Spread Trustee Company Limited v Sarah Ann Hutcheson and others (Guernsey)

Before the 1990 amendment, Guernsey law permitted a trustee exemption clause to exclude liability for negligence, including gross negligence, unless the breach involved fraud or wilful misconduct. Gross negligence was not equivalent to fraud merely because it was serious. The 1990 amendment introduced a new prohibition, but it operated prospectively. Statutory provisions applying to trusts created before commencement did not retrospectively invalidate an exemption clause that was valid when made or when the breach occurred. The presumption against retrospectivity remained applicable, and express provisions dealing with past breaches demonstrated that different wording would have been used if retrospective effect were intended.

The beneficiaries claimed damages of nearly £53.5 million against a professional trustee in respect of alleged breaches connected with two settlements made in 1977. The settlements contained exemption clauses protecting trustees except for wilful and individual fraud and wrongdoing. The trustee had been appointed in 1990, and the alleged breaches occurred both before and after the Trusts (Guernsey) Law 1989 and its 1990 amendment came into force.

The Lieutenant Bailiff and the Court of Appeal of Guernsey answered both preliminary issues in favour of the beneficiaries. The Privy Council had to decide whether gross-negligence liability could be excluded under pre-amendment Guernsey law and whether the statutory prohibition applied to earlier breaches.

Lord Clarke delivered the leading judgment for the Board. Lord Mance and Sir Robin Auld agreed with the advice, adding concurring judgments. Lady Hale and Lord Kerr dissented on the first issue but agreed that the 1990 amendment was not retrospective.

1. Nature of the statutory duties. Section 18(1) of the Trusts (Guernsey) Law 1989 required a trustee to act en bon père de famille. This meant acting as a reasonable and prudent trustee, with the care and skill expected of a professional trustee where appropriate. The content of that duty was distinct from the extent to which liability for breach could be excluded.
2. Exclusion of gross negligence. Section 34(7), in its original form, expressly prohibited exclusion of liability for fraud or wilful misconduct. By necessary implication, exclusion of liability arising from other causes, including negligence and gross negligence, was permitted. Gross negligence was not fraud or wilful misconduct merely because it was serious. The Board rejected the Court of Appeal’s reliance on the maxim culpa lata dolo aequiparatur.
3. Pre-1989 customary law. The wording and purpose of the 1989 Law were important evidence of the previous customary law. The Board concluded that Guernsey customary law also permitted exclusion of liability for gross negligence. English trust law was the more likely source of guidance than Scots law, and Armitage v Nurse [1998] Ch 241 correctly stated the relevant English position.
4. Retrospectivity. The presumption against retrospective operation applied. Sections 72 and 74 did not invalidate clauses valid when made or apply the new prohibition to earlier breaches. Section 50 expressly addressed breaches committed before commencement, demonstrating the significance of its omission from section 34(7). The same reasoning applied to the Trusts (Guernsey) Law 2007.
5. Disposition. The appeal was allowed. The first preliminary issue was answered in the negative. The second issue did not arise.

1. Privy Council: Appeal allowed in [2011] UKPC 13. The first preliminary issue was answered in the negative; the second did not arise.
2. Court of Appeal of Guernsey: Appeal from the Lieutenant Bailiff dismissed and permission to appeal refused.
3. Royal Court of Guernsey: The Lieutenant Bailiff answered both preliminary issues in the affirmative.