In a potential landmark UK trust law ruling involving a Guernsey-based vehicle, the Privy Council has ruled that trustees can be freed from their own gross negligence without breaking duties to act as a “good father” figure, according to law firm Carey Olsen which gave a commentary on the case.

The ruling overturned a previous decision by a Guernsey court that said that the duty on trustees to act “en bon père de famille” (as a good father) was incompatible with the trustee seeking to exonerate itself from its own acts of gross negligence by a provision in the settlement deed.

The Privy Council – a senior UK judicial body that can hear cases from jurisdictions such as Guernsey – heard the appeal by Spread Trust Company against Sarah Ann Acato Hutcheson and others. It ruled in favour of the trustees last week.

According to a press statement from the Privy Council: “The issue raised by the appeal is whether it was permissible for a trust deed to exclude a trustee’s liability for gross negligence prior to the entry into force of the Trusts (Amendment) (Guernsey) Law 1990 (the Amendment Law), which expressly prohibited such an exclusion."

Acting for the trust’s beneficiaries, Carey Olsen advocate John Greenfield said the case itself concerned the effect of a clause in a long-established Guernsey trust deed seeking to exonerate the trustees from certain liabilities, including gross negligence. The trust was established before statutory legislation was brought in which prevented trustees from building exoneration of this type into the trust deeds.

“At the heart of the matter is that the beneficiaries’ complained that the trustees failed to adequately diversify investment of trust funds and we argued that the trustees were in breach of trust by this action,” Greenfield said.

“The case will be a major aid to legal advisors in assessing the chances of a claim being successful against trustees. For trustees themselves that exoneration clause, depending on where the trustees’ conduct comes in on the sliding scale, looks as though it will indeed be worth the paper it is written on," he said. 

The Guernsey Court had ruled that the duty imposed on Guernsey trustees to act “en bon père de famille” (as a good father) was incompatible with the trustee at the same time seeking to exonerate itself from its own acts of gross negligence by a provision in the settlement deed.

“The council’s decision clearly narrows the meaning of this provision which has its roots in Norman customary law and is part of Guernsey’s statutory legislation; it has reduced one long-established distinction between English and Guernsey trust law,” Carey Olsen said in its statement including Greenfield's comments.

“The Privy Council decision covers some very important and complex issues of trust law that have significance not only for professional trustees and legal practitioners in the Channel Islands but also in the UK and elsewhere,” said Greenfield.