Trustee Powers and Duties

Trustee Powers and Duties

• Trustees have powers when managing trust property and general duties, including those related to investing trust property
• A beneficiary might gain a remedy for a trustee's breach of duty
• The remedies available for breach of trust should be considered

Recap of Fiduciary Duties

• Duties specified in the trust instrument
• General trustee duties
• Fiduciary duties.
• This week's focus is on general trustee duties
• General trustee duties apply specifically to trustees and are largely governed by legislation

Trustee Investments

• Trustees have a duty to maintain trust property as investments
• This duty is subject to any conditions the settlor included in the trust instrument
• Trustee Act 2000, s.8 allows a trustee to acquire freehold or leasehold land in the UK as an investment, for a beneficiary's occupation, or for any other reason

Restrictions and New Laws

• Old laws restricted trustees' powers to invest in company shares
• The Trustee Investments Act 1961 allowed investment of half the trust property in shares, increased to ¾ in 1996
• This restriction was lifted by the Trustee Act 2000
• The Trustee Act 2000, s.3(1) provides a general power of investment, allowing trustees to make any kind of investment they could if they were absolutely entitled to the trust assets
• Shifted from rigid prudence to modern 'portfolio theory'

Duty of Care Statements

• Early statements of this duty say a trustee must act as a “prudent man of business" (Speight v Gaunt (1883) 9 App Cas 1)
• The duty requires taking care like an ordinary prudent person minded to invest for the benefit of others they feel morally bound to provide for (Re Whiteley (1886) 33 CH D 347)

Trustee Act 2000 and Duty of Care

• Trustee Act 2000, s.1(1) requires a trustee to exercise reasonable care and skill in the circumstances, considering any special knowledge or experience they have or hold themselves out as having
• If acting as a business or profession, the standard is any special knowledge or experience reasonable to expect of a person acting in that kind of business or profession

Standard Investment Criteria: Trustee Act 200 Section 4

• Trustees must consider standard investment criteria when exercising any investment power (s.4(1))
• Trustees must review investments and consider if they should be varied, regarding investment criteria (s.4(2))
• The standard investment criteria includes:
  • The suitability to the trust of investments of the same kind as any particular investment proposed (s.4(3)(a))
  • The need for diversification of investments of the trust, as appropriate to the trust's circumstances (s.4(3)(b))

Duty to Obtain Advice: Trustee Act 2000 Section 5

• Before exercising any power of investment, a trustee must obtain and consider proper advice (s.5(1))
• This is unless the exception applies, regarding the standard investment criteria
• When reviewing trust investments, a trustee must obtain and consider proper advice about whether the investments should be varied (s.5(2))
• The exception is that a trustee need not obtain advice if they reasonably conclude it is unnecessary or inappropriate (s.5(3))
• Proper advice is from a person reasonably believed to be qualified to give it (s.5(4))

Liability for Breach of Trust

• Beneficiaries can seek a personal remedy for breach of trust
• Breach of trust includes any breach of the trustees' powers and duties like those in the trust instrument, general trustee duties, and fiduciary duties.
• Beneficiaries must show a breach, a loss to the trust, and causation between the breach and the loss (Target Holdings v Redfern [1996] AC 421)

Liability for Poor Investments

• It needs to be determined if a trustee breaches their duty by making poor investment decisions
• Trustees may have a duty to increase the value of the trust property
• High inflation or terms of trust paying income to beneficiaries can affect this.
• A trustee is only liable for their own wrong, and loss of trust money is not proof of wrongdoing (Re Chapman [1896] 2 Ch 763)

Proving Liability

• Must prove breach of duty (e.g. duty of care, s.4 investment duties), loss to trust, and causation.
• Nestle v National Westminster Bank [1993] 1 WLR 1260 details how £54,000 invested in 1922 and worth £270,000 in 1986 led to a claim of ¾ drop in trust value in real terms
• The court asked whether trustees misunderstood investment powers and breached their duty to act as an ordinary prudent person

Trustee Shareholder Responsibilities

• Bartlett v Barclays Bank Trust Co [1980] 1 All ER 139 found that trustees holding 99.8% of a company's shares, had a duty to involve themselves in the company

Considerations for Ethical and Political Investments

• Cowan v Scargill [1985] 1 Ch 270, could mineworkers' pension trust be prevented from investing in industries competing with British coalmining?
• The best interests of beneficiaries are normally their best financial interests; however, Harries v Church Commissioners [1993] 2 All ER 300: charity trustees may accommodate views conflicting with the charity's objects if it doesn't risk significant financial detriment
• See also Explanatory notes 22, 23 in TA 2000

Impartiality to Multiple Beneficiaries

• Trustees must not favor one beneficiary over another, unless required by the trust
• Lloyds Bank v Duker [1987] 3 All ER 193 a beneficiary wanted 46/80 of shares (the vast majority) owned by testator. This was unfair and there may be a value increase from having a majority share
• Howe v Earl of Dartmouth (1802) 7 Ves Jr 137 says trustees must be impartial between life tenant beneficiaries (income) and remaindermen (capital after death of life tenant)
• Should not choose investments heavily biased towards generating income/capital growth for one beneficiary, if another is disadvantaged

Unanimity Principle

• Trustees act together and should be liable together per Bahin v Hughes (1886) 31 Ch D 390
• It was determined a trustee cannot escape liability by being less involved than other trustees
• Courts have discretion to adjust liability between trustees via the Civil Liability (Contribution) Act 1978, sections S.2(1) adjusting liability and S.2(2) power to exempt liability

Exceptions to Equal Liability Common Law

• Re Partington (1887) 57 LT 564 and Head v Gould [1898] 2 Ch 250 Trustees taking on a controlling influence over the trust
• Chillingworth v Chambers [1896] 1 Ch 685 Trustees who are beneficiaries
• Bahin v Hughes Trustees who make personal gain

Defence Against Beneficiary Action

• A defence against action by a beneficiary is only valid if they are of age, of sound mind, informed as to facts and effect of breach and there is no undue influence
• Nail v Punter (1832) 5 Sim 555
• Re Pauling's Settlement Trust [1964] Ch 303
• Egg v Devey (1847) 10 Beav 444

Power to Relieve Liability

• S. 61 Trustee Act 1925 allows a court to relieve a trustee who has acted honestly and reasonably, and ought fairly to be excused for the breach of trust

Beneficiary Interest Impact

• S. 62 TA 1925 addresses breaches instigated, requested, or consented to in writing by a beneficiary; how involved must the beneficiary be? See Re Somerset [1894] 1 Ch 231

Exemption Clauses

• Clauses in trust instruments attempting to exempt trustees from liability have traditionally been met with reluctance. Some cases include Jones v Shipping Federation of British Columbia (1963) 37 DLR 273 which had a recent acceptance
• Armitage v Nurse [1998] Ch 241 Can’t exempt liability relating to trustees’ “irreducible core of obligations" accepted the clause exempting liability for loss/damage to trust unless fraudulent
• Walker v Stones [2001] QB 902 indicates a more restrictive approach where the trustee is also a solicitor