Chapter 3 – Powers and duties of trustees
Powers: general
31.Section 15 implements recommendation 15 in the Report on Trust Law. Subsection (1) sets out that the trustees have, in relation to the trust property, all the powers of a natural person beneficially entitled to the property. It is a default provision, applying to trustees unless the trust deed expressly provides otherwise, the context requires or implies otherwise in a case where there is no trust deed, or there are other statutory restrictions or exclusions (by subsections (1) and (2)(c), respectively). Trustees are given very broad powers, which are essentially those which they would have if they owned the trust property for their own benefit rather than for the benefit of the beneficiaries. This replaces the current list of specific powers set out in section 4(1) of the 1921 Act. Importantly, however, subsection (2) provides that all powers which a trustee enjoys are subject to a number of duties, notably the trustee’s fiduciary duty and duty of care. The Act makes further provision on both of these: for example, section 34 specifies the narrow extent to which fiduciary duties may be limited, and section 31 provides for duty of care.
32.Section 16 implements recommendation 17 in the Report on Trust Law. It allows the Court of Session to grant trustees additional powers of administration or management of the trust property where satisfied that that would be of benefit to the future administration or management of the trust property. Given the breadth of the default general power set out in section 15, this provision will not generally be needed. It will, however, be useful where, for example, the truster has decided to restrict the trustees’ powers and it subsequently becomes clear that additional powers of administration or management would be expedient. Subsection (1) provides that the trustees may apply to the court, and the application must be intimated to such other people as provided by subsections (3) to (5). If the court is satisfied as to the benefit of the power which is sought it may grant it, subject to such conditions as it may choose to impose under subsection (6).
33.Section 17 of the Act implements recommendation 56 in the Report on Trust Law. In order to provide clarity which the current law lacks, this section provides that trustees may insure themselves, at the trust’s expense, against personal liability arising from their actions as a trustee. To avoid any doubt, subsection (2) states that an intentional decision not to act is to be treated equally with an action for these purposes. This is a default provision and applies to a trust unless the trust deed provides otherwise.
Investment
34.Sections 18 and 19 of the Act implement recommendation 18 in the Report on Trust Law.
35.Section 18 of the Act is based on the investment powers of trustees in section 4 of the 1921 Act, in so far as it was amended by section 93 of the Charities and Trustee Investment (Scotland) Act 2005 (“
36.Section 19 of the Act is mandatory, and re-enacts section 4A of the 1921 Act, as inserted by section 94 of the 2005 Act. It applies irrespective of when the trust was created (subsection (5)). Trustees are required to exercise a duty of care in the execution of all their functions, which is provided, generally, by section 31 of the Act. Section 19 specifies the particular duty of care which additionally applies when exercising powers of investment. One aspect of that duty, arising from the common law, is that trustees are required to consider the interests of all the beneficiaries, and in particular to balance the interests of liferenters and fiars, and to keep the trust investments under review (Clarke v Clarke’s Trustees 1925 SC 693, 711). Subsection (1) applies when trustees are proposing to make an investment. They are required to have regard to the suitability of what is proposed. This relates both to the kind of investment under consideration and to the particular investment as an investment of that kind. It will include considerations as to the size and risk of the investment and the need to produce an appropriate balance between income and capital growth for the trust. In addition, trustees are to take “proper advice”, unless subsection (3) applies. Subsection (2) applies to trustees when reviewing the trust investments. As under subsection (1), they are to take “proper advice”, except where subsection (3) applies. By subsection (4), the person from whom “proper advice” is to be taken is a person with expertise which is related to the type of investment under consideration. Thus for investment in shares and other financial instruments, advice would normally be sought from a stockbroker or other professional investment adviser. But trustees running a farm might need advice from an agricultural expert about a proposed acquisition of a herd of cows. By way of exception to the duty in subsections (1) and (2), subsection (3) provides that trustees need not obtain advice if in all the circumstances it would be unnecessary or inappropriate. For example, if the trust has limited funds it could be inappropriate for the trustees to get advice before placing the money in an interest-bearing account. Although there is no longer a requirement that the advice be given or confirmed in writing, as was the case under section 6(5) of the Trustee Investments Act 1961 (“
37.Section 20 of the Act elaborates on the powers in sections 18 and 19. It is a default provision which applies unless the trust deed, expressly or by implication, provides otherwise. It reflects (and places on a statutory basis) what was understood to be the common law position, taking account of case law on the exercise of trustees’ powers of investment.(9) Fundamentally, whether an investment is “suitable” to the trust must be assessed against the purposes of the trust for the beneficiaries (as set out in the trust deed or as implied or required by the context where there is no trust deed). However, where there is more than one suitable investment, trustees can take into account non-financial considerations when determining which investment to make, provided they also take proper advice on the investment.
38.Ethical, social and environmental considerations (sometimes known as “ESG” or environmental, social and governance factors) are explicitly stated examples of such non-financial considerations, although these do not exhaust the kinds of non-financial considerations that may be taken into account. For example, if there are two investments which are in line with the trust purposes then this provision gives trustees the flexibility to choose to invest in the investment that has better ESG credentials. This section applies to trusts created after the section comes into force.
Sale of property
39.Section 21(10) provides that the trustees of a charitable trust are not under a duty to achieve the best value for heritable property (for example, housing) when selling to a charity, except to the extent that the trust deed expressly or impliedly provides otherwise (subsection (1)). A “charity” is defined in subsection (3) as an entity registered in the Scottish Charity Register (or the equivalent in England and Wales or Northern Ireland), enabling a purchasing charity registered elsewhere in the UK to rely on this provision. Subsection (2) serves as a reminder that when selling property under section 21 a charity trustee must still have regard to their statutory duties under charity legislation. For example, subsection (1) does not permit heritable property which is essential to delivering trust purposes to be sold. Subsections (4) and (5) confer on the Scottish Ministers the power to modify subsection (3) by regulations to specify other descriptions of a charity (for example, charities regulated in other countries in a similar manner to those in Scotland). Any regulations made under this section are subject to the affirmative procedure. Subsection (6) is a savings provision which applies section 21 only to charitable trusts created after the section comes into force. This section is without prejudice to any existing power to sell otherwise than for best value which may be available for existing trusts.
Delegation and the appointment of agents and nominees
40.Section 22 of the Act empowers trustees to appoint agents and to delegate certain of their functions. It is a default provision.
41.Section 22(1) implements part of recommendation 19 in the Report on Trust Law and restates the existing power enjoyed by trustees to appoint an agent. In addition, subsection (1) says that trustees may authorise an agent to execute a document on their behalf; this may be of particular assistance if the trustees are geographically spread out or if it is otherwise inconvenient for them all to sign. (An alternative is for a majority of the trustees to execute the document, as provided by section 43.)
42.Section 22(2) and (6) restate section 4C of the 1921 Act. Although covered by the general power in subsection (1), the provision serves to remind trustees of the option of engaging appropriate financial assistance.
43.Section 22(3) implements part of recommendations 19 and 54(1) and allows the trustees as a body to appoint one of their number as agent, either to sign a document on behalf of the body or for other purposes. By subsection (4), which implements part of recommendations 19 and 54, the trustees may pay reasonable remuneration to an agent.
44.Section 22(5) implements recommendation 20 and sets out four specific types of power which trustees may not delegate to an agent unless the trust deed expressly provides that they may do so. The types of power which trustees may not delegate to an agent are (i) powers relating to the distribution of trust assets; (ii) power to decide whether payments due to be made out of the trust funds are to be out of capital or income, (iii) power to appoint a person to be a trustee, and (iv) power under statute, or the trust deed itself, which allow the trustees to delegate any of their functions or to appoint a person to act as a nominee in relation to the trust property (to prevent the person to whom functions are delegated by a trustee from, in turn, further delegating those functions and passing them on to a third person). This subsection is modelled on section 11(2) of the Trustee Act 2000 in England and Wales.
45.Section 23 of the Act implements recommendation 21. It is a default provision which applies to a trust unless the trust deed provides otherwise, and is modelled on section 4B of the 1921 Act. However, while that section applies only to the appointment of nominees for the purposes of the trustees’ power of investment, section 23 allows nominees to be appointed in respect of any of their powers. The reference to investment management functions in subsection (2) is an express reminder that the option of using a nominee for such purposes is open to trustees. Subsections (3) and (4) make clear that trust assets held by a nominee are, in turn, held on trust; this applies in particular to client money held by a nominee such as a solicitor or other professional agent. One effect is that, in the event of the nominee’s insolvency, the assets held on the trustees’ behalf will be protected as they will not be available to the nominee’s personal creditors. These subsections implement recommendation 21(2). Subsections (5) to (11) re-enact subsections (2) to (6) of section 4B of the 1921 Act. They provide safeguards against imprudent, excessive or unnecessary appointments of nominees and require trustees to retain supervision of the activities of their nominees. Subsection (12) confers on the Scottish Ministers, by regulations, power to specify circumstances that may constitute a good cause for the purposes of subsection (8). For example, regulations might be made to provide reassurance that sub-nominees may, in appropriate circumstances, be appointed to hold property in safe custody. The regulations are subject to the negative procedure.
Power of advancement
46.Section 24 of the Act implements recommendations 22-25. The basic power to make advances to beneficiaries from trust capital is contained in subsection (1) and is a default power. The effect of this provision is to allow trustees to make advance payment to beneficiaries of all or part of the trust capital to which the beneficiary is entitled, provided this is for the benefit of the beneficiary. This power may be exercised, for example, to release a payment of trust capital to a beneficiary under 18 to pay for education, or to assist a beneficiary in starting up a business. Subsection (2) permits the imposition of conditions that the trustees consider reasonable and, by subsection (3), they may be waived or varied subsequently. The conditions for the making of an advance are found in subsections (4) and (5). In implementation of recommendation 23, subsection (5)(b) provides that the Court of Session may authorise an advance in cases where the court is satisfied that a person whose consent is required is either withholding consent unreasonably or does not have capacity to consent. Authorisation to make an advance may be granted, in accordance with subsection (6), subject to conditions. Subsections (7) and (8) provide that any amount advanced must be brought into account as part of the share of the trust property to which the beneficiary who receives the advance is or will become entitled. Subsection (9) permits the setting up of a new trust, although any such trust must be primarily for the benefit of the beneficiary in question; if it is not, there will be a breach of trust. By subsection (10), it is no objection that a third party gains incidental benefit from the transfer or the setting up of the new trust. Subsection (11) provides certain limitations on the liability of the trustees for any loss that may be sustained in certain circumstances, and subsection (12) provides that the section applies irrespective of when the trust was created, but only in relation to advances made after commencement of section 24.
Apportionment
47.Section 25 of the Act implements recommendation 29 in the Report on Trust Law. It relates to a trustee’s power to apportion trust assets to beneficiaries as they see fit in accordance with the purposes of the trust. This section re-enacts the Powers of Appointment Act 1874, which allows trustees, if they consider it appropriate to do so and subject always to the trustee’s fiduciary duty and duty to give effect to the trust purposes, to exercise their power of apportionment of trust property in such a way that a particular beneficiary receives nothing. The 1874 Act is repealed by section 87 and schedule 2 of the Act. This provision is of particular relevance in cases where a trust deed provides for a deliberately broad class of beneficiaries including those who have only a remote possibility of ever benefiting.
48.Section 26 of the Act implements recommendation 28 which relates to section 2 of the Apportionment Act 1870. The 1870 Act changed the common law (under which an instalment of an annuity, rent and interest on heritable bonds did not vest until the time for payment arrived); section 2 of the 1870 Act provides that all rents, annuities, dividends and other periodical payments in the nature of interest are to be considered as accruing from day to day and are therefore apportionable timewise. Time apportionment is of practical importance where a liferent begins or terminates between dates upon which a periodic payment falls due. Such payments may have to be apportioned between the liferenter and those entitled to income before the liferent commenced or after it terminates. Time apportionment at the beginning and end of a liferent can produce the result that liferenters receive little or no income at the start of the liferent (which may be the very time when they are most in need of it). Time apportionment is also relevant to Scottish trust practice on the sale or purchase of income producing investments. The effect of section 26 is that, as a default, trustees are not bound to apply the rules of time apportionment in section 2 of the Apportionment Act 1870 but may instead elect to allow the sums to accrue as they arise.
49.Section 27 implements recommendation 27. The intention is to disapply certain 19th century common law rules which oblige trustees to make “equitable apportionment” of trust assets in particular situations. The principal rules of equitable apportionment are as follows:
The rule in Howe v Earl of Dartmouth (1802) 7 Ves 137. If a trust is created over moveable property which comprises wasting assets or unauthorised investments (investments which are outwith the trustees’ powers), such property must generally be sold and the proceeds invested in authorised securities. The rule is founded on the need to balance the interests of income and capital beneficiaries. Wasting assets may not outlive the liferent, and unauthorised investments historically were likely to produce a high income but with a serious risk to capital. A second branch of the rule deals with a situation where the wasting assets or unauthorised investments have not been sold: in that event the trust property is treated as between income beneficiaries and capital beneficiaries as if the property in question had been sold and the proceeds invested in proper investments. The income beneficiaries are then entitled to a “fair equivalent” of the sums that such assets would have yielded on sale.
The rule in Re Earl of Chesterfield’s Trusts (1883) 24 Ch 643. This rule applies where a truster is entitled to reversionary property, moveable in nature and not currently yielding income, and directs it to be sold but leaves the time of sale to the discretion of trustees, who decline to sell it until it falls into possession. In that event, a number of complex calculations must be undertaken. Essentially the trustees are to ascertain the sum which, with accumulations of compound interest (assuming yearly rests and after deducting tax), would, on the day when the reversion falls in or is realised, amount to the sum actually received. The sum ascertained in that way is treated as capital.
The rule in Allhusen v Whittell (1867) 4 Eq 295. This is the corresponding rule relating to debts, liabilities and other charges payable out of trust property. The general rule requires that, as liferenters are entitled to the profits of the trust property, they must also bear the burdens attending the liferented subjects, including debts payable in respect of those subjects. This may include repairing and similar obligations.
50.The common law rules have been disapplied in England and Wales by section 1 of the Trusts (Capital and Income) Act 2013. Since there is some doubt as to whether all of the rules are in fact part of Scots law, the provision does not follow the 2013 Act’s technique of referring to the rules by name. The intended effect, however, is identical.
Payments from income
51.Section 28 of the Act implements recommendation 26. It sets out for the first time a statutory power for trustees to make payments to beneficiaries of income which arises from the prospective share of the trust capital to which the beneficiary will become entitled under the trust, provided such payments are for the benefit of the beneficiary. An example of the use of this power might be where payments are made to a child beneficiary out of trust income for reasons of maintenance or education, before the age at which that beneficiary is entitled to receive their share of the trust capital. Subsection (1) contains the general power, but only if the conditions in subsections (4) and (5) are met. It is a default power. Conditions may be imposed by the trustees, and subsequently varied or waived: subsections (2) and (3). Subsections (4) and (5) set out the requirements that must be met if a payment is to be made. These are demanding, and will prevent any unduly liberal payments of income to beneficiaries under this section. At the time when the income is paid or applied, the income must be derived from capital which meets at least one of the criteria in subsection (4), and in addition no person other than the beneficiary must be entitled to that income (by subsection (5)). Under subsection (6), any amount paid or applied under the section must be brought into account by the trustees as part of the share to which the beneficiary is ultimately entitled, and subsection (7) assists in determining the value of the payment for these purposes. Subsection (8), which implements recommendation 26(2), provides that if the trust deed directs or permits the trustees to accumulate income, the Court of Session’s authorisation must be obtained in order to exercise the power to pay income to a beneficiary. Subsection (9) provides that the Court of Session’s power is exercisable on application by the trustees or any person with an interest. Finally, subsection (11) provides certain restrictions on potential liability of the trustees, and subsection (12) ensures that the new provision applies to all trusts but only in so far as a payment of income is made after the section comes into force.
Duty to provide information
52.Section 29 of the Act implements recommendations 30 to 36, and 44. It is mandatory, and therefore applies regardless of what the trust deed provides (recommendation 35). It applies to trusts whenever created, including those created before the Act is enacted and comes into force. It does not generally apply to private purpose trusts, which often do not have any beneficiaries with a personal interest in the trust property. Where there are such beneficiaries under a private purpose trust, section 29 will apply (subsection (7); recommendation 44). This section, together with section 30, sets out the basic duty on trustees to provide information to beneficiaries and others. This is the first time in Scots law that there is a statutory duty of this nature. It is intended to reinforce the fundamental and long-standing right of the beneficiaries to hold the trustees to account. Subsection (1) sets out the main mandatory duty, which is that the trustees must inform a person of that person’s beneficial interest in the trust and, in addition, must inform the person who the trustees are and how to contact them. The point at which the information is to be provided is set out in subsection (4), and trustees have deliberately been given a discretion in this regard. Equally, the list in subsection (2) of people who must be informed of their status has an element of discretion for the trustees. It would not be practicable to impose a rigid or prescriptive rule here as the circumstances of individual trusts will vary enormously. Subsection (3) imposes a duty on trustees to take appropriate steps to identify and trace those whom they might be required to inform under subsection (1); in practical terms, this is what trustees should be doing anyway as it is a basic part of trust management to know who the beneficiaries are and how to contact them. It is included here, however, to remind trustees of their duty in the present context. The same applies to subsection (5): it removes any doubt that the duty to inform does not embrace a duty to advise. Indeed, there may be situations in which it would be inappropriate for any advice to be given by the trustees. Subsection (6) is also intended to avoid doubt, this time as to whether or not the duty to provide information is a continuing one: the subsection states that changes to the information provided under subsection (1) must be communicated without delay.
53.Section 30 of the Act implements recommendations 30, 37 to 40, and 44. It generally applies to trusts, whenever created, but not to private purpose trusts except to the extent that there are beneficiaries (recommendation 44). It is a default provision, though there are particular controls on any limitations imposed in the trust deed. The duty on trustees complements that in section 29 of the Act, which obliges trustees to inform people of their beneficial interest in the trust. Under section 30, trustees are obliged to consider requests for further information made by those with an interest. Where appropriate, they are under a duty to comply with those requests. Subsection (1) sets out the broad duty on trustees, namely to provide trust information which is requested by anyone falling within any of the specified classes. They need not do so if they consider that it would be inappropriate to do so or where a potential beneficiary has only a negligible interest in the trust. This implements recommendation 37. A presumption as to what classes of information will ordinarily not be disclosed is set out in subsection (7): this includes information about other people (which is in any case subject to data protection legislation), reasons for trustees’ decisions (which are generally private to the trustees), and letters of wishes (i.e. documents in which a truster may set out non-binding guidance for the trustees as to how he or she would wish the trustees’ powers to be exercised). Subsection (4) allows the trustees to disclose the information in an appropriate way and to charge for any reasonable expenses. In the event of doubt as to what information should be disclosed under this section, there is provision for the trustees to seek a direction from the Court of Session on the matter, and also for those whose request has been declined to apply to the Court of Session for a ruling (under subsections (8) and (9) respectively). In many cases it will be clear whether requested information should be disclosed or not but these procedures will be useful for the definitive resolution of any doubt or dispute. By subsection (2)(a) the truster may, in the trust deed, limit (or expand) the duty of disclosure. However, subsections (10) to (12), which implement recommendation 38, provide that any limitation is subject to review by the Court of Session; this will guard against attempts to deprive beneficiaries of the basic information to which they should be entitled. This power is not available to potential beneficiaries who have only a negligible interest in the trust. The Court of Session will determine whether the limitation is reasonable in all the circumstances, and an important factor will be the extent to which it impedes the ability of the beneficiary to hold the trustees to account. If the Court of Session finds a limitation unreasonable, it may either alter it or rescind it altogether. An application may be brought at any time after the trust has been created. Finally, the duty in section 30 applies to newly created trusts but, for those already in existence when the legislation comes into effect, there is a grace period of a year(11) (subsections (14) to (16) and recommendation 39).
Trustees’ duty of care
54.Section 31 specifies the duty of care to be exercised by trustees. It also sets out the extent to which the trust deed can validly provide immunity from breaches of that duty, and indemnity in that regard.
55.Section 31(1), which implements recommendation 47(a), contains the basic duty, which is that a trustee should manage trust affairs with the care and diligence which a person of an ordinary degree of care and attention would be expected to exercise in managing another person’s affairs. This represents the minimum standard and subsection (4)(a) states that it may not be lessened by provision in the trust deed. It is, though, subject to two exceptions, in each of which a higher standard of care will apply. First, subsection (2) provides that a trustee who is a person – whether a natural person or a legal person such as a trust company – offering professional services in relation to trust management and is remunerated for doing so, must meet the standard of care which it is reasonable to expect from a member of that profession. This implements recommendation 47(c).
56.Secondly, section 31(3) provides that a trustee who has professional qualifications of any kind must exercise the standard of care reasonably expected of a member of that profession if (but only if) he or she is instructed by the trustees as a body to provide professional services. This implements recommendation 47(b). The effect of this is that, where a trustee happens to be, say, an accountant or an investment advisor, the trustee is only bound to exercise a duty of care which exceeds the basic one set out in subsection (1) if instructed by or on behalf of the trustees to provide accountancy services or investment advice. The payment of remuneration is not determinative, though in many cases the acceptance of instructions, which marks the relationship out as being a formal and professional one, will be dependent on an agreement about payment for services to be rendered. Generally, the acceptance of instructions by a professional will also engage his or her professional indemnity insurance, and thus there will be some protection for the beneficiaries against professional services which turn out to be negligent.
57.Section 31(4) implements recommendations 48 to 50 on immunity clauses restricting trustees’ liability. Paragraph (a) provides that the standards of care in subsections (1) to (3) may not be reduced. Recommendation 48 is effected by paragraph (b), which states that a provision of a trust deed is of no effect to the extent that it relieves a trustee of the higher standard of care relating to professionals in certain situations. In implementation of recommendation 49, paragraph (c) provides that the trust deed may relieve a trustee who is subject to the basic duty of care in subsection (1) of negligence, but that there can be no relief against gross negligence; this would be incompatible with the trustee exercising the minimum level of care required of any person holding office as trustee. Paragraphs (d), (f), (g) and (h) implement recommendation 50 and ensure that a person seeking to enforce the trustees’ standard of care is not unduly hampered in doing so. Paragraph (e) implements recommendation 51 and provides that indemnity clauses should also be ineffective to the extent that they would indemnify a professional trustee to whom the higher standard of care applies for any liability arising from a failure to exercise that higher standard of care, or that they would indemnify an ordinary trustee for liability arising out of the trustee’s gross negligence.
58.By section 31(5) this provision applies irrespective of when the trust was created but only in respect of managing the affairs of a trust after commencement of section 31.
Breach of duty etc.
59.Section 32 of the Act implements recommendation 57(2), which is that section 31 of the 1921 Act be re-enacted. It provides the Court of Session with discretion to order that, where a trustee is in breach of fiduciary duty at the request of a beneficiary or with the beneficiary’s written consent, some or all of that beneficiary’s interest in the trust property is to be used to make good any loss incurred by the trustee from liability arising out of the breach of fiduciary duty. This section applies irrespective of when the trust was created but only in relation to breaches of fiduciary duty occurring after commencement of section 32.
60.Section 33 of the Act implements recommendation 46. It regulates the consequences for a trustee of acting ultra vires (in other words, acting in a way which is outside the trustee’s power as set out in the trust deed). For example, a trustee might make a particular type of investment in the reasonable, but mistaken, belief that it is within their powers to do so. The current law is not wholly clear, but in general a trustee who acts beyond the trustee’s powers is open to personal liability. By subsection (2), the Court of Session may relieve a trustee of the consequences of ultra vires actings to the extent that the court considers that the trustee, after making appropriate efforts in this regard, believed that the acting in question was within the trustee’s power (subsection (3)). Subsection (4) preserves the right of a beneficiary or trustee to recover trust property paid out to someone other than a trustee when that payment would not have been made if the trustee had not acted ultra vires. By subsection (5), this section applies irrespective of when the trust was created but only in relation to actings occurring after commencement of section 33.
61.Section 34 of the Act, in implementation of recommendation 53, renders ineffective a provision in a trust deed which seeks to place a general limitation on a trustee’s liability for breach of a fiduciary duty, or to indemnify a trustee for such breach (that is, giving the trustee a right of recovery against the trust property for any claim against the trustee in a personal capacity following such breach). Subsection (2) makes an exception for a provision in the trust deed which authorises a particular action or decision, or a particular class of actions or decisions, which would otherwise be in breach of a fiduciary duty (for example, investments in a particular company owned by the trustee). This section applies irrespective of when the trust was created but only in relation to breaches of fiduciary duty occurring after commencement of section 34.
62.Section 35 of the Act implements recommendation 52. It deals with situations in which a trustee enters into a transaction in breach of the trustee’s fiduciary duty (or proposes to do so). For example, a trustee, in their personal capacity, may enter into a commercial agreement with a beneficiary under which the trustee, in their personal capacity, will make a profit. It empowers the Court of Session to relieve a trustee from the consequences of the breach, or the proposed breach, if it considers it just to do so, provided, firstly, that the transaction has benefited the trust property and the beneficiaries (or is likely to do so) and, secondly, that the terms of the transaction are at least as favourable to the trust property as a comparable commercial transaction between two unrelated parties would have been (or would be). Section 35 applies irrespective of when the trust was created but only in relation to transactions entered into (or to be entered into) after commencement of the section.
Personal liability of trustees
63.Section 36 of the Act, which implements recommendation 58, re-enacts section 3(d) of the 1921 Act. It provides that, as a default provision, a trustee is only personally liable for any loss to a beneficiary which arises either from the trustee’s own acts or omissions, or any loss to a beneficiary which arises from one of the other trustees’ (who can also be referred to as a co-trustee) breach of trust or breach of fiduciary duty in circumstances where the trustee failed to take reasonable steps to ensure that the co-trustee did not commit that breach. For example, trustees who sign a receipt for money due to the trust estate but leave that money in the hands of one trustee for many years without enquiring about it may be liable to make good the loss if it transpires that the trustee has appropriated the funds and subsequently becomes insolvent. (The trustee who appropriated the funds will also be personally liable, but the beneficiary may choose to pursue both.) By subsection (2), the section applies irrespective of when the trust was created, but only in respect of acts, omissions or breaches committed after commencement of section 36. Subsection (3) makes clear that section 36 is subject to other applicable provisions of the Act concerning the personal liability of trustees (in particular sections 39, 40, and 70). This means that where those sections apply, they qualify the rights of beneficiaries to claim for loss under section 36.
64.Section 37 of the Act restates section 29A of the 1921 Act. This section sets out the protections available to trustees where they distribute property, or income of property, in ignorance of certain facts which would affect proper distribution of the property or income. Subsection (1)(b) provides that in order for the trustee not to be personally liable, the distribution requires to be made in good faith after having made reasonable enquiries, or, in accordance with an order of the Court of Session. What amounts to ‘reasonable enquiries’ will be dictated by the particular circumstances of each case. There is no express requirement to advertise for beneficiaries. Whether this is appropriate will depend on the circumstances and is a matter for the discretion of the trustees tasked with distributing the property or income. Subsection (2) protects the right of a person, under the law of unjustified enrichment, to seek restitution in respect of the property or income from persons to whom it has been distributed in error. Subsection (3) clarifies that the right to seek recovery in relation to an unlawful distribution under subsection (2) does not affect the protections afforded to persons (under section 24 of the Succession (Scotland) Act 2016) who may come to purchase, in good faith, property vested in an executor. Section 37(3) makes clear that those protections in the 2016 Act (for the buyer from an executor) hold good, even where there may be a claim to the property in unjustified enrichment from a beneficiary, which results from an erroneous distribution of trust property and for which the trustee is not liable. Subsection (4) provides that section 37 applies only to distributions which occur after the section comes into force (i.e. it does not catch distributions which have already occurred).
See, for instance, Martin v City of Edinburgh District Council 1988 SLT 329.
Section 21 was added by amendment and does not reflect an SLC recommendation.
Beginning with the day on which section 26 comes into force.