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The importance of understanding your responsibility as a Trustee

Court of Appeal upholds High Court decision in relation to establishing personal liability of trustees where a decision was made despite a lack of…

The Court of Appeal (EWCA) recently upheld a decision made by the High Court in relation to establishing personal liability of trustees where a decision was made despite a lack of trustee unanimity.

The Rudolf Staechelin Family Trust, which was administered by three trustees, required all trustee decisions to be made unanimously. Therefore all three trustees would need to agree for a decision to be taken.

In 2013, an art dealer who was a friend of one of the trustees (Ruedi Staechelin), introduced a Mr Bennet who was interested in purchasing a Gauguin painting from the trust on behalf of the Qatari royal family. Negotiations took place between the art dealer and Mr Bennett, the potential purchaser, which resulted in Mr Bennett offering to purchase the art from the trust at $230million. Staechelin, the trustee, however counter-offered at $260 million.

Negotiations slowed down until 2014 when the trustee invited the art dealer to reopen negotiations about the potential sale of the art work. Mr Bennett, on behalf of the Qatari Royal Family, notified the trustee that their offer had now been reduced to no more than $210 million.

As a result of this new offer, a meeting was held and it was verbally agreed that if a sale was agreed at $210 million then there would also be a commission payment made to the art dealer of $10 million.

In September 2014 two of the trustees agreed a sale at $210 million but refused to pay the commission of the art dealer. The reasons for not agreeing to the commission payment were because they claimed they were not aware of the initial offer of $230 million and only two of the three trustees had promised the commission payment and therefore the decision hadn’t been unanimous as required by the trust deed.

As a result of the disagreement over the commission payment litigation ensued and Judge Morgan J, held in the High Court that the trustees were aware of the initial offer of $230 millions in 2013. He also found that the requirements for trustee decision to be made unanimously meant that a majority had to agree to any decisions and therefore because two out of the three trustees agreed to the commission they were personally liable for this promise.

Upon appeal at the EWCA the above decision was upheld and the trustees claim regarding a lack of unanimity was dismissed. Lewison LJ gave judgment and stated the trust deed stated third parties who dealt with the trusts and the trustees were under no obligation to research into the authority required by the trust when trustees were making decisions. Therefore the art dealer was entitled to take the decision regarding his commission payment made by two of the three trustees at face value.

Lewison also explained that where trustees enter into a contract on behalf of the trust they can be held personally liable. However, depending on the drafting of the original trust instrument, they may be entitled to an indemnity out of the trust assets.

Trustees should take the following message from this judgement; when acting in the capacity of a trustee for a trust it is important to understand how much responsibility you have for any decisions made and also the consequences of those decisions prior to entering into any arrangements, whether formal or informal.

Weightmans has a dedicated team of advisers who can assist trustees in understanding their role and duty as a trustee and can also take on the day to day administration of the trust so that trustees can be confident they are not acting outside the scope of their authority.

If you have any questions or would like to know more about our update, please contact Courtney L'homme (Solicitor). 

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