The Exemption Clause

Regulation 11 states: “The trustees and their respective executors and administrators shall (except in the case of wilful default) be indemnified and saved harmless out of the Fund………” The classic formulation of “wilful default” is that of Romer J in Re City Equitable Fire Insurance Co Ltd [1925] Ch 407 at 434 {See also Lewis v Great Western Railway Co (1877) 3 QBD 195 (CA); Forder v Great Western Railway Co. [1905] 2 KB 532, Lord Alverstone CJ at 535; Re Trusts of Leeds City Brewery (1923) Ch 532n, Warrington LJ at 544; Re Munston [1927] 1 Ch 262 (CA).: “A trustee is in wilful default only if he knows that he is committing and intends to commit, a breach of his duty, or is recklessly careless in the sense of not caring whether his act or omission is nor not a breach of duty.” In Green v Wilden Pty Ltd [2005] WASC 83, Hasluck J stated at [496] in making reference to Armitage v Nurse [1997] EWCA Civ 1279: First, the clause in Armitage (supra) exempted the trustee in respect of all breaches save for “actual” fraud. In the present case the exemption is couched in different terms and does not apply to “breaches made or omitted in personal conscious fraudulent bad faith” by the trustee. In other words, the trustee can arguably be held liable not only for actual fraud (that is, for acts of dishonesty) but also for unconscientious conduct amounting to equitable fraud because it would be an act of bad faith to fail to comply with an obligation which is enforced by a court of equity. A trustee is not like a contracting party, but is rather the grantee of property that is burdened in a particular way. It would be an act of bad faith to take steps inconsistent with the trust, notwithstanding the presence of a clause purporting to exclude liability. [497]    I find support for this view in an illuminating analysis on Armitage (supra) by Dr James Penner in “Breach of Trust” edited by Peter Birks and Arianno Pretto (Hart Publishing) at 241. The learned author submits that the essence of a trust is that the trust property does not form part of the trustee’s personal estate. Having accepted that there is an irreducible core of obligations owed to a beneficiary, it must follow from Millett CJ’s reasoning in Armitage (supra), that, because the essence of the trust is not a matter of agreement (in that the principal obligations are imposed by rules of equity), an exclusion of liability clause cannot be construed to assist the trustee in cases where he has committed equitable fraud. Further, the author is of the view that an exemption clause of this kind does not extend to breaches of fiduciary obligation whether advertent or not”. Statutory Provisions Section 57 of the Superannuation Industry (Supervision) Act 1993 places a restriction on the scope of Trustee Exemption Clauses for the Directors of a corporate trustee of any Government Regulated Superannuation Funds that overrides Regulation 11 in certain circumstances. Section 57 states: A provision of the governing rules of a superannuation entity is void in so far as it would have the effect of indemnifying a director of the trustee against: (a)  a liability that arises because the director: (i)  fails to act honestly in a matter concerning the entity; or (ii)  intentionally or recklessly fails to exercise, in relation to a matter affecting the entity, the degree of care and diligence that the director is required to exercise Where “governing rules , in relation to fund, scheme or trust, means: (a)  any rules contained in a trust instrument, other document or legislation, or combination of them; or (b)  any unwritten rules; governing the establishment or operation of the fund, scheme or trust.