Trustees' limitation of liability: Myths, mysteries and a model clause

Under Australian trust law, trustees bear unlimited personal liability for trust debts and liabilities. If they want to limit their liability to a creditor (eg to trust assets) they must agree a limit bilaterally with that creditor, to apply as a matter of contract. The law and the issues involved in doing so are complexand not always fully understood. Attempts to deal with them have yielded a wide range of approaches, but on close analysis many may only be partially effective. When typical limitation clauses are analysed, it becomes apparent that the expectations of trustees and creditors can be frustrated. In this article, the authors explore the legal framework within which these limitations operate, identify common issues in clauses currently in use and suggest and explain in detail a model clause which seeks to address them and place trustees and creditors on a more certain footing. The discussion includes consideration of the position of security trustees, ie trustees acting in a financing context who hold security on behalf of multiple creditors.