Duties and Powers of Trustees

Re Harai's Settlement Trusts [1949]

case: - express investment clauses - must be clear - must be capable of control by the courts - must have certainty - must be interpreted in their natural and plain meaning

section 3(1) of Trustee Act 2000

statute: - a trustee may make any kind of investment that he could make if he were absolutely entitled to the assets of the trust - subject to the provisions of this part

Trustee Act 2000

statute: - if there is a lack of express investment power clause - the investment power is instead conferred by this statute

section 4(1) of Trustee Act 2000

statute: - in exercising any power of investment a trustee must have regard to the standard investment criteria - investments must be kept under review

section 3(3) of Trustee Act 2000

statute: - the general power of investment does not permit a trustee to make investments in land other than in loans secured in land - trustees cannot buy real property as investments

section 7(1) of Trustee Act 2000

statute: - the new power of investment applies to all trusts - even those created before 2000

section 9 of Trustee Act 2000

statute: - the powers of s.8 of TA 2000 are in addition to other trustee powers - these can also be expanded or limited by the trust instrument

section 1(1) of Trustee Act 2000

statute: - the trustee must exercise such care and skill as is reasonable in the circumstances - having regard in particular to a) any special knowledge or experience they claim they have b) if they are acting in a business or professional capacity the special knowledge or experience that they can reasonably expect to hold as a person in that position

section 6 of Trustee Act 2000

statute: - trust instruments may extend or limit the powers of a trustee

section 8(1) of Trustee Act 2000

statute: A trustee may purchase land (if allowed) as: a) an investment b) for occupation by a beneficiary c) for any other reason - if expressly allowed to by the trust instrument

section 4(3) of Trustee Act 2000

statute: standard investment criteria A requirement to consider: - are the investments suitable in a general sense? - are the investments suitable in the specific sense of the means considered? A requirement to consider: - diversification of the trust - the purpose of the trust - the situations of the life tenant and remainderman

breaching trust general duty of care

to get a depositionary decision wrong you are... BUT you are not breaching the... - because a depositionary decision is one for professional judgement - it is not one where expertise is required

Inner ring of investment

trustees are free to exercise the trust property as if it were their own (link to elaborate express investment powers)

Types of investment

- lending money at a rate of interest - engaging in a profit making activity (e.g. buying + selling shares) - the riskier the investment the more there is an ability to earn

general rule for succession trusts

- life tenant is entitled to all of the income - remainderman is entitled to all of the capital

Unit trusts

- these take funds from a large number of small investors and invest them in specific types of financial assets - pooling resources, then paid in accordance with the proportion of the total fund that your investment makes up

Trustee Act 1925 - definition of mortgage

"every estate and interest regarding in equity as merely a security for money" - suggestion that all mortgages are now allowed (2nd and equitable)

largest financial return

(McGarry from Cowan v Scargill [1985]) When the purpose of the trust is for financial gain to the beneficiaries their best interests should be judged in relations to the...

investment trust

- a company which you invest in which in turn uses that money to deal stocks and shares - the more successful the company is in dealing stocks and shares the larger the return - buying shares in one company whose business is buying shares in other companies

duty of investment

- a trustee duty - an imperative obligation to act

investment power

- an administrative power - determines the scope of investments allowed - these are set out by the settlor

Dispositive power

- discretionary trusts - have the power to exercise discretion within certain restrictions - e.g. choice within a class of beneficiaries - e.g. choice as to proportions of distributions of property

duty to invest

- duty held by the trustees - until the beneficiaries calls for the termination of the trust - it is not sufficient for trustees to just retain the trust fund - must try and increase value - try and retain the value of the trust (effect of inflation)

Dispositive duty

- fixed trust - no discretion as to who the property goes to - no discretion as to the proportions of property given

express power of investment statutory power of investment

Different types of clauses that set out investment powers (two types)

what the beneficiary has lost

Harm is calculated in correspondence with... (when looking at compensation)

Harries v Church Commissioners [1992]

case: - "If... trustees were satisfied that investing in a company engaged in a particular type of business would conflict with the very objects their charity is seeking to achieve, they should not so invest." - even if this would likely "result in significant financial detriment to the charity"

Trustee and Investments Act 1961

Trustee Act 2000 replaced...

obligation

Trustees have an... to convert property into money and invest the money accordingly - unless stated otherwise in the trust instrument

termination of the trust (when a contingency is reached or a beneficiary calls for such)

Trustees must invest the trust fund until the...

both are reasonable

Two trustees may disagree on the course of action, but as long as... there should not be a problem

not fatal to the trust

a lack of express investment power clause is...

exceptions to the duty to not have regard to non-financial interests

a) settlor rules out investments in trust instrument b) beneficiaries are in agreement that an investment is undesirable c) the financial return of a more desirable investment is the same

duty to convert

case + rule: Howe v Earl of Dartmouth [1802] - applicable to succession trusts (life tenant + remainderman) - there may be a duty to reinvest some of the income into the trust fund in order to maintain fairness between the life tenant and the remainderman

duty to apportion

case + rule: Re Earl of Chesterfield's Trusts [1883] - applicable to succession trusts - after conversion the trustee is under an obligation to apportion the converted fund - at an interest rate of 4% - converted funds are both interest and capital

Barlett v Barclays Bank Trust [1980]

case: "... I think that a professional corporate trustee is liable for breach of trust if loss is caused to the trust fund because it neglects to exercise the special care and skill which it professes to have." - if you hold yourself as an expert you will be held to the standard of an expert

Byrnes v Kendle [2011]

case: "... it is the duty of a trustee to obtain income from the trust property if it is capable of yielding an income... if the intended means of gaining income turn out to be unsatisfactory, those means must be abandoned and others found."

Armitage v Nurse [1998]

case: "... there is an irreducible core of obligations owed by the trustees to the beneficiaries and enforceable by them, which is fundamental to the concept of a trust. If the beneficiaries have no rights enforceable against the trustees there are no trusts." - trustees have obligations towards the beneficiaries - not towards the settlor

Jeffrey v Gretton [2011]

case: "a trustee who fails to exercise a power that he ought to exercise will be in breach of trust" - "a trustee owes his beneficiaries a duty to review the trust holding from time to time"

Nestle v National Westminster Bank [1993]

case: "what the prudent man should do at any time depends on the economic and financial conditions of that time." - not on what judges of the past have held to be prudent - because investment conditions have changed - the trustee may take into account the positions of the remainderman and the life tenant respectively when deciding investments

Martin v City of Edinburgh District Council [1988]

case: - a trustee must take responsibility for their actions - they cannot hide behind their advisor

Learoyd v Whiteley [1890]

case: - how the Prudent Man of Business Test should be applied: - may select investments of a "speculative character" - BUT must confine themselves to investments allowed by the trust instrument - must avoid investments that are too risky

Cowan v Scargill [1985]

case: - investment - trustees must put aside their personal interests and views - must just look at what would be most beneficial for the beneficiaries - may only be restrained by any criteria for investment set out in the trust instrument

Speight v Gaunt [1883]

case: - previously the authority for the duty of care of trustees - now replaced by Trustee Act 2000 - A trustee must act in the same way as an "ordinary prudent man of business"

Royal Melbourne Hospital v Equity Trusts [2007]

case: - the court should take into account the settlor's wishes BUT - the circumstances may have changed to such a degree that "it is hard to think that the testator would want that state of affairs to continue." - the court can also take into account

Jeffrey v Gretton [2011]

case: - the liability for breach is compensatory

Shaw v Cates [1909]

case: - trustees have a duty to obtain and consider professional advice - BUT the decision as to whether to follow that advice is theirs

Re Merchant Navy Ratings Pension Fund [2015]

case: best interests of the beneficiaries are the SAME as the purpose for which the trust was created - must determine the purpose of the trust - before you can determine the best course of action for the beneficiaries

Nestle v National Westminister Bank [1988] (this is the first case - there is a much later appeal in 1994)

case: must judge trustees on: "the risk level of the entire portfolio rather than the risk attaching to each investment taken in isolation."

Richards v Wood [2014]

case: the Trustee Act 2000 applies to trusts existing before 2000 + has just put the existing law on a statutory footing

largely irrelevant in modern law

duty of conversion duty to apportion are...

elaborate express investment power

e.g. "the trustees have the power to invest the trust funds in any manner they think and as if there were the absolute owners of the fund."

diverse portfolio

having many different investments for a single trust fund - safer - because even if one investment goes wrong there are more to make up the loss

Trustee

individual who has a responsibility/duty to give effect to the instructions stated in the instrument - positive obligations

balance of objectives

making sure the life tenant receives sufficient income while the remainderman is still equitably benefitted - trustees must act impartially towards all beneficiaries

Law Commission 2009

organisation - suggested that the equitable and statutory rules of apportionment should be abolished

Outer ring of investment

overriding duty upon the trustees to act for the benefit of the beneficiaries

interim payments

some beneficiaries are only entitled to... because they only have lifetime interests in the trust

section 5(1) of Trustee Act 2000

statute: - before investing - trustee must obtain advice and consider it In relation to - how the power of investment should be exercised - whether + how the investments should be varied Exception: - if it seems inappropriate or unnecessary to obtain advice Advice: - must be given by a reasonably qualified professional