Trustees’ limitation of liability

Under Australian trust law, a trustee bears unlimited personal liability for all debts, liabilities and expenses incurred by a trust. In commercial trusts, such debts and liabilities may run to many millions of dollars and even billions of dollars.

Thus, trustees usually seek to limit their personal liability through a limitation of liability clause in the documents which they execute in their capacity as a trustee for a trust. However, across the Australian market, there is no uniformity in limitation of liability clauses, which often leads to frustration for both trustees and parties who enter into agreements with trustees.

The legal framework within which these clauses operate

Because a trust is not a legal entity with a separate legal personality, all debts, liabilities and expenses incurred by a trustee are personal. But a trustee may be indemnified under two different rights:

  • a reimbursement right (the trustee’s right to replenish its own assets where it has discharged trust liabilities personally); and
  • an exoneration right (the trustee’s power to apply trust assets directly to discharge trust liabilities).

Both rights are, however, subject to certain conditions:

  • the liability to be indemnified must be incurred by the trustee in accordance with its duties; and
  • a trustee’s right of indemnity is subject to its first making good any loss or damage caused to the trust fund by previous breaches of trust (“clear accounts” rule).

Both rights are commonly conflated, because they save trustees from the consequences of incurring trust liabilities. But the former is only to the trustee’s personal benefit, while the latter can be seen as simply part of the general power of the trustee to apply trust assets for trust purposes.

Moreover, these rights are backed by a proprietary right of the trustee to retain trust assets and use them to satisfy those rights. Consequently, trust creditors cannot obtain a writ of execution against trust assets.

Creditors may take steps to mitigate the risk that the first condition above is not satisfied, but there is little they can do to protect themselves against the risk inherent in the clear accounts rule. Indeed, the misconduct of the trustee may be unknown to the creditor and potentially even unknowable.

Subject to a well drafted limitation of liability clause, the trustee continues to be personally liable for trust liabilities whether or not the trust assets are sufficient to discharge them, even if that renders the trustee insolvent.

The parties’ overall objectives

Trustees generally want to limit their exposure for trust liabilities to the trust assets so that their solvency is not at risk. This is particularly important where a trustee is an external trustee, like members of the One Investment Group, that is appointed as a trustee for many trusts as opposed to a special purpose company with limited assets. Unsecured trust creditors may be asked by a trustee to look to the credit of the underlying economic entity (e.g. the trust estate or fund). If they are satisfied with that credit they are usually prepared to limit the trustee’s liability (or their own recourse) to the trust fund.

However, counterparties may wish to protect themselves from the possibility that access to the trust assets may be lost or impaired due to trustee misconduct, in which case they will want to look to the trustee and its own assets. This can be achieved by a correctly drafted limitation of liability clause in a contract.

The operation of trustee limitation of liability clauses

A limitation of liability clause seeks to achieve an agreed allocation of risk between the trustee and a counterparty entering into an agreement with the trustee in its capacity as a trustee of a trust. Limitation of liability clauses must be drafted with care because the courts will approach them with caution, as they operate to limit or reduce the extent of the legal remedies which the counterparty would otherwise have against the trustee.

Limitation of liability clauses were historically very short and simple, however limitation of liability clauses have become increasingly complex. Many current limitation of liability clauses use inaccurate technical concepts and some appear to misconstrue the law. Indeed, in the typical commercial transaction, there is neither the time nor the inclination to put them to rigorous analysis, particularly when there is much else to be negotiated.

The key elements required in a trustee limitation of liability clause

A professional trustee, or corporate trustee, such as members of the One Investment Group, typically have a very low risk appetite for taking personally liability for a trust liability. This is in order to ensure that the liabilities of any given trust are not able to place such trustees at risk potentially impacting other trusts.

An appropriate limitation of liability clause should address such issues in a manner that is consistent with commercial understandings and risk allocation decisions which are common in the Australian market.

A trustee limitation of liability clause:

  • typically states that the trustee enters into the agreement as trustee and repeats the description and capacity in the list of the parties to the agreement;
  • extends the concept to pre- and post-contractual conduct and also to the transactions carried out in connection with the document. But the trustee is and remains personally liable even though the clause limits liability and recourse to the extent of the trust assets;
  • limits liability to the extent of the trust assets, and more particularly to the extent that a liability “can be satisfied out of the assets of the Trust”. It should be noted that there is no need for the limitation of liability clause to refer to the right of indemnity. Indeed, the words are sufficiently broad to cover assets available under the right of indemnity but also deal with other means of access which do not necessarily rely on the indemnity. The expression “can be satisfied” is deliberately chosen to capture both a legal and a practical ability to apply trust assets to discharge trust liabilities. There is an option in this paragraph to treat as trust assets, for the purposes of the clause, amounts actually received by the trustee to pay a specific liability so that the trustee would be required to hand such amounts over in satisfaction of that liability. Thus, if the trustee receives an amount to satisfy a specific liability, it ought to be required to pay it over and not simply to sit on it as a windfall, or count it as its own funds or apply it for other purposes;
  • normally reinforces the principles above in listing the rights and remedies that can be exercised in respect of trust assets before listing actions that are barred. Some clauses do the reverse, but in substance there is no difference;
  • typically preserves the right for creditors to participate in the liquidation or administration of a trustee for the liabilities so long as their claim is limited to trust assets. Further, it contains the right for creditors to seek to have the trustee placed in any form of insolvency administration;
  • usually permits a counterparty to bring proceedings seeking orders with respect to trust assets. It would allow the appointment of a court-appointed receiver over trust assets, which may be a necessary remedy to protect trust assets from breaches of trust;
  • allows the counterparty to exercise the rights bargained for, i.e. its security and contractual rights. Thus, the permission for a creditor to “enforce its security” would include the appointment of a receiver or receiver and manager in relation to some or all of the secured property or the secured creditor taking possession of some or all of the secured property;
  • allows the counterparty to take proceedings which do not disturb the limitation on liability. Often there is a ban in on bringing proceedings against the trustee, but there can be express permission to bring proceedings which are directed only at trust assets, or other proceedings which would be subject to the limitation or would not offend it;
  • describes the circumstances in which a trustee’s personal assets may be placed at risk and pursued in satisfaction of a liability that might otherwise be a trust liability. This exception is not absolute, but operates only to the extent that the relevant liability has been adversely affected;
  • might address the situation where the trustee’s right of access to the trust assets is lost or reduced because of some failure on the trustee’s part. This can occur where the trustee either acts beyond power or acts within power “improperly” (e.g. breach of duty). Thus, the reference to acting “beyond power or improperly in relation to the Trust” is wide enough to encompass all circumstances in which the right of indemnity will be impaired; and
  • might be restricted where the parties may agree that it is appropriate for the limitation not to apply in respect of the resulting loss or damages if certain core representations/warranties or undertakings are breached.

Members of the One Investment Group act as Corporate Trustee for in excess of 250 Funds with a wide variety of underlying asset classes including fund of funds, private equity, real estate, credit, cash and equities. As a result of members of the One Investment Group being an external trustee, these members have a low tolerance for accepting any liability resulting from their role as trustee.

John O’Leary

Director, Corporate Trust

John has over 19 years’ experience in the financial services industry working for a number of both domestic and global organisations. 

Prior to joining OIG, John worked for UBS, State Street, RBC, NAB Asset Servicing and MLC and has extensive experience in investment operations, custody and administration. 

John has a Bachelor of Arts Degree in Accounting and Finance from Athlone Institute of Technology and a post graduate Higher Diploma from Maynooth University. 

Emma Brown

Director, Finance & Taxation

Emma has over 17 years’ experience in accounting and taxation working largely in chartered accounting firms servicing clients from various industries including professional services and real estate. Throughout this time Emma has partnered with various business leaders in delivering quality professional advice and commercial insight. 

Emma has a Bachelor of Commerce from University of Newcastle, is a member of Chartered Accountants ANZ and is a registered tax agent. 

Garry El Hassan

Head of Registry Services

Garry comes to OIG with close to 20 years experience in the Financial Services Industry. Garry’s wide ranging financial services experience encapsulates operational functions within Registry, listed and unlisted asset management, Regulatory Reporting, Systems and Platform Management, AML/CTF Management, Remediation and Complaints  Management, and Deceased Estates Management.  

As systems owner across multiple organisations, Garry has been instrumental in the implementation and development of Registry and Advice systems from inception to maturity. With a history of developing high performing teams and elevating organisational capacity and efficiency, Garry has built a brand in the industry around seeing opportunities for development and transforming them into functional deliverables that have significant uplift for organisations and the clients. 

Notable positions Garry has held include various management roles at Macquarie Wrap Adviser Services, CommSec CBA, State Super Financial Services, First State Super and Aware Super. Garry has a Bachelor’s of Economics/ Managerial Economics from Western Sydney University. 

Monique Sheehan

Director, Client Services

Monique is a highly experienced financial services executive with an extensive background spanning over 25 years. She has held key leadership positions in both domestic and global organisations with experience including investment operations, capital markets, platform operations, custody, fund accounting, and middle office. 

Monique brings her wealth of expertise and professionalism to One Investment Group gained from her diverse roles across Macquarie Bank Ltd, State Street Australia Ltd, Australian Unity, Link Group and OneVue. 

Lisa Wilson

Head of Fund Services

With over 25 years of experience in the Custody and Fund Services industry, Lisa has managed all client operational functions including Fund Accounting, Financial Reporting, Tax, Private Equity, Middle Office, Platform and Unit Registry.  

While initially beginning her career in Fund Accounting, Financial Reporting and Tax, she soon began to build a brand as someone who could take teams through a change journey and has done so on various business transformations including IFRS and TOFA implementations, off-shoring of processes, platform migrations, on-boarding large clients, establishment of new functions and a business closure. Lisa has since been specialising in evolving operating models and leading people through change to build high performing teams. 

With her career spanning across Australia, UK, USA and Luxembourg, Lisa brings a wealth of experience in global and local organisations. Lisa is a CPA and has a Bachelor of Commerce from the University of Western Sydney. 

Tom Hure

Chief Financial Officer

Tom has over 25 years’ experience as a financial executive having led teams at listed, unlisted, joint venture, divisional, national, and government levels. Tom’s industry experience includes financial services, transport, real estate, leasing, funds management, and structured finance.

Prior to joining OIG in January 2022, Tom was Chief Financial Officer of Indigenous Business Australia, an Australian Government entity with an asset base of nearly $2 billion across housing loan, business loan and investment portfolios. Tom has also held senior finance roles at the likes of Transdev Australasia, CIMIC Group, Mirvac, ING Real Estate and Allco Finance Group.

Tom holds a Bachelor of Commerce (Accounting) from the University of Western Sydney, a Master of Commerce (Professional Accounting) from Macquarie University and is a member of Chartered Accountants Australia and New Zealand.

Steve Beland

Head of Sales

Steve has 16 years’ experience in accounting and taxation gained in funds management, corporate and professional services. Prior to joining Unity Fund Services in October 2010, he has held Tax manager roles at both Brookfield Multiplex Ltd and Everest Financial Group Ltd.

Prior to this, Steve worked for Ernst & Young providing general tax advice to corporate clients as well as being involved in a numerous tax due diligence assignments for private equity transactions. He also worked for Horwath as a Supervisor specialising in the provision of taxation and business services to high-net-worth individuals and SME businesses including a secondment to the Chicago (USA) office.

Steve is a Chartered Accountant, Registered Tax Agent and Chartered Tax Adviser of the Tax Institute of Australia. Steve holds a Bachelor of Commerce (Accounting) and Master of Taxation from the University of Sydney.

Michael Sutherland

Head of Corporate Trustee Services

Michael has over 25 years’ experience in the financial services industry including 12 years’ experience in providing trustee, custody and administration services to the debt capital markets and funds management industry.  

In this time Michael spent 7 years at Perpetual Limited where he was a senior lawyer in Perpetual’s legal teams. Michael has also spent a number of years in other business and legal roles including working in large, medium and boutique fund managers, retail banks, investment banks, structured credit providers and hedge funds, such as ANZ, ABN AMRO, AMP, Everest and Absolute Capital.  

Michael also has experience acting as an executive director of Responsible Entities, ASX listed companies (executive director and company secretary) and acting as a member of investment, product, risk, audit and compliance committees. 

Michael holds a Bachelor of Laws from University of Technology Sydney and a Bachelor of Arts from Macquarie University. He is a member of the Australian Securitisation Forum, the Property Funds Association, the Banking and Financial Services Law Association and holds a current practicing certificate from the NSW Law Society. 

Sarah Wiesener

Head of Legal, Risk and Compliance

Sarah is a lawyer with over 20 years’ experience in the financial services arena across a range of roles, structures and asset classes.

She is a Chartered Company Secretary and has acted as Company Secretary to a number of listed property funds.

Sarah has been head of compliance for a number of listed property funds. She has been a member of investment committees and provided support to audit, risk, and compliance committees as well as remuneration and nomination committees.

Sarah has experience in structuring complex capital markets transactions in domestic and overseas jurisdictions (primarily debt, securitisation and collaterised debt structures) and has worked closely with management on a number of fund management products for wholesale and retail investors.

Sarah holds a Bachelor of Laws from Bristol University (Honours) and holds a current NSW practising certificate.

Frank Tearle

Founder & Chief Executive Officer

Frank co-founded One Investment Group in 2009, and since December 2018 has acted as its chief executive officer. 

Before founding One Investment Group, Frank spent 6 years working at a structured finance and funds management business.  He held a variety roles including  General Counsel, a fund manager of two funds and interim head of the Hong Kong office. 

Prior to this corporate experience, Frank was a practicing lawyer with more than 10 years’ experience working in major law firms in Australia and the United Kingdom, specialising in mergers and acquisitions, capital markets, funds management and corporate governance. 

Frank has been a non-executive director of several companies, including the corporate manager of a Singapore listed property trust and an APRA regulated insurance company. 

Frank has a Masters in International Business Law from the University of Technology, Sydney and a Bachelor of Law (with Honours) from the University of Leicester.