The Powers and Duties of Trustees

what are the 3 broad categories of duty which a trustee is subject to?

1. duty to preserve the trust assets

2. duty to manage the trust assets with proper care

3. duty of undivided loyalty

key point of Buttle v Saunders?

trustees have a duty to obtain the best price they can for beneficiaries

> subject to such a discretion as will allow them to act with prudence

key point of Cowan v Scargill?

trustees must put on one side their own personal interests and political or social views in administering the trust

key point of Speight v Gaunt?

when considering breach of duty the courts will look at the standards of business at the time of the alleged breach

a trustee must act solely in the interest of ___________________________ and in the pursuance of ________________________

the trust objects

the trust purposes

facts of Buttle v Saunders?

• trustees had orally agreed to sell trust land to Mrs S for £6,000

• after all the docs had been prepared for the sale to Mrs S, but before the contract was signed, one of the beneficiaries, Buttle, offered £6,500

• the trustees felt that they had reached a stage in negotiations with Mrs S from which they could not honourably withdraw

• Buttle brought an action to restrain the trustees from selling for any price below that which he had offered

what was held in Buttle v Saunders?

the trustees must accept Buttle’s offer

• NOT nec that the production of a higher offer at any stage requires trustees to accept higher offer - there could be cases where the trustee could properly refuse a higher offer

• each case must depend on its own facts

• current case: the trustees acted on an incorrect principle: the only consideration which was present in their mind was that they had gone so far in the negotiations with Mrs S that they could not properly resile from them

facts of Cowan v Scargill?

• a mineworker’s pension fund was managed by a committee of 10 trustees, 5 of whom were appointed by the National Coal Board and 5, including D, by the National Union of Mineworkers

• in 1982, when a revised plan was considered, the 5 Union trustees refused to accept the revised plan unless it was amended so that there would be no increase in overseas investment, overseas investment already made would be withdrawn, and there would be no investment in energies competing with coal

what was held in Cowan v Scargill?

The National Union of Mineworkers trustees committed a breach of trust in refusing to concur in adopting the revised plan for investment due to taking into account ethical considerations

key point of Harries v Church Commissioners?

• circs in which charity trustees are bound or entitled to make a financially disadvantageous investment decision for ethical reasons are extremely limited

• the starting point when a charity holds trust property for the purposes of investment is to make such investments as maximises financial return

facts of Harries v Church Commissioners?

the Bishop of Oxford claimed that the Church Commissioners, whose purpose is to promote the Christian faith through the Church of England, should not select investments in a manner incompatible with that purpose, even if this involved a risk of significant financial detriment

what was held in Harries v Church Commissioners?

trustees may accommodate the views of those who consider that on moral grounds a particular investment would be in conflict with the objects of the charity, so long as the trustees are satisfied that course would not involve a risk of significant financial detriment

what is the statutory standard of care for all acts listed in Schedule 1 Trustee Act 2000?

s.1(1): such care + skill as is reasonable in the circumstances, having regard in particular -

(a) to any special knowledge or experience that he as or holds himself out as having, and

(b) if he acts as trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession

what is the common law duty of care?

trustees are expected to exercise the same standard of diligence and care as an ordinary prudent person of business would exercise in the management of their own affairs

(OBJECTIVE)

facts of Speight v Gaunt?

• a trustee was instructed by the beneficiaries of the trust to invest the bulk of the trust assets in securities

• on the advice of the beneficiaries, the trustee selected a stockbroker, not realising that the stockbroker was nearly insolvent

• the stockbroker showed the trustee a forged note as evidence that the securities had been purchased

• the trustee transferred the trust funds to him

what was held in Speight v Gaunt?

the trustee had not breached his duty of care because he had complied with the standards of business practice at the time, namely to transfer the payment before the securities were executed

• the trustee is not to be blamed if he honestly and without knowing anything that makes it exceptionally risky in his case, pursues the usual course

key point of Learoyd v Whiteley?

trustees tasked with investing trust money should be held to the standard of an ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide, as such they could not engage in overly speculative investments

facts of Learoyd v Whiteley?

• Learoyd and Carter were trustees for Whiteley and her children

• they had power to invest in mortgages and so lent £3,000 at 5% secured on a freehold brickfield

• they employed experienced local valuers, who reported that brickfield was good security for a loan of £3,500

• it proved to be a poor investment, as brickfield went out of business

what was held in Learoyd v Whiteley?

the trustees were held liable because they should have avoided ‘hazardous and speculative’ investments

• the business which the ordinary prudent man is supposed to be conducting for himself is the business of investing money for the benefit of persons who are to enjoy it at some future time, and not for the sole benefit of the person entitled to the present income

what are the standard investment criteria?

1. suitability

2. diversification

what is the requirement of suitability?

trustees must consider how suitable the trust is to the particular investment

• the smaller the fund and the shorter the anticipated life of the trust, the more approp it will be to make a short-term investment (and vice versa)

• not approp to take unacceptable risks

what is the requirement of diversification?

invest in competing sectors

generally, ethical and non-financial considerations should be ignored EXCEPT where:

(i) there is a choice of 2 investments that are equally economically beneficial to the beneficiaries

(ii) the beneficiaries are all adults with full legal capacity and who are absolutely entitled to the trust property, the trustees may have regard to ethical considerations if all of the beneficiaries have strict views on such matters

(iii) the settlor or testator can exclude certain investments from the power of investment on ethical grounds

what does s.5(1) Trustee Act 2000 state?

before exercising any power of investment, a trustee must obtain and consider proper advice about the way in which, having regard to the standard investment criteria, the power should be exercised

what does s.5(3) Trustee Act 2000 state?

a trustee need not obtain such advice if he reasonably concludes that in all the circumstances it is unnecessary or inappropriate to do so

what is proper advice under s.5(4) Trustee Act 2000?

the advice of a person who is reasonably believed by the trustee to be qualified to give it by his ability in and practical experience of financial and other matters relating to the proposed investment

key points of Nestle v National Westminster Bank plc?

• a breach of duty in managing investments will not be actionable if it does not cause loss

• such ‘loss’ will be incurred by a trust fund when it makes a gain less than would have been made by a prudent businessman

facts of Nestle v National Westminster Bank?

• C’s grandfather died in 1922 and appointed the NWB as his executor and trustee

> under his will his widow had a life interest in the family home

> on her death, their 2 sons had a half-interest in the residue

> when they died, their shares went to their children

• in 1986 C, who had become absolutely entitled to the capital, claimed that the trust fund (then valued at £270,000) should have been worth £8m

what was held in Nestle v National Westminster Bank?

whilst the bank was under a duty to maintain balance between beneficiaries, it could not be established that C had suffered loss as a result of the bank’s management of the fund

facts of Butler-Sloss v Charity Commission?

• 2 charitable trusts sought a declaration that they were entitled to adopt an investment policy which excluded investments inconsistent with the Paris Climate Agreement, notwithstanding the fact that this strategy might be detrimental to the anticipated rate of return

what was held in Butler-Sloss v Charity Commission?

trustees’ power to invest must be exercised to further a charity’s purposes

• although this would normally mean maximising financial returns, trustees have a discretion as to whether to include investments which they reasonably believed were in conflict with the charity’s purposes

trustees are not liable for any acts or omissions of agents, EXCEPT if _____________________________________________

the trustee has failed to comply with the statutory DoC when entering into the arrangements or reviewing the arrangements

what does s.11(1) TA 200 state?

trustees may authorise any person to exercise any or all of their delegable functions as their agent

what does s.12(2) TA 2000 state?

trustees may not authorise 2 or more persons to exercise the same function unless they are to exercise the function jointly

do beneficiaries have the right to inspect trust documents?

no, but they are entitled to see trust accounts

key points of Schmidt v Rosewood Trust Ltd?

• beneficiaries do not have an entitlement as of right to disclosure of trust documents

• it is neither nec nor sufficient to have a proprietary interest under a trust in order to be entitled to disclosure of trust docs

key points of Breakspear v Ackland?

• wish letters should be confidential because they further the purpose of exercising trustees’ discretionary powers

• trustees need not disclose confidential items to beneficiaries merely because they request it unless, in their view, disclosure is in the interests of the sound administration of the trust

what is a wish letter?

a letter form the settlor on how they wish the trustees would exercise their powers

facts of Breakspear v Ackland?

the beneficiaries sought the disclosure of a wish letter which had been written to the trustees by the settlor

what was held in Breakspear v Ackland?

the wish letter should be disclosed

• while the general rule is that wish letters are confidential, the trustees are seeking court sanction of the scheme of distribution, which would require the disclosure of the wish letter to the court, as it is nec for the court to consider the reasons for the exercise of the trustees’ discretion

the _________________________ of the beneficiary to an act that would otherwise constitute a breach of trust or breach of fid duty may serve as a defence to liability

free + informed consent

key point of Re Brockbank?

beneficiaries cannot compel the trustee to exercise a discretionary power in a certain manner

key points of Armitage v Nurse?

• exclusions of liability of trustees are limited by the idea of the ‘irreducible core’ of obligations which make up a trust, which is to manage the trust honestly for the benefit of the trustees

• actual fraud is acting in a way which the trustee does not honestly believe is in the interests of the trust; this cannot be excluded from the liability of trustees

facts of Armitage v Nurse?

• P was the beneficiary of land held under a trust, such land being farmed by a family company (GW Nurse)

• the trustee settlement contained a clause stating that no trustee shall be liable for any loss or damage which might happen to P’s fund at any time or from any cause whatsoever unless such loss or damage shall be caused by his own actual fraud

• P alleged that the trustees had acted in breach of trust by hiring the family company to farm the land

what was held in Armitage v Nurse?

the trustees were under no liability in the absence of any dishonest intention

key point of Walker v Stones?

a solicitor-trustee cannot exclude liability where the trustee’s so-called ‘honest belief’, though actually held, is so unreasonable that, by any objective standard, no reasonable solicitor-trustee could have thought that what he did or agreed to do was for the benefit of the beneficiaries

facts of Walker v Stones?

• The professional trustees of a discretionary trust were also partners in a firm of solicitors

• a clause of the trust deed exempted trustees from all liability other than ‘wilful fraud or dishonesty’

• the beneficiaries of the trust alleged that the trustees had acted in breach of trust by acting for the benefit of people who were not objects of the trust

what was held in Walker v Stone?

the exemption clause was void to the extent that it sought to exclude liability for gross negligence

what was held in Barnsley v Noble?

the phrase ‘wilful and individual fraud or wrongdoing’ in the exoneration clause meant a deliberate breach of trust and nothing less than conscious and wilful misconduct was sufficient to preclude exoneration

what does s.61 of the Trustee Act 1925 state?

if it appears that a trustee … is or may be personally liable for any breach of trust … but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust … then the court may relieve him either wholly or partly from personal liability

key points of Perrins v Bellamy?

• absent special evidence that the provisions in s.61 TA ought to be applied in his favour, if the trustee acted ‘reasonably’ he ought to be relieved and the court need not consider separately whether he ‘ought fairly to be excused for breach of trust’

• despite the words of the statute, whether or not a trustee omitted to seek advice from the court merely goes towards reasonableness and is not an independent head under which a trustee can be made liable

key point of Santander UK Plc v RA Legal Solicitors?

• in mortgage fraud cases, s.61 TA required the trustee to prove that he acted reasonably only in relation to those aspects of his conduct which are connected with the beneficiary lender’s loss

• such connection does not equate ‘but for’ causation, but some causative connection is usually required

a trustee has a duty to balance ____________________________

the interests of current and future beneficiaries (Nestle v National Westminster Bank)

what does s.4(2) Trustee Act 2000 require?

the trustee must from time to time review the investments of the trust

actual fraud requires __________________

dishonest intent (Armitage v Nurse)

according to Armitage v Nurse, what do the ‘irreducible core of obligations’ NOT include?

skill or care, prudence or diligence

what does s.22(1)(a) Trustee Act require?

trustees must keep under review the arrangements under which the agent acts and how those arrangements are being put into effect

what does s.22(1)(b) Trustee Act require?

if circs make it approp to do so, the trustee must consider whether there is a need to exercise the power in part (a)

what are the 2 main types of breach that lead to the account being surcharged?

1. failure to take sufficient care in investing the trust property

2. failure to insure or otherwise care properly for the trust property (and the trust property is stolen, destroyed or damaged)

what is the result of the surcharge?

money is added to the trust to represent what would have happened had better investments been made, or if an insurance payout had been received

what happened in AIB v Redler?

the loss was caused by the collapse of the property market and would have happened even if the solicitors had correctly followed AIB’s instructions

what was held in AIB v Redler?

the solicitors were liable only for the loss caused by their specific breach

is the beneficiary obliged to falsify the account if the trustee makes an unauthorised transaction?

NO

• he may accept the unauthorised transaction

• may want to do this if the unauthorised investment has appreciated in value

what does equitable compensation refer to?

where the beneficiary is paid directly, rather than payment being made into the trust

in cases of breach of trust, where might equitable compensation be appropriate?

where the trust has come to an end, such that it would be inapprop for the trustee to reconstitute the trust fund

account of profits is available to require ____________________________________

a trustee to give up gains made by reference to a breach of trust or breach of fiduciary duty