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TOPIC 5. OBLIGATIONS OF TRUSTEES (2): INVESTMENT OF TRUSTS (A) The investment of trusts. LECTURE MATERIALS General Reading for this section: Hudson, chapter 9 1) The power of investment under TA 2000 Section 3(1) of the Trustee Act 2000 provides ‘Subject to the provisions of this Part, a trustee may make any kind of investment that he could make if he were absolutely entitled to the assets of the trust.’ Section 6(1) of the Trustee Act 2000 provides that the general investment power is: 2) Statutory duty of care ‘(a) in addition to powers conferred on trustees otherwise than by [the Act], but (b) subject to any restriction or exclusion imposed by the trust instrument or by any enactment or any provision of subordinate legislation.’ Trustee Act 2000, s.1 ‘(1) Whenever the duty under this subsection applied to a trustee, he must exercise such care and skill as is reasonable in the circumstances, having regard in particular – (a) to any special knowledge or experience that he has 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. (2) In this Act the duty under subsection (1) is called “the duty of care”.’ 3) Standard investment criteria. Trustee Act 2000, s.4. 4) The duty to take advice Trustee Act 2000, s.5(1): trustees are under a positive obligation to take professional advice on the investments which they propose to make on behalf of the trust. This advice must be taken before the exercise of any investment power. Once the advice has been obtained, the trustees are required to consider it and its bearing on the manner in which their investment power should be exercised. The trustees are not obliged to follow the advice which they receive, provided that they have considered it appropriately. Cowan v Scargill [1985] Ch 270, 289, per Megarry V-C: ‘Although a trustee who takes advice on investments is not bound to accept and act on that advice, he is not entitled to reject it merely because he sincerely disagrees with it, unless in addition he is acting as an ordinary prudent man would act.’ 4) General duties regarding protection and investment of trust assets on the case law. (i) Seek the highest available return www.alastairhudson.com | © professor alastair hudson 28
*Cowan v. Scargill [1985] 2 Ch. 270, 286-287, per Megarry V-C. ‘When the purpose of the trust is to provide financial benefits for the beneficiaries, as is usually the case, the best interests of the beneficiaries are normally their best financial interests. The power must be exercised so as to yield the best return for the beneficiaries, judged in relation to the risks of the investments in question; and the prospects for the yield of income and capital appreciation both have to be considered in judging the return from the investment.’ o To require the trustees simply to seek the most profitable investment no matter what the risk? o To select that investment which offered the highest available yield entirely in accordance with the investment criteria which the Trustee Act 2000 requires the trustees to have created for the trust? o To ignore non-financial considerations, such as ethics, Cowan v Scargill? (ii) Act as though a prudent person of business investing on behalf of someone for whom one feels morally bound to provide Learoyd v Whiteley (1887) 12 App. Cas. 727 (HL) (the ‘prudent businessman’). Bartlett v. Barclays Bank Trust Co Ltd. [1980] Ch 515 Nestle v. National Westminster Bank plc [1993] 1 W.L.R. 1260. Cowan v. Scargill [1985] 2 Ch. 270, 289, per Megarry V-C: ‘[the trustee’s obligation is to] take such care as an ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he feels morally bound to provide. This duty includes the duty to seek advice on matters which the trustee does not understand, such as the making of investments, and, on receiving that advice, to act with the same degree of prudence. Although a trustee who takes advice on investments is not bound to accept and act on that advice, he is not entitled to reject it merely because he sincerely disagrees with it, unless in addition he is acting as an ordinary prudent man would act.’ (B) The basis of liability for breach of trust. General Reading for this topic: Hudson, chapter 18. This section on Breach of Trust focuses on the leading decision, Target Holdings, and two issues specifically:- (1) in what circumstances a loss can be remedied by a claim based on breach of trust, and (2) at what level should the loss be valued? This topic follows on from the material in the last chapter of these Course Documents relating to the duties of trustees. Reading: Hudson, section 18.2 1) The old cases Re Massingberd’s Settlement (1890) 63 LT 296 Re Dawson [1966] 2 NSWR 211, NSW SC Holder v. Holder [1968] Ch 353, [1968] 1 All ER 665, [1968] 2 WLR 237 2) The modern law **Target Holdings v. Redferns [1996] 1 AC 421, [1995] 3 All ER 785 HL Clough v Bond (1838) 3 My & C 490. Bristol & West Building Society v. Mothew [1996] 4 All ER 698 Swindle v. Harrison [1997] 4 All ER 705, CA 2 arguments put forward by Target:- (A) T is now entitled to have the ‘fund’ restored on a restitutionary basis (B) immediately the moneys were paid way there was an immediate loss to trust fund and this should be made good. Per Lord Browne-Wilkinson in Target Holdings:- ‘… in my judgement it is important, if the trust is not to be rendered commercially useless, to distinguish between the basic principles of trust law and those specialist rules www.alastairhudson.com | © professor alastair hudson 29
Page 1 and 2: ADVANCED EQUITY AND TRUSTS Universi
Page 3 and 4: Aims and objectives Syllabus This c
Page 5 and 6: TOPIC 1. THE FOUNDATIONS OF EQUITY
Page 7 and 8: Reading: Hudson, section 2.2 The fo
Page 9 and 10: � Equity will not permit statute
Page 11 and 12: (B) Certainty of Subject Matter. Re
Page 13 and 14: equity the property was theirs. Yet
Page 15 and 16: TOPIC 3. FOUNDATIONAL TECHNIQUES OF
Page 17 and 18: Reading: Hudson, section 5.6.1 Cann
Page 19 and 20: 3. Do equitable doctrines protect p
Page 21 and 22: Learoyd v Whiteley (1887) 12 App Ca
Page 23 and 24: (i) The original, negative form of
Page 25 and 26: **O’Rourke v Derbyshire [1920] AC
Page 27: ecommendation. He signed the papers
Page 31 and 32: Trustee Act 1925, s.61: “If it ap
Page 33 and 34: Specific reading Hudson, Equity & T
Page 35 and 36: para 47-18) of a specified kind 13
Page 37 and 38: appropriately and to keep records a
Page 39 and 40: � Therefore it may be possible to
Page 41 and 42: TOPIC 6. EQUITY AND COMMERCE (1): S
Page 43 and 44: See also:- (1985) 101 L.Q.R. 269 (P
Page 45 and 46: participants goes into bankruptcy.
Page 47 and 48: drafted to make it clear that all c
Page 49 and 50: to consider the importance of Quist
Page 51 and 52: therefore it is said that the oblig
Page 53 and 54: there is some identifiable benefici
Page 55 and 56: (H) THE LIMITATION OF TRUSTEES’ O
Page 57 and 58: these moneys for any other purpose
Page 59 and 60: detail - Quistclose trusts, retenti
Page 61 and 62: Finn, “Fiduciary Law in the Moder
Page 63 and 64: Collective investment schemes are e
Page 65 and 66: 6 REGULATION OF COLLECTIVE INVESTME
Page 67 and 68: The market abuse regime relates to
Page 69 and 70: 1. Evaluate the changes which Lord
Page 71 and 72: 3) The corporate opportunity doctri
Page 73 and 74: Joan asked why only one profit esti
Page 75 and 76: epresentee. It may well be that if
Page 77 and 78: TOPIC 10. BREACH OF TRUST (I): DISH
Page 79 and 80:
(4) knowledge of circumstances whic
Page 81 and 82:
Sullivan told his assistant, Malone
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*Re Oatway [1903] 2 Ch. 356 - benef
Page 85 and 86:
d) When must the change of position
Page 87 and 88:
Crafty advised Albert to use the ot
Page 89 and 90:
Reading: Hudson, para 15.4.1 Gissin
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All three of them decided to buy a
Page 93 and 94:
Lim v. Ang [1992] 1 WLR 113 Walton
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TOPIC 14. TRUSTS OF HOMES (III): OT
Page 97 and 98:
childhood friend and solicitor, Fla
Page 99 and 100:
National Westminster Bank v. Kostop
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