Liability of Trustees to Third Parties, no 138) suggests that the fact that trustees' personal assets are put at risk in many situations is resulting in an increasing reluctance by individuals to take on trusteeships.

In contract, in place of the present rule that requires trustees expressly to contract out of personal liability, the Commission proposes that personal liability should be avoided whenever trustees disclose their representative capacity, or the other party is otherwise aware that they are so acting.

It also suggests that an onerous transaction should be unchallengeable on the ground that it was at variance with the terms and purposes of the trust, and asks whether this should be conditional on good faith by the other contracting party.

The Commission also suggests that trustees' personal assets should not be at risk in actions arising from the negligence of employees or agents of the trust, unless the trustees were personally at fault. In that case it would still be open to the court to award damages partly from the trust property.

A third set of proposals concerns liability for the expenses of litigation, where the Commission asks whether too much is left to the discretion of the court and new rules should be devised. It also puts forward that a procedure might be introduced for trustees to obtain prior authority to bring proceedings, which would confer immunity from personal liability.

The discussion paper, the seventh in the Commission's trust law review programme, can be viewed at www.scotlawcom.gov.uk . Comments are invited by 31 August 2008.