TACT THE ASSOCIATION OF CORPORATE TRUSTEES
Home Page Council Committees Members
Liability of Directors of a Corporate Trustee
David Pollard
Freshfields
(From Issue 9,
October 1999)
Where a company acts as a trustee,
clearly in practice the actual decisions in relation to the trust will have to be made by
individuals. Commonly those individuals will
be directors or employees of the trustee company. Clearly if the trustee company commits a
breach of trust as a result of such a decision, the company itself will be liable, in the
usual way, to the beneficiaries and others affected.
This will, of course, be subject to the terms of any relevant clause limiting or
excluding liability. However, are the
individuals who actually made the decision (or omitted to act in the case of an omission)
on the part of the trustee company also potentially liable?
Or can they shelter behind the corporate personality of the trustee company and so
escape all personal liability altogether?
A director or employee could
potentially become personally liable by six different routes:
(i)
through a direct fiduciary duty owed by directors of corporate trustees;
(ii)
through a direct tort duty owed by directors of corporate trustees;
(iii)
by an accessory liability of a third party who dishonestly procures or assists in a
breach of trust;
(iv)
an indirect fiduciary duty or duty of care in tort - i.e. that the individual
director owed a fiduciary duty and a tortious duty of care to the trustee company. This can then be enforced by the company itself
(e.g. through its liquidator) or arguably the benefit of the claim based on breach of that
duty is an asset of the trust and so could be enforced by the new trustees and/or the
beneficiary;
(v) by the corporate veil of the trustee
company being disregarded and pierced;
and
(vi)
by statute operating to impose direct liabilities for criminal fines and penalties
onto directors and officers.
This would, in effect, be a claim that a
director of a company which is also a trustee is automatically be liable for any breaches
of trust by the trustee company.. This is,
apparently, the position in both Jersey and Guernsey by reason of an express statutory
provision.
There was some support for a direct
approach in two unreserved judgments of Dankwerts J. in the 1950’s. In Re French
Protestant Hospital [1951] Ch 567 and Abbey and
Malvern Wells Limited v Ministry of Local Government [1951] Ch 728, Dankwerts J. had
held that (in effect) directors were directly liable to beneficiaries of the trust of
which the company was trustee.
However, both
judgments are unreserved and do not seem well argued.
More recently in HR v JAPT [1997] OPLR
123 Lindsay J. pointed out that the earlier Court of Appeal authorities of Wilson v
Lord Bury (1880) 5 QBD 518 and Bath v Standard Land [1911] 1 Ch 681 had not
been cited to Dankwerts J. In both these
cases the Court of Appeal had held (by a majority in the Bath case) that directors were
not as such liable for breaches of trust by the trustee company.
In the HR case, the plaintiffs’ counsel sought to
distinguish these two Court of Appeal decisions by arguing that they should not apply to
the case of a trustee company which administers only one trust and has only a very small
issued share capital. However Lindsay J.
considered that he was not, without more, able to depart from the clear expressions of
principle of the Court of Appeal.
Lindsay J. also considered two
Australian decisions: that of Finn J. in Australian Securities Commission v A S Nominees
[1996] PLR 297, (1995) 13 ACLC 1822 and Walters J. in Hurley v B G H Nominees Ltd [1984] 10 ACLR 197. Lindsay J. did not refer to other Australian
authorities which could be seen as supporting the Bath
approach - see Galladin Pty v AimNorth Pty Ltd (1993) 11 ACLC
838 (Perry J.); Jeffrey v NCSC (1989) 7 ACLC 556
(Wallace, Brimsden and Pidgeon JJ). He did
discuss in a later part of the judgment another case, Young v Murphy (1994) 12 ACLC 558 (Supreme Court
of Victoria).
Accordingly, Lindsay J. held:
“in my judgment neither subsequent English authority nor Commonwealth
authority enables me to distinguish Bath...... There is a broad principle, as
Cozens-Hardy M.R. described it in Bath at page 627, that the directors of a trust
company stand in a fiduciary position only to
the company itself not to strangers dealing with the company and not even where the
stranger is able to describe himself as a beneficiary of the trust of which the company is
trustee. Whilst exceptional facts can be
envisaged, as Finn J. suggested and as Barnes v Addy (as I shall come to)
illustrates, in which a finding of a fiduciary relationship between a beneficiary and the
directors of the trustee company may be justified, I do not see the facts here relied on
in argument, consisting only of directors purporting to act as such and acting (alleged
carelessness apart) as one might expect directors of a trustee company to act, to be
sufficient to enable any such a finding. In
other words, at any rate at first instance and so long as Bath stands, I regard
this way of putting the Plaintiffs’ case as unarguable.”
This seems to me to be right as a
matter of principle. It seems wrong to impose
an automatic liability, effectively as a guarantor, on directors of a trustee company
regardless of their involvement in the particular circumstances.
Perhaps it could be argued that trust beneficiaries are not in the same position as normal contractual creditors. Such creditors are voluntary creditors. They take the risk of dealing with a limited liability company. Conversely trust beneficiaries can be seen as involuntary claimants and so deserve greater protection. However this argument would also apply in relation to other involuntary claims e.g. claims based on tort. This argument seems likely to probably be very difficult to sustain following the decision of the Privy Council in Re Goldcorp Exchange: Liggett v Kensington [1995] 1 AC 4 - see in particular Lord Mustill at page 104D but compare the comments at page 109H based on “swollen assets” and “involuntary creditors etc.”
As an alternative, it could be argued
that it would be right to impose such an automatic liability only in the case of specific
trustee companies set up in relation to one trust and with a very limited capital. This was argued by counsel in the HR Case,
drawing a contrast with the earlier Court of Appeal decisions. Conversely, perhaps only those directors actually
involved in the relevant decision with knowledge of the relevant facts could be held
directly liable?
However both these approaches involve
drawing a line at some stage. When would a
director be held to have sufficient knowledge? When
would a trustee company be considered to be undercapitalised for this purpose? It must be better in the interests of certainty to
keep the line clear. Indeed, as counsel
pointed out in the HR Case, it is difficult to see why the questions of
“accessory” liability can arise in relation to directors (as many of the leading
cases involved) if the direct fiduciary liability route is available.
Counsel in the HR Case reserved the right to claim in a higher
court that the Court of Appeal decisions in Bath and Wilson were wrong.
No such appeal has emerged. The
prospects of overruling the two Court of Appeal decisions in a case going to the House of
Lords, must be interesting. (Note that
comments in Wilson were relatively recently
approved by the Privy Council in Kuwait Asia v
National Mutual Life Nominees [1991] 1 AC 187.)
The plaintiffs in HR v JAPT argued that a director of a trustee
company could direct tort duties to the beneficiaries in two ways:
(i)
by the imposition of a duty to act with care and skill on those who take upon
themselves to act for others, following comments of the House of Lords in Henderson v Merrett Syndicates Limited [1995] 2 AC
145 and White v Jones [1995] 2 AC 207;
(ii)
on the basis that directors can be personally liable in tort for actions of their
company - following cases such as the decision of the Court of Appeal in Williams v Natural Life Health Foods Limited [1997]
1 BCLC 131.
However, Lindsay J. felt that no such
tort liability could arise here. He
considered that arguments based on an imposition of a duty of care where persons act for
others in tort could only apply where there was otherwise a lacuna in the law which would
be unjust. For example in White v Jones, the projected beneficiaries of the
deceased would have no claim open to them against the negligent solicitor unless a
tortious duty was involved. Lindsay J. felt
that he “cannot read the broad language as intended impliedly to override long
established existing principles as to the identification, outside the identified lacuna,
of as between whom fiduciary relationships exist or as to the identity of he who should be
taken to have been the actor who should have assumed responsibility and who, on that
account, became vulnerable to a claim”.
Here there was no lacuna in the law
and to hold otherwise would in effect be to overturn the well established principles such
as that found in Salomon v Salomon [1897] AC
22. Accordingly this argument did not have
any prospect of success.
The second argument was based on the
principle that where a tort has been committed by a company, the court has, by reference
to special facts, felt able to impose liability on the director or directors personally
concerned.
Lindsay J.
discussed the recent decision of the Court of Appeal in Williams v Natural Life Health
Foods, itself discussing the New Zealand decision of Trevor Ivory v Anderson [1992]
2 NZLR 517. In this case a director was held
personally liable for a misrepresentation made by the company in a leaflet issued to
clients.
However, Lindsay J. considered that
the decision in Williams depended largely on the
fact that the action was based on the various (misleading) claims made by the company
which were stated to be based on the direct personal experience of the director concerned
and that director’s personal involvement in his company. In the HR
Case the activity of the director was “activity of the kind which one might
expect of a director of such a company. Although
the line is hard to describe and will sometimes be hard to see, I do not see [the
director] as here overstepping the line between the area in which identification of a
director’s acts with his company is the basic premise and that area in which it can
be recognised that the director’s acts involve an assumption of personal
liability.”
The correctness of Lindsay J’s
remarks was borne out by the later reversal by the House of Lords of the decision of the
Court of Appeal in Williams - see [1998] 2 All
ER 638
Accordingly neither of the direct
tort routes are likely to be available to beneficiaries.
The House of Lords in Barnes v Addy (1874) LR 9 Ch App 244 made it clear
that a third party can be directly liable to beneficiaries of a trust in some
circumstances where the third party has been involved in a breach of trust by the trustee
i.e. has procured or assisted the breach of trust. This
accessory liability does not require the third party to have benefited personally nor to
have received any trust property.
The extent of such accessory
liability was recently considered by the Privy Council in Royal Brunei Airlines v Tan [1995] 2 AC 378. The Privy Council stated that dishonesty is
required on the part of the third party and that there is no requirement for the trustee
itself to be dishonest. The case involved a
claim against the managing director of a travel agency company. The director was held liable because he had
arranged for trust money held by the company for the airline plaintiff to be paid away in
breach of trust and this was dishonest on his part.
Royal
Brunei is a decision of the Privy Council and so, in theory is not strictly binding on
courts here. However the decision has been
followed in various cases in England and Wales, in particular the first instance decisions
in HR v JAPT [1997] OPLR 123 and Wakelin v Read [1998] PLR 337 and (more recently)
the decision of the Court of Appeal in Heinl v Jyske
Bank (Gibraltar) Ltd (1999) The Times 28 September.
Lindsay J. in HR v JAPT also considered the recent statement of
the law by the Privy Council in Royal Brunei
Airlines v Tan. Lindsay J. pointed out
that:
“dishonesty is carefully defined in the judgment for use in this particular
concept. I shall speak of “Royal Brunei
dishonesty”, an appellation which I hope that the airline will tolerate with the
stoical indifference which the citizens of Wednesbury bear the attribution to them of that
particular degree of unreasonableness”.
Lindsay J. pointed out that:
Royal Brunei dishonesty is governed by an objective rather than a subjective
standard;
it is not dependent on the lower/higher moral standards of the individuals
concerned, although regard may be had to some personal attributes such as the experience
and intelligence of the individuals concerned;
carelessness is not as such dishonesty; nor is imprudence, although imprudence may
be carried recklessly to such lengths to call in question the honesty of a person
concerned;
acting in reckless disregard of others’ rights or possible rights can be a
telltale sign of this kind of dishonesty.
According to Lindsay J. it is
‘Royal Brunei dishonest’ for a person “unless there is a very good and
compelling reason, to participate in a transaction if he knows it involves a
misapplication of trust assets for the detriment of the beneficiaries or if he
deliberately closes his eyes and deliberately chooses not to ask questions so as to avoid
his learning something he would rather not know and then for him to proceed
regardless”.
Lindsay J. then discussed the meaning
of this:
“in other words, as I understand the judgment in the case, Royal Brunei
dishonesty so far as concerned with risk is not directed to the taking of risk in relation
to one’s own position but with the taking of a risk which is “commercially
unacceptable” because it might jeopardise the position of others. However, on the facts of this case, [the director]
could hardly say that his activity as a director of the [trustee company] could reasonably
be thought not to affect any one but that trust company.”
Dishonesty may well be difficult to
prove. A high standard of proof of dishonesty is required - see the decision of the Court
of Appeal in Heinl and Others v Jyske Bank
(Gibraltar) Ltd (1999) The Times 28 September.
For example, in Australia in Compaq Computer Australia Pty Ltd v Merry (1998)
ALR 1, Finkelstein J. held that directors of a company did not have sufficient knowledge
of breach of the terms of an agreement to segregate sale proceeds and place them in a
separate account.
Conversely, Hart J. in Wakelin v Read [1998] PLR 337 considered that the
Ombudsman had good grounds for considering a director (Mr Read) to have been dishonest in
relation to sale and leaseback of property that had resulted in a big loss to the scheme. He held (at paragraph 37) that:
“The
finding that Mr Read was oblivious to the conflict of interest, the fact that the
investment was obviously fraught, the fact that Mr Read and his co-directors plunged into
the transaction "eyes shut ears stopped", and the fact that the transaction
represented a commercially unacceptable risk in that it jeopardised the position of the
beneficiaries, are all independent of the finding that the leaseback was a sham, and,
taken together, compel the conclusion that Mr Read was dishonest in the Royal Brunei
sense.”
The Royal Brunei principle does not apparently extend
to dishonestly assisting a breach by a company director of his duty to the company -
Rattee J. in Brown v Bennett [1998] 2 BCLC
97.
It is unclear whether a director (or
other third party) could be liable as an accessory if there is in fact no breach of trust
because the trustee can rely on an exemption clause. (See e.g. the article “Knowing Assistance and Receipt” by Simon
Gardner of Lincoln College Oxford in [1996] LQR 56 at 68.)
Lord Nicholls in Royal Brunei stated (at
[1995] 3 WLR 69D.):
“These examples suggest that what matters is the state of mind of the third party sought to be made liable, not the state of mind of the trustee. The trustee will be liable in any event for the breach of trust, even if he acted innocently, unless excused by an exemption clause or relieved by the court”.
It would therefore seem arguable that
a director may be liable even if the trustee company is not. In practice it is likely that if a director is
dishonest, the trustee company will be treated as dishonest (as happened in Royal Brunei itself).
Emily Campbell of Wilberforce Chambers
has argued (see her article “Dishonest
assistance: to plead or not to plead” in the December 1998 issue of Trusts &
Estates Journal) that, in the light of Lord Nicholls’ remarks, if an exoneration
clause is “worded in such a way as to preclude a breach of trust from having
occurred, then any claim against a third party in dishonest assistance is bound to
fail.” This seems to me to give too much
weight to the actual wording of the clause (as opposed to its effect), but may well be
followed by the courts.
It would be prudent to provide in any
trust deed for any exclusion clause to be expressly stated to apply to trustee directors. It is unlikely however that any exclusion clause
will have a wider scope and cover “dishonesty”.
Nicholas Warren QC has suggested (in his talk to STEP and TACT on “Trustee Risk and Liability” (1999, 22 March.)
that one reason to include directors of a corporate trustee within an exclusion clause is
to cover the potential divergence between the “subjective” dishonesty that
Millet LJ (as he then was) held in Armitage v Nurse
[1998] Ch 241 could not be covered by an exoneration clause and the “objective”
dishonesty held by Lord Nicholls in Royal Brunei
as sufficient to fix liability on a third party (such as a director).
It seems that the Directors of a
trustee company are probably able to rely on an exclusion clause (or indemnity) even
though they are (in most cases) not parties to the trust deed. The point does not seem to have been raised in a
reported case, but it seems to me to be best to consider the Directors to be able to
enforce the provisions in their favour on the basis that they are, to that extent,
beneficiaries of the pension trust.
If the Contracts (Rights of Third
Parties) Bill (currently before Parliament) is enacted, Directors may be able to rely on
these provisions as a matter of contract law.
Directors (and to a lesser extent
employees) owe a range of duties to their company or employer (i.e. the trustee company). These include fiduciary duties based on their
office as Directors, various statutory duties (including, importantly commonly, duties in
relation to wrongful and fraudulent trading) and, in the case of executives and executive
Directors, contractual (and tortious) duties in relation to their position as employees.
The duty of care and skill of a
Director has historically been set at a relatively low level, following the decision of
Romer J. in Re City Equitable Fire Insurance Co
[1925] Ch 407 at page 427.
In addition, the implied term in
contracts for the supply of a service under section 14 of the Supply of Goods and Services
Act 1982 that, where the supplier is acting in the course of the business, the supplier
would carry out the service with reasonable care and skill.
However this does not apply to the provision of services to a company by a Director
of the company in his capacity as such - see the Supply of Services
(Exclusion of Implied Terms) Order 1982 (SI 1982/1771).
However the Courts
have recently been extending the liability of Directors (in particular non-executive
Directors as would be the case for non-professional Directors of a trustee company) owed
to the company. . See, for example, Re Continental Assurance Company Plc (1996) 14
June, Chadwick J; AWA Limited v Daniels (1995) 13 ACLC 614 (NSW Court
of Appeal); Re Property Force Consultancy Pty Ltd (1995) 13
ACLC 1051 (Derrington J, Queensland Supreme Court); Norman v Theodore Goddard [1991] BCLC 1028
(Hoffmann J), Re D’Jan of London [1994] BCLC 561; Ginora
Investments v James Capel & Co (1995) (Rimer J).
Similarly, in Bishopsgate Investment
Management v Maxwell (No 2) [1994] 1 All ER 261, the Court of Appeal held that a
Director was liable to a trustee company (in this case a fund manager) for breach of his
fiduciary duty.
Directors of a trustee company may also
incur liabilities under the Companies Acts, for example if they engage in wrongful trading
or fraudulent trading. This could easily be
the case where their actions result in the trustee company incurring liabilities (e.g. a
breach of trust) where it does not have the assets to meet them (e.g. because its
indemnity out of the assets in the pension scheme is not available). However it seems likely that these direct
statutory liabilities are probably owed directly only to the liquidator and not available
as trust assets - see Re Yagerphone [1935] Ch
392, Re MC Bacon (No 2) [1990] BCLC 607, Re Oasis Merchandising Services [1995] 2 BCLC 493
and Re Ayala Holdings Ltd (No 2) [1996] 1 BCLC 467.
Clearly these
duties can be enforced by the trustee company, particularly if it has suffered loss as a
result of their breach by the director concerned. For example if the trustee company
has become liable for breach of trust. But can this claim be enforced by the new
trustee of the relevant trust without going through the old trustee company?
In HR v JAPT Lindsay J. considered arguments that the
director of the trustee company owed a duty of care (fiduciary duty or a tortious duty) to
the trustee company. By breaching that duty
the trustee company suffered a loss, namely a claim by the beneficiaries of the pension
scheme. It was argued that the claim by the
trustee company against the director is an asset of the pension scheme which has,
therefore, passed to the current trustees.
Lindsay J. pointed out that the
current trustees were appointed by deed and so section 40(1)(b) of the Trustee Act 1925
had effect to vest the new trustees with most assets of the trust.
The defendant director argued that
the proper means of enforcing any such duty would be by the trustee company itself
bringing an action against him. The
plaintiffs (current trustees and the beneficiaries) could force the trustee company to
bring such action by driving it into liquidation and then requiring the liquidator take
such an action. The proceeds would then, in
effect, pass to the pension scheme as the main creditor of the corporate trustee.
Lindsay J. pointed that there could
well be limitation difficulties against such a process.
However, Lindsay J. thought it was arguable that such an indirect claim, based on a
fiduciary or tort duty, could be brought by the present trustees or by the beneficiaries
of the Scheme. Lindsay J. relied on comments
of Lord Nicholls in Royal Brunei where he
discussed the position of agents of the trustees. He
said:
“For the most parts they will owe to the trustees a duty to exercise reasonable skill and care. Where that is so, the rights flowing from that duty form part of the trust property. As such they can be enforced by the beneficiaries in a suitable case if the trustees are unable or unwilling to do so.”
Lindsay J. thought it was at least arguable that such an indirect or
“dog-leg” claims by beneficiaries could also be made against directors. He considered the decision of the Supreme Court of
Victoria in Young v Murphy (1994) 12 ACLC 558
in which Phillips J. (with whom Booking and Batt JJ. agreed) seemed to hold against any
such indirect claim. However, Lindsay J.
distinguished the decision in Young on the basis
that he thought that the decision there rested in part on the particular form of pleading
and in part on the particular facts.
Lindsay J. seems to have treated it
as a factual matter that in Young it could not
be said that the directors owed their duties “only in relation to some particular
trust or trusts”, whereas in the HR case
the trustee company was only ever trustee of one trust.
In effect Lindsay J. said that he was
“not confident that the reasoning involved in Young
cannot be distinguished, if not on the pleadings alone then on the facts”. Accordingly the point was arguable and so striking
out would not be ordered.
Lindsay J. went on to analyse the
level of care that was involved. He thought
it was clear that any duty owed by the director would be on the “yardstick of his
being a director” rather than on a different one of his being a trustee. He also dismissed the argument that allowing such
a “dog-leg” claim may discourage individuals themselves from accepting office as
directors. He (rightly) dismissed this as
only being relevant if the trustee company is insubstantial and uninsured and stated that
“if all that is discouraged is the use of insubstantial uninsured trust companies,
that would be a discouragement many might think timely enough”.
Lindsay J. pointed out that the
alternative (of allowing the trust company to enforce the director’s duty) would
involve extra complication and expense (perhaps needing a liquidator to be appointed). It could also give rise to limitation problems. Note that there may also be difficulties in
allowing certain statutory claims to be transferred.
There is authority in the UK that certain claims given to a liquidator (e.g. to
bring an action under section 214 of the Insolvency Act 1986 for a contribution by a
director to the assets of the company by reason of wrongful trading) cannot be assigned to
a third party - see the decision of the Court of Appeal in Re Oasis Merchandising Services Ltd [1997] 1 All
ER 1009, distinguishing (on the basis of differently worded statutory provisions) the
decision of Drummond J. in Re Movitor Pty Ltd
(1995) 19 ACSR 440.
Note that in Victoria in Collie v Merlaw Nominees Pty Ltd [1998] VSC 203,
(1998) 22 December, Byrne J. followed Young v
Murphy and held that a substitute trustee had no right to sue a director of a former
trustee for breaches of statutory and fiduciary duty.
However HR v JAPT was not mentioned by
Byrne J. in this case.
This could give rise to some issues
about whether any exoneration clause applicable to the trustee can be relied on by the
director. It seems to me that this should be
possible. The liability of the director can
be no greater than the loss suffered by the trustee company, which is itself limited by
the exoneration clause. Statutory provisions
limiting the ability of a director to exclude or restrict his liability to the company for
breach of duty would not impact on this analysis. (See
section 310 of the Companies Act 1985.) Nevertheless, it is common for exoneration clauses
to be stated expressly to extend to directors of a corporate trustee.
In some (limited) cases, the courts
are prepared to pierce the corporate veil and ignore the separate existence of the
company. Usually some degree of deception or
fraud is needed. In HR v JAPT the plaintiffs argued that the separate
legal personality of the trustee company should be disregarded and instead the directors
seen as the only real parties to the relevant transactions.
However Lindsay J. thought that this
was not possible. There had never been any
deception - no one being deceived into thinking that the trustee company was other than it
was, “an assetless, incomeless corporate entity with no function other than the
management and administration of the Scheme, a function necessarily carried out by
individuals on their behalf.....No concealment of any relevant fact is pleaded.” Nor was there any evidence of “a device or
sham or cloak”.
Accordingly Lindsay J. held that any
case based on this argument was quite hopeless.
6
Statutory liabilities
Where statutes imposing criminal
fines and penalties on companies they commonly include a provision allowing those
penalties to apply to the directors and officers of the company if the relevant act "was done with the consent or connivance of, or is
attributable to any neglect on the part of," any director.
This can apply to directors or
officers of trustee companies. For example
under the Pensions Act 1995 fines and civil penalties are generally imposed on the trustee
i.e. the trustee company. However, there is
provision for this liability to flow through to the directors of a trustee company in
certain circumstances. For example, section
10(5) entitles the Occupational Pensions Regulatory Authority (OPRA) to levy a civil
penalty against a director of a trustee company if the company would be
so liable for a penalty and the relevant act or omission of the trustee company "was done with the consent or connivance of, or is
attributable to any neglect on the part of," any director. A similar provision applies under section 115 in
relation to criminal offences under Part I of the 1995 Act.
These provisions are similar to the liability provisions in many recent statutes - see the discussion at para 5.31 to 5.38 of my book “Corporate Insolvency: Employment and Pensions Issues” (Butterworths, forthcoming).
It seems that a director is not
automatically liable under these provisions if there is a breach by the trustee company. A criminal prosecution by OPRA in July 1999
against the managing director of an employer company failed because the managing director
could rely on another director in this area. According
to the note in OPRA Bulletin 11:
“During his trial, the managing director claimed that he
had no knowledge of the failure to pay the employees’ contributions to the pension
scheme. After a trial lasting four days, the jury found him not guilty on 20 July 1999.
The jury’s decision was based on a direction from the judge that a company director
was entitled under company law principles to delegate to a fellow director the
responsibility for matters falling within that director’s area of management. So, for
example, a director – as in this case – was entitled to rely on the finance
director for paying contributions to the pension scheme on time, since this fell into the
category of work that a finance director would be expected to carry out. While the managing director’s lack of
understanding of the company’s financial position might reflect on his abilities as a
director, it did not amount to consent, neglect or connivance in relation to the offences
under the Pensions Act.”
If a director has a
penalty levied on him or here by OPRA under s10(5), the trustee company cannot be
penalised as well (s10(7)). This does not
apply to the criminal penalties. There is no
equivalent to s10(7) in s115.
Summary
Broadly then, directors and officers
of corporate trustees are not, in the UK, automatically liable for breaches of trust
committed by the corporate trustee, even if they were involved in the breach. However they may incur personal liability if they
were dishonest or if they are found to have broken a duty owed to the trustee company
itself. In addition they may incur a
liability for criminal or civil penalties in some cases.
© David Pollard
Freshfields
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