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| The law |
Refer to a lawyer |
Refer to an accountant |
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1. The statutory duty of care and its application |
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Section 1(1) of the Act sets out a duty which it calls the "duty of care" and which in this OG we have referred to as "the statutory duty of care". The statutory duty of care is the duty to exercise such care and skill as is reasonable in the circumstances having particular regard to: |
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- any special knowledge or experience that the trustee has or holds themselves out as having; and
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- where he or she acts as a trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession.
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This statutory duty of care applies to a trustee in the circumstances set out in schedule 1 of the Act (see section 2 below). |
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It is important to note that the statutory duty of care applies to trustees not only in their exercise of a number of specified powers conferred on them by the Act, but also in their exercise of the same type of power derived from a source other than the Act. For example, the statutory duty of care applies not only when trustees exercise the general investment power conferred on them by s. 3(1) of the Act but also when they exercise any investment powers conferred on them by their governing document or by any other provision. |
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The statutory duty of care will take effect in addition to the existing fundamental duties of trustees, for example, to act in the best interests of the charity and comply with the terms of the trust. However, it will exclude any common law duty of care which might otherwise have applied. |
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The statutory duty of care does not normally apply if and in so far as it appears from the trust instrument that the duty is not meant to apply. Trustee indemnity clauses in the governing documents of charities are quite common in practice, though the common law imposes a limit on the possible scope of such clauses and the Law Commission are examining whether there should be statutory intervention here (company law generally forbids such provisions). The duty applies to the manner in which the trustees carry out a discretionary power and not the decision whether to exercise the discretionary power in the first place (although it does cover the requirement that trustees must review the investments of the trust from time to time). |
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To discharge the duty, a trustee will need to show such skill and care as is reasonable in the circumstances of the case, making allowance for his or her special knowledge, experience or professional status. Thus, in relation to the purchase of stocks and shares, a higher standard may be expected of a trustee who is an investment banker, specialising in equities, than of a trustee who is, for instance, a librarian. This example would be particularly relevant where the investment banker is acting as trustee in the course of his or her investment banking business (for remuneration - assuming this is permitted), where an examination of the skills normally possessed by such persons would also be material. |
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Legal advice should be sought where trustees are seeking to limit their liabilities as trustees, by making changes to the governing document. |
 
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2. The areas in which the statutory duty of care applies |
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The statutory duty of care applies to a trustee in the circumstances set out in schedule 1 to the Act, which specifies a range of powers and duties primarily in the following areas: |
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- appointment of agents, nominees and custodians and review of their performance (see OG 86 B3 and B4); and
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It also applies to the exercise of the powers in section 6 of Trusts of Land and Appointment of Trustees Act 1996 (see OG 86 B2). |
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The statutory duty of care also applies to trustees who are exercising specified powers under sections 15 and 22 of the Trustee Act 1925. The powers in section 22 are of no real relevance to charity trustees and are to do with the handling of reversionary interests and with valuation of trust property. However section 15 is frequently relied upon by charity and other trustees, for example, in relation to the compromising of claims. The existing required duty of care is merely one of honesty; the new statutory duty of care does, of course, go beyond this. |
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3. How the statutory duty of care sits with other legislation or duties |
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Section 2 above sets out when the statutory duty of care applies in terms of this Act. It is, however, important to see this legislation in the context of other legislation and common law principles that affect charity trustees and their duties to manage charities and look after their assets. |
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- This Act is concerned only with specific powers and duties. It does not directly affect the duties of care which would apply to the exercise of other powers or the discharge of other duties. But where those duties of care derive from common law, rather than from the explicit provisions of statute, the new statutory provision could affect how the courts define those duties in the future. The traditional formulation has been the standard expected of the prudent man of business acting on behalf of someone for whom he felt morally bound to provide, taking into account whether he is receiving payment for his services or not. Clearly the statutory duty differs from this at least in the element of subjectivity which it introduces: it remains to be seen what other differences there will be.
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- The Act has no direct effect on the duties of care of the directors of charitable companies.
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It is important to remember therefore that the statutory duty of care extends to the provisions stipulated within this Act and similar provisions contained within governing documents. It will not extend to all functions carried out by all charities. |
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