In HR v JAPT (1997), the High Court refused to strike out a claim against directors of a pension trustee company, for the alleged breach of trust of the company, on the grounds that there was an arguable point of law. However, the case was settled before trial so it was never decided whether directors could be personally liable for a breach of trust.

Directors of trustee companies will be reassured to learn of the judgment in Gregson v H.A.E. Trustees, where the courts reaffirmed that directors cannot be sued by the beneficiaries of the trust.

H.A.E was a company incorporated to act as trustee of a family settlement. The substantial property of the trust were shares in the Courts furniture business. When the business went into administration in 2004, the shares became worthless. Gregson was a beneficiary under the settlement and sought to claim against H.A.E and its directors for breach of duty.

The claim against the directors was not on the basis that they owed any direct duty to the beneficiaries. Instead, Gregson's claim was founded on the basis that:

  1. the directors were in breach of their duty of care to H.A.E;

  2. that breach of duty gave rise to a cause of action by H.A.E against the directors; and

  3. such a claim was trust property of the settlement and could be enforced by the beneficiaries.

The claim against the directors would be held on trust for the beneficiaries in the same way as a claim for negligence against an advisor to the trustees (e.g. a solicitor or accountant) would be held on trust for the beneficiaries.

However, the High Court rejected the beneficiaries' arguments asserting the general rule that a director of a trustee company owes neither a fiduciary duty nor a tortious duty of care to the beneficiaries of the trust. The scope of a director's duty of care (now set out in the Companies Act 2006) is to exercise reasonable care, skill and diligence in the performance of his functions for the company. The fact that the nature of the company's business was the administration of trusts did not mean that directors owed a duty to safeguard and avoid a loss to the trust fund.

The analogy with claims against advisors to the trustees was also rejected. The fundamental distinction between a trust advisor and a director being that an advisor is appointed by trustees in the course of administering and for the purposes of the trust, therefore it is this contract that becomes part of the trust property as does any claim for breach under it. In contrast, directors are appointed by the company to hold office as directors of the company.

It was also noted that this type of claim conflicted with established principles of company and employment law. For example, the director's breach could not be ratified by an ordinary resolution of the company if it was held on trust. Nor would the cause of action (and any damages which followed) form part of the estate of an insolvent trustee company. If the claim was allowed to succeed against the directors, then it could also extend to employees and other officers of the company who undertake more of the day-to-day responsibilities of administering the trusts.

With no equitable reasons why the law should impose a trust, the claim against the directors was struck out for having no real prospect of success.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.