Trustee exemption clauses
On 19 July 2006 we published our recommendations in a report, which was launched at an event held in the House of Lords and addressed by the Lord Chancellor. The text of Stuart Bridge's speech at the launch, an executive summary and a press release are also available.
The report recommends that the trust industry adopt a non-statutory rule of practice and that this should be enforced by the regulatory and professional bodies who govern and influence trustees and the drafters of trusts. The Law Society and the Institute of Chartered Accountants in England and Wales have both already moved towards introducing regulation for their members. The Society of Trust and Estate Practitioners ("STEP") has launched a version of the rule that will bind its members in England and Wales.
The recommended rule of practice governs the disclosure and explanation of clauses in trust instruments which have the effect of limiting or excluding liability for negligence. The rule requires paid trustees to take reasonable steps to ensure that settlors understand the meaning and effect of such clauses before including them in trust instruments. The Report recommends that the drafters of trusts should also be subject to the rule.
The Law Commission's approach has been welcomed by the Better Regulation Executive who stated: "With complex and important issues such as trustee exemption clauses it is all too easy to play it safe and legislate. I'm glad to see that the Law Commission has listened to people on all sides of the debate and developed a proportionate risk-based approach to the issue."
Background information
Consultation paper, published January 2003 (Law Com No 171). A summary is also available.
The Commission received 118 responses to the consultation paper, including a detailed paper from a Working Group of the Financial Markets Law Committee on the impact of the provisional proposals on trusts in financial markets.
For more information, contact the property and trust law team or go to the team page.
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