Gross negligence and trustee liability in Guernsey: update on key principles and case law

The distinction between negligence and gross negligence can have significant consequences for Guernsey trustees, particularly when it comes to liability and a trustee's right to an indemnity. Recent decisions from the Privy Council and the Guernsey Court of Appeal provide important guidance on where that threshold lies.

In this article, experts from our Dispute Resolution team in Guernsey examine the key principles established by those decisions, the requirements for pleading gross negligence and the circumstances in which a trustee may lose their right to an indemnity.

This is the third of a series of short articles summarising key aspects of trusts law in Guernsey. Read our earlier articles on blessing applications and the removal of trustees:

• Trustee blessing applications in Guernsey: what trustees need to know

• Removing a trustee in Guernsey: key considerations and upcoming changes to the law

What amounts to gross negligence by a Guernsey trustee?

The starting point when considering possible trustee liability for grossly negligent actions is section 39(7)(a) of the Trusts (Guernsey) Law 2007. According to that section, a trustee cannot exclude liability for a breach of trust arising from his own fraud, wilful misconduct and most importantly for this article gross negligence.

An important question arises as to what this means in practice for a Guernsey trustee. What is the level of misconduct that would defeat a widely drawn trustee exoneration clause as a consequence of a judicial finding of "gross negligence"?

To answer this question it is necessary to consider the court's definition of "gross negligence". A number of decisions from both the Privy Council and the Guernsey Court of Appeal provide guidance on how the courts have approached this question.

Spread Trustee v Hutchinson

The starting point is usually the Privy Council's decision in Spread Trustee v Hutchinson [2012] 2 AC 194. In this Guernsey appeal, the Privy Council stated gross negligence was not a different kind of negligence, but a difference in, "the degree or seriousness of the want of care" and that gross misconduct "may be committed in good faith and, therefore, without dishonesty or wilfulness".

Khuller v First International Trustees Limited

This approach was developed in the Guernsey Court of Appeal's decision in Khuller v First International Trustees Limited [2020] GCA 051, where it was stated that, "In the light of the explanation given by the Royal Court, we would summarise gross negligence as a serious or flagrant degree of negligence, more fundamental than failure to exercise proper skill and / or care constituting negligence, and capable of embracing not only conduct undertaken with actual appreciation of the risks involved, but also serious disregard of or indifference to an obvious risk."

Pilatus (PTC) Limited v RBC Trustees (Jersey) Limited

The recent Guernsey Court of Appeal decision in Pilatus (PTC) Limited v RBC Trustees (Jersey) Limited [2025] GCA 091 (Pilatus) added the following important additional considerations as to the relevant duty of the trustee: "The duty to take prudent steps is not absolute or open-ended. Trustees are not insurers of the value of trust assets and are not required to take extraordinary or unreasonable steps, including embarking on contested litigation or indefinite delay of resignation, especially where legal, practical or third party barriers exist. What is required is to act reasonably, including making diligent attempts to secure replacements, to inform affected parties of the need for prompt action and (importantly) not to create a vacuum by precipitous resignation when foreseeable harm is likely. Failure to take these precautionary steps may amount to gross negligence depending on the facts, but this must be assessed in light of the options realistically available to the trustee. The answer will be intensely fact-dependent."

Pleading an allegation of gross negligence

As stated by the Guernsey Court of Appeal in Investec Trust (Guernsey) Ltd v Glenalla Properties Ltd [2022] GCA091, a plaintiff bears the relatively heavy burden of informing a defendant "with precision of the extent of the duty said to have been broken, how it had been broken, what should have been done instead, why the breach was said to have been gross and how the breach had given rise to the loss".

Therefore, a claim of gross negligence against a trustee is not something to be alleged lightly or without adequate evidence.

When might a Guernsey trustee be denied their indemnity for "gross negligence"?

The Bailiff considered the factual circumstances when a Guernsey trustee might be denied their indemnity in his ex-tempore judgment in the matter of Attard v Overseas Trust and Pension Limited (civil 2201). In that decision, the Bailiff decided that "gross negligence" had occurred such that the trustee in question should be denied its indemnity. The key factors the Bailiff took into account in this instance included:

• the trustee in question did not know the key relevant facts when instructing their advocates and the Bailiff held it was the trustee's duty to find out the facts before giving instructions

• the Bailiff further held that trustee had not adopted a neutral position, but rather the trustee took an active role in hostile proceedings

• the Bailiff was concerned that the trustee had closed its mind to the possibility that it was taking an incorrect position, stating, "I would almost go as far as to say it was wilful in ignoring the reality"

• the trustee in question made very late disclosure of key documentation, that is a second trust deed

• the Bailiff criticised the trustee for not coming to the Court to clarify which of two trust deeds was relevant to the action: “… the defendant did not consider that there was any uncertainty, which is the explanation as to why it did not take that step [coming to Court to seek clarification]. Accordingly, I am now persuaded that the defendant now has to take the consequences of not having taken that step, being found to be wrong, and so … the indemnity is therefore lost.”

In Pilatus, the Guernsey Court of Appeal upheld the Royal Court’s evaluative finding that the resignation process amounted to gross negligence. Resigning without being clear that effective replacement directors were in place was treated as a gross failure to act as a prudent professional trustee.

In the Royal Court of Guernsey's recent decision in the matter of Alan Lukes & Ors v Sovereign Trust (Guernsey) Limited [2026] GRC033, three jurats unanimously found the trustee liable for gross negligence and wilful misconduct.

How Ogier's Dispute Resolution team can help

Ogier's Dispute Resolution team in Guernsey has extensive experience advising trustees, beneficiaries and other parties on contentious and non-contentious trust matters, including applications concerning allegations of gross negligence.

If you have any queries or need further assistance with any issues raised by this article, contact a member of the team.

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Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

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