In our series of articles on “demystifying the role of Trustees of charitable trusts” we answer some of the questions we hear most often from Trustees. In this article we focus on the legal liabilities of Trustees. In our other articles we explore Trustee Delegations, Trustee Powers and Trustee Duties.
People who are already a Trustee of a charitable trust or considering becoming one are wise to think about what their liabilities are or would be. The good news is that most modern Trust Deeds, such as our form of charitable trust, contain a number of protections for Trustees as well as steps that can be taken. Let’s consider these.
Incorporation with the Companies Office
Many, but not all, charitable trust Boards are incorporated with the Companies Office. Incorporation means that the Trust is a separate legal entity, separate to the individual trustees. Without incorporation, the Trustees themselves would need to enter into the contracts on behalf of the Trust, opening them to personal liability. If you are unsure if your charitable trust is incorporated, you can check here by doing a search on the name of the trust. If the charitable trust is not incorporated, it is a simple process to incorporate the trust and we can help.
Protections in the Trust Deed
Trust Deeds often provide a number of protections for Trustees from liability, although this will depend on when and how the Trust Deed was drafted.
Some typical examples of clauses that protect Trustees from liability are:
- A clause that protects Trustees against responsibility for the actions or inactions of other Trustees with respect to trust money, noting that in spite of this, each Trustee will be answerable and responsible for their own actions or inactions.
- A clause that means that a Trustee is not liable for any Trust property expenses or charges.
- A clause that entitles current and retiring trustees to an indemnity out of the Trust Fund for any loss or liability that a trustee occurs while acting or failing to act as a trustee (meaning the Trust will cover your loss).
- A clause that means Trustees will not be liable for any liability or expense arising from any cause whatsoever when acting with the authority of the Board, which:
- Entitles a Trustee who has paid the expense or discharged the liability out of the Trustee’s own funds, to reimbursement from the Trust Fund; or
- In any other case, the Board must pay the expense or discharge the liability directly from the Trust Fund.
What is not covered?
Note that Trust Deeds do not generally protect Trustees when a liability or expense arises from a Trustee’s dishonesty, wilful misconduct or gross negligence, or was incurred without authority from the Board. In these situations, you will be liable.
What does dishonestly mean in this context? It would typically involve behaviour that is a breach of the duty of honesty and good faith that Trustees owe as fiduciaries of the Trust, and whether their conduct would be considered dishonest by the standards of ‘ordinary decent people’.
Wilful misconduct essentially means intentional or reckless conduct that involves a Trustee’s conscious choice to breach their fiduciary duties. It contrasts with mere negligence or accidental wrongdoing and is characterised by deliberate wrongdoing, including dishonest acts or conscious disregard for duties.
Gross negligence can be thought of as unreasonable behaviour which would amount to an extreme departure from the standard of care expected of a Trustee.
If there is gross negligence or wilful misconduct it may also reach the standard for criminal liability as well.
In addition to the protections provided by the Trust Deed, Trustees may wish to consider taking out Officers and Directors Liability Insurance, depending on the risk profile of the Trust’s activities (as it may be necessary).
In summary
The first place to look when understanding your potential liability as a Trustee is the Trust Deed itself. If you cannot see comparable clauses to those set out above, you may wish to amend the Trust Deed to include similar protections.
While there are generally protections for Trustees against some liabilities, this does not protect Trustees when a liability or expense arises from a Trustee’s dishonesty, wilful misconduct or gross negligence or was incurred without authority from the Board.
Please get in touch if you have any questions about your Trustee liabilities. If you reach out to us, we would be pleased to discuss these with you and potentially to amend the Trust Deed to best protect the Trustees.
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The information contained in this outline is of a general nature, should only be used as a guide and does not amount to legal advice. It should not be used or relied upon as a substitute for detailed advice or as a basis for formulating decisions. Special considerations apply to individual fact situations. Before acting, clients should consult their Parry Field Lawyer.
