White & Ors v Williams & Ors [2011] EWHC 494

White v Williams is a timely reminder of how badly things can go for trustees who are trying to do good but in doing so lose sight of the need to determine what is good must be by reference to the deed (or here deeds) of trust, rather than by reference to the trustees’ subjective ideas. 

The case arose from proceedings relating to the disposal of the assets of a charitable trust.  At issue was the fact that following the disposal of the trust’s assets there would be no assets with which to satisfy any entitlement the trustees might have to indemnification for expenses the trustees incurred.  These expenses included:

• personal expenditure on behalf of the trust
• liabilities to solicitors and accountants retained on behalf of the trust
• the cost of the proceedings, and
• liability under a judgment against the trustees.

The court addressed the matter by first addressing whether any of the trustees’ actions amounted to a breach of trust.  In doing so the court took a two stage approach.  The first stage was to assess whether specific expenses were incurred in breach of trust.  The second was to consider whether any other amounts that the trustees might otherwise be entitled to were effectively negated by the quantum of liability to account for losses from the breaches of trust.

The court considered the actions of the trustees and found breaches of trust arising from the trustees:

• mixing the affairs of what amounted to different trusts
• allowing the trusts to run at a loss to the detriment of capital assets
• undertaking ventures not permitted by the deed of trust
• paying unauthorised remuneration to trustees
• making unauthorised borrowings
• failing to keep proper records.

The result of the breaches of trust was that the trustees were not able to obtain indemnity for expenses borne personally by the trustees.  While the court was sympathetic to the fact that the trustees effectively inherited a mess in the first place, at issue was the trustees abject lack of objectivity and inability to balance the trustees personal (moral) views against the duties owed as a trustee.

Anyone seriously interested in the intricasies of trustee’s duties and obligations and how these link to the right to indemnification for losses would find this case a worthwhile read.  The case is 19 pages long and although the background facts are not entirely straight-forward if you skim to page 6 and start reading seriously around para 22, the effort should be worth it.