Armitage v Nurse

Armitage v Nurse

[1997] 2 All E.R. 705, Independent, 11 Apr 97
Court of Appeal

A clause in a settlement excluding the trustees from liability for loss or damage to the capital or income of the trust property unless caused by their own actual fraud was not void, either for repugnancy or as contrary to pubic policy. The facts suggested incompetence on the part of the trustees, and possibly negligence or even gross negligence, but not necessarily fraud, and the trustees successfully relied on the clause. There was also a (separate) allegation of a deliberate breach of trust, but no suggestion that it was other than intended to be in the interests of the beneficiary. Again, the trustees were able to rely on the clause.

In interpreting the clause, a definition of fraud was adopted similar to that from Derry v. Peek (1889) 14 App. Cas. 337, rather than any more broadly defined equitable fraud (on which see e.g. Nocton v Ashburton [1914] AC 932). The formulation was accepted by Millett LJ that actual fraud

"... connotes at the minimum an intention on the part of the trustee to pursue a particular course of action, either knowing that it is contrary to the interests of the beneficiaries or being recklessly indifferent whether it is contrary to their interests or not".

It was also accepted that there was no reason why the courts would not also give effect to a clause exempting the trustees from all liability even for wilful default, Millett LJ adopting for these purposes Maugham J's formulation in Re Vickery at p. 583, that the trustee must be

"conscious that, in doing the act complained of or in omitting to do the act which it said he ought to have done, he is committing a breach of his duty, or is recklessly careless whether it is a breach of his duty or not"

A similar definition of fraud to that set out above was adopted in relation to section 21(1)(a) of the Limitation Act 1980, which provides that:

"No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action -

(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy."

The effect of this section is to remove the limitation defence in the circumstances set out - it did not apply in Armitage v Nurse.

Observations:

1. Re Vickery was an interpretation of s. 30 of the Trustee Act 1925, which exempted trustees for liability except for wilful default.

2. The adoption in Re Vickery of a common law definition of wilful default had led to criticism of the case, but Millett LJ supports the decision.

3. Wilful default differs from fraud because even a deliberate breach of trust (which would constitute wilful default) may not necessarily be contrary to the interests of the beneficiaries (as required by the fraud definition above).

4. The clause under consideration protected the trustees only against liability for any loss or damage - it would not have prevented the beneficiaries setting aside a sale, or bringing an account of profits remedy, should such a remedy otherwise have been available (presumably in the case itself there was only a loss to the trust, and no profit made by the trustees.

5. It is not clear whether a similar view of dishonesty would be required to found knowing assistance liability, but citation with approval of Belmont Finance Ltd. v Williams Furniture Ltd. [1979] Ch. 250 suggests that it might.

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This page was last updated on 21 June 98.

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