Armitage v Nurse [1998] Ch 241

A family settlement was created for Paula Armitage while she was an infant. The trust deed contained a clause relieving trustees from liability for loss or damage unless it resulted from their own actual fraud. After reaching adulthood, Armitage alleged that the trustees had committed breaches concerning the management and application of trust property. The pleadings included negligence and other misconduct but did not adequately allege dishonesty against the trustee relying on the exemption. She argued that the clause was invalid because it removed duties fundamental to the existence of a trust, or that it should not protect the trustee from the alleged breaches. The Court of Appeal considered both the meaning of actual fraud and the irreducible content of trusteeship.

Can a trust instrument validly exempt a trustee from liability for negligence, including gross negligence, while preserving liability only for the trustee's own actual fraud?

The Court of Appeal upheld the clause. Millett LJ said that every trust has an irreducible core obligation requiring trustees to perform the trust honestly and in good faith for the benefit of the beneficiaries. A clause cannot excuse a trustee's own fraud because that would be inconsistent with the existence of a trust. However, English law did not treat a duty of skill and care, even freedom from gross negligence, as part of that indispensable core. Clear wording could therefore exempt liability for negligent breach. Actual fraud meant dishonesty rather than merely intentional conduct or equitable fraud in a wider sense. Since the claim did not properly allege the dishonesty needed to escape the clause, it could not proceed in its existing form.

A trustee exemption clause may exclude liability for negligence, even gross negligence, if drafted clearly, but cannot protect a trustee from their own dishonesty. The irreducible core of a trust is the duty to act honestly and in good faith for beneficiaries.

Armitage is the leading authority on the boundary between settlor autonomy and minimum trustee accountability. It distinguishes fiduciary honesty, which cannot be excluded, from the duty of care, which may be modified by the trust instrument. The decision is controversial because professional trustees may receive wide protection, and regulatory or statutory rules can affect particular contexts. It should not be read as authorising dishonesty, eliminating duties owed under the instrument, or protecting third parties automatically. Cases such as Walker v Stones further consider when a professional trustee's conduct is too dishonest or unreasonable to receive protection.