Introduction

Both equity and trustee legislation confer rights on trustees which enable them to perform their obligations effectively and protect them from some of the more onerous aspects of the responsibilities of trusteeship. Only selected rights are covered in this chapter, the most important of which is the trustee's right of indemnity.

The trustee's most significant liability is for breach of trust; however, the trustee is also liable at law to incur the expenses of the trust. This liability gives rise to the trustee's right of indemnity. The trustee's exposure to liability must therefore be understood before his rights can be considered.

Trustees’ liabilities

A trust is not a legal entity. At law the trustee is the legal owner (or holder) of the trust property. The trustee is therefore legally liable for all expenses incurred in respect of that property, whether those expenses arise in contract, tort or otherwise.

Intentionally incurred expenses usually arise in contract. It is sometimes possible for a trustee to limit or avoid personal liability under the contract. The trustee and other contracting party can agree that the other party will be limited to the trust assets for debt recovery, with the trustee not exposed to personal liability for breach. Very clear language is required. It is not sufficient for the contract to state that the trustee signs ‘as trustee’. That term is descriptive only, and does not indicate the parties’ intention to restrict the trustee’s personal exposure. An example of words indicating that the trustee is not exposing itself to personal liability is a signature ‘as trustee and not otherwise’.