The Law Commission Report No. 260 ‘Powers and Duties of Trustee’ 1999 is instructive. Firstly, to persist with limited delegation was putting too great a burden on trustees in modern society. The Commissioners thought that no person would want to become a trustee. Hence facilitation of trust and the concern for the future of trust law necessitated alteration of the role and duties of trustees. The second reason is the changes that have taken place in the last century in financial markets and the economy. The transactions have become very complex and specialised. Understanding of them could not be demanded from the lay trustees. In addition the trustees’ duties to act in the best financial interest of the beneficiaries meant that a conflict of duties arose if one was to keep delegation to a minimum. How was a trustee with no professional knowledge or experience of complicated market transactions to fulfil his administrative duties if he were not to delegate to someone with the relevant skills? Taken to the extreme no delegation meant breach- breach of duty to act in the best financial interest of beneficiaries. In light of this personal duties and delegation seem to fit together rather then contradict each other-delegation being the medium through with the personal duties are best performed.
A conflict however may still arise between delegation and the dispositive duties of trustees. If a trustee is allowed to delegate the duty of disposing of trust funds in accordance with the settlor’s wishes this would mean that the essential purpose of the trust is vested in someone else, who owes no duty to the beneficiaries and who cannot be forced to perform the trust. This was appreciated by the Commission and was not proposed to be one of the duties which could be delegated. The Trustee Act 2000 excludes it- s.11 (2). The power to delegate under the new legislation thus extends only to the administrative duties of trustees which as argued above do not conflict with delegation.
In addition to delegation the 2000 Act extends the powers of trustees to invest. This was seen as necessary in order to free trust law of the unnecessary restricts of the 1961 legislation, which was above all outmoded. This is important because it demonstrates how wide the powers can be which the trustee may delegation. The Commission purported that adequate safeguards would be provided in order to counterbalance the extensive powers give to trustees under the Act. Yet it is questionable whether they are capable of being satisfactory for the protection of the interests of beneficiaries, this being the mischief the anti-delegation principle tried to achieve. Firstly delegation is possible in relation to certain functions only, other are being excluded- s.11 (2) and (3). The delegation of asset management required evidence in writing and an issue of policy statement by the agent- s. 15. The trustee is required to review the act of the agent and may be in breach of his duty of care if he does not do so. He is also under a duty when appointing agents, which in certain circumstance may be done only if it is reasonably necessary- s.14. These restrictions apply in cases where there is a high risk of harm to the trust: when the trustee contracts with an agent, which permits the agent to act in circumstances capable of giving rise to conflict of interest, where the agent is permitted to appoint a substitute or contract on terms which restrict the agents’ liability. So how effective are these safeguards and if inadequate what should replace them?
The law Commission felt that it had to allow the high risk of harm instances since in practice agents would sub-delegate and exclude liability. The Act however only refers to reasonably necessary contracting out while the report appears to be stricter by requiring that contracting on such terms should take place only if it is in the best interest of the trust. Reasonably necessary is arguably a lower standard than best interest of the trust, since what may be necessary may not necessarily be best for the trust. In addition the duty of care applicable to a trustee does not hold him responsible for acts of agents. Hence a trustee is not liable for harm caused by the agent to the trust. He may breach his duty if he fails to supervise the agent or does not follow the correct procedure of appointment- Sch 1 para 3. What is worse this central safeguard to the 2000 legislative scheme may be lost if the settlor was to exclude the liability of trustee. Sch 1 para 7 of the Act states ‘ The duty of care does not apply if or in so far as it appears from the trust instrument that the duty is not meant to apply’. The problem that arises here is the current generous approach of the courts to such clauses- Armitage v. Nurse. A clause purporting to exclude liability of a trustee for any loss or damage unless they were caused by his own actual fraud was upheld. Millett LJ explaining that the irreducible core obligations of trustees required honesty on his part and it mattered not how indolent, imprudent, lacking in diligence, negligent or wilful he might be. Yet such an attitude may have been appropriate when trustees were hardly allowed to delegate their duties. However in light of the 2000 Act this treatment of exclusion clauses and their increasing use is undesirable. If an agent is not liable and the trustee is only liable to fulfil his duty of care, then if that duty is removed there is nothing to protect the interests of beneficiaries as far as the administration of the trust is concerned. In this respect the circumstances in which a trustee may be held responsible for wrongs done by the agent may be virtually null. This in not only unsatisfactory but also raise the question of how should instances of harm to trust should be treated?
If the trustee is to be held liable this means that the standard of care of the 2000 Act should be altered. It should apply not only to the instances of review and appointment of agents, but also the other circumstances. The prime candidates are those cases of heightened risk of harm. If the trustee is aware of them, why should the law only require him to justify delegation of the grounds of reasonable necessity? In such cases he has taken higher risk and he should take the consequences if it materialising. It must be noted however that to hold trustees liable for the acts of agents would defeat the object of delegation. In addition changing the standard of care would lead to the problems of no one uniform standard- a problem which the 2000 Act sought to remedy. In this respect it may not be most desirable to hold trustees liable for harms caused to the trusts by agents. More appropriate perhaps is to hold agents personally liable, or to require that general indemnity insurance is taken out on the trust. The aim is after all to ensure the best administration of the trust fund. If something goes wrong it would probably be better to rely on insurance rather than trying to establish the liability of someone. After all goal is to make trust more flexible and to make the position of trustees less burdensome. In light of this it may only be necessary to adjust slightly the existing duty of care and place some additional safeguards..
From the discussion it follows that delegation is not necessarily inconsistent with personal duties, though it may be in relation to the dispositive duties of trustees. The Trustee Act 2000 provides for this, but arguably fails on the safeguards to delegation. Under the current scheme of the law in this area the trustee may escape liability for wrongs done by an agent. In this respect the law on exemption from liability of trustees needs reforming as indicated by the Law Commission in Report No. 171 and a heighten duty of care is to be required in risky cases of delegation.
