The role of a trustee is frequently described as onerous—and justifiably so. The duties imposed on a trustee are both extensive and exacting, requiring continuous vigilance, prudence, and strict adherence to fiduciary obligations. Among other responsibilities, trustees must safeguard and properly manage the property entrusted to their care, always acting in the best interests of the beneficiaries.
This duty endures throughout a trustee’s tenure and must guide all actions undertaken in the course of the trusteeship—including the act of retirement. Accordingly, when transferring the trust estate to a successor—whether or not selected by them—the retiring trustee remains bound by their fiduciary duty to protect the trust property.
In this connection, readers may be surprised to know that under principles long established in Head v Gould, a retiring trustee may be held liable for breaches of trust committed by a successor trustee in circumstances where the breach was within the contemplation of the outgoing trustee at the time of retirement.
This principle was recently revisited by the English Court of Appeal in FS Capital Ltd & Ors v Adams & Ors [2023] EWCA Civ 1230, a decision that reinforces the continuing obligations of outgoing trustees in succession scenarios.
The FS Capital Case
The case concerned the improper exercise of fiduciary power by the trustees of three insolvent Jersey trusts. The trustees had caused the sale of valuable loan assets (referred to as “the Disposal”) for the improper purpose of benefiting themselves and excluding the beneficiaries. The Court of Appeal upheld the first instance finding that this constituted an improper exercise of fiduciary power, rendering the transaction void ab initio rather than merely voidable.
A separate and significant issue in the case was the liability of a retiring trustee, “Pinotage”, for breaches of trust later committed by its successor, Pinotage PTC. The Court confirmed that such liability may arise where the breach by the successor was within the contemplation of the outgoing trustee at the time of their retirement.
Knowledge or Contemplation Is Sufficient
Delivering the Judgment of the Court, Lady Justice Asplin provided a clear and authoritative statement of the legal test:
“It is clear from Head v Gould that a former trustee is liable for its successor’s breach of trust if it is proved that the former trustee contemplated the breach of trust of its successor at the time of the retirement. As Kekewich J explained, the basis for the principle is that when retiring, a trustee must have due regard to its duties as trustee, and in particular, to its duty to safeguard the trust fund for the beneficiaries.”
Importantly, the Court rejected the argument that liability only arises where the retirement was for the purpose of facilitating the breach. As Lady Justice Asplin noted:
“Even if the outgoing trustee has legitimate reasons for wanting to retire, it cannot rely upon those reasons as a means of avoiding its duty to safeguard the trust fund. Those legitimate reasons cannot justify a retirement in favour of a trustee who the outgoing trustee contemplates will act in breach of trust—and who does so.”
The Court found on the evidence that Pinotage had “very clearly contemplated” the Disposal and that the purpose of appointing Pinotage PTC as successor was to permit that improper sale to proceed. The appeal was dismissed.
Key Takeaways
The FS Capital decision affirms and clarifies a trustee’s residual duty at the point of retirement. A trustee cannot absolve itself of future liability by simply stepping aside if it knows—or reasonably foresees—that its successor will act improperly.
In practice, trustees contemplating retirement must take particular care, especially where:
- There is disagreement among fiduciaries or beneficiaries;
- A contentious or high-value transaction is pending; or
- There is any reason to doubt the propriety or capacity of the incoming trustee.
Where doubts arise, the appropriate course may be to seek directions from the court rather than resign and risk exposure to liability. The overarching duty remains to preserve and protect the trust property for the beneficiaries.
In short, a trustee’s duties do not cease upon retirement—they follow the officeholder out the door if the breach by their successor was foreseeable at the time they handed over the reins.
AUTHOR
The information contained in this article is provided for the general interest of our readers but is not intended to constitute legal advice. Clients and the general public are encouraged to seek specific advice on matters of concern. This article can in no way serve as a substitute in such cases.
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