Exemption clauses in the modern age: do they result in an “institution in crisis”?

Abstract

Exemption clauses are a common feature of modern trusts. These seek to exempt trustees from liability for breach of trust, or to indemnify them from the trust assets for personal liability for breach. Contract law has long featured a rule that exemption clauses cannot protect a person from liability arising from the person’s own fraud.2 It cannot safely be assumed that rules of contract will be applied to trusts and, if they are, how they might be adapted to the different trust context. The rule in contract is that a person’s own fraud cannot be excluded. Fraud is capable of different meanings in different contexts. Equity has long treated conduct falling short of actual fraud to be constructive fraud.3 There was uncertainty as to whether this special meaning would apply to trust exemption clauses. If fraud has the same meaning as in a contractual setting, then exemption...