Baker & Anor v J E Clark & Co (Transport) UK Ltd & Anor

An exemption clause in a trust deed defines the trustee’s liability without requiring beneficiary assent or knowledge. A trustee’s ordinary responsibilities do not, without more, create a super-added common-law or equitable duty of care. The Unfair Contract Terms Act 1977 does not apply merely because a claimant alleges a common-law duty: a trust deed’s exemption clause is not a statutory notice for section 2 purposes. A clause excluding liability for breach of duty subject to a bad-faith exception may defeat a claim where bad faith is not alleged.

The appellants claimed a death-in-service benefit under an insured group life scheme. The first appellant sued as personal representative and beneficiary, bringing a contractual claim against the company and tortious and equitable claims against its director and trustee. The insurance cover expired before the deceased’s death.

The High Court struck out the claim against the trustee, holding that the trust deed’s exemption clause protected him and that the deceased’s estate had suffered no loss. The latter finding was not appealed. The appellants argued that the trustee had assumed a duty of care, that the exemption clause had not been incorporated into the relationship, and that the Unfair Contract Terms Act 1977 required its reasonableness to be proved. The central issue was whether those arguments disclosed a claim with a reasonable prospect of success.

The appeal was dismissed. The Court of Appeal agreed with the judge that the exemption clause gave the trustee a complete answer to the beneficiary’s claim, in the absence of any allegation of bad faith.

1. No super-added duty. The scheme’s use of the term administrator was a tax designation. Under section 611(AA) of the Income and Corporation tax 1988, the administrator of a trust scheme was the trustee or trustees. The term therefore added nothing to the ordinary responsibilities of trustees. The documents relied on showed no more than that the trustee had assumed those usual responsibilities. They did not establish an additional personal common-law or equitable duty to maintain insurance or give notice of its termination.
2. Effect of the exemption clause. The trust relationship did not depend on contractual consensus. Clause 13.3 defined the ambit of the trustee’s liability from the date of the deed and did not require beneficiary assent or knowledge. Trustees may limit the duties they undertake, subject to their core duties of honesty and good faith. A beneficiary taking advantage of the settlement must do so on its terms.
3. Unfair Contract Terms Act. The alleged obligation did not arise from contract, so section 1(1)(b) would be the relevant provision if the Act applied. Section 2(1), however, concerns exclusion or restriction by a contract term or notice. The trust deed’s exemption clause was not a notice of that kind. The reasonableness question therefore did not arise. The court noted that the point had not been taken in the leading authority, Armitage v Nurse [1998] 2 Ch 241.

Order: appeal dismissed.

• Court of Appeal (Civil Division): On appeal under [2006] EWCA Civ 464, upheld the striking-out decision and dismissed the appeal.
• High Court of Justice, Queen’s Bench Division, Bristol Mercantile Court: HHJ Sir Mark Havelock-Allan QC struck out the claim against the trustee on the ground that it had no reasonable prospect of success.