Trust Admin: DOC, Investment, Delegation Flashcards
‘Bare trust’
Not in a vest, bare, do not invest it - not clothed with any duty of investment
Why is investment a risk?
Because money is always exposed to inflation, always a risk, that is why you have to invest it over time
General standard - Duty of Care
Speight v Gaunt → A trustee should invest like an ordinary man of prudence (care) - an objective test
Learoyd v Whiteley
Followed Speight v Gaunt → Business investing and caring for the fund as if burdened by a duty or moral provision → ‘prudent family provider’ → sense of security over time and income in the meantime
Standard for DOC
High for bank/professional trustee
Objective but judged to a subjective characteristic
Cannot be lowered for a trainee → ordinary prudent person is the base line
Re Vickery *Bad judgement
Unpaid non-professional, judged by a subjective standard of care → loss was caused to the trust fund by a 3rd party who had been appointed as an agent by the trustee. Court decided loss caused by 3rd party should fall upon trust fund and not upon trustees personally
→ Vickery - held not to have breached trust because not been subjectively conscious of any wrongdoing
→ ** Bad law - trustee shouldn’t be judged in accordance with subjective intention as to what constitutes prudent behaviour
Exemption clauses
In a DEED
Armitage v Nurse → clause effective to exclude liab as long as had not been dishonest
Hyme v City Bank
Said exclusion clause could remove trustees duty in a deed → only liable for dishonest and reckless faults, not for honest and reasonable mistakes → have this 1) because become trustee for love or for money - may be for family so not liable for mistakes 2) solicitors/banks do it to limit liability
Armitage v Nurse
COA considered a clause in a trust instrument which purported to excuse the trustees from all liab apart from that which might arise from their own actual fraud. Millett held the clause was effective to exclude liab, no matter how indolent, imprudent, lacking in diligence or negligent AS LONG as they had not acted DISHONESTLY
Trustee Act 2000 → S1
Duty of care
S1(1) applies to trustees exercising the general power of investment (insurance powers, land acquisition, powers to appoint)
→ Does not apply to powers conferred by trust instruments/where it says duty is not supposed to apply
→ Refers to care and reasonableness - move towards tort
Trustee investment → lottery tickets
Investing money into lottery tickets is no investment → careless and reckless
Re Peczenik’s ST *OLD
Definition of investment is keeping capital safe and producing some income
→ Moving away from idea that trustee investment must produce some capital, some income
→ Now capital return and total return investment
Harries v Church Commissioner
Capital return and total return investment - breaking away from the idea you have to produce some capital, some income - can invest in capital return and total return e.g. artworks
Insider dealing
Idea modern market is effective, cannot get ahead of the curve unless involved insider dealing → illegal.
→ May bet against own company by putting shares in a rival ahead of market curve
Modern portfolio theory
If you cannot beat the market - join it.
Trustee wants to invest prudently, shouldn’t take risk of trying to outperform market, should buy it
→ If market goes up, you will go up by the same proportion if you are matching the market.
→ Cover investment in market, if goes up, so do assets
→ Look at markets as a standard - can never outperform me. Bad = trustee saying they will no longer take CARE, will follow the crowd, throwing trust fund to market
Nestle v National Westminster Bank Plc
Money left on settlement trust, settled money for certain people & their descendants (1922 - £50k, 1986 - £250k). Money was not relative. N angry - original portfolio was a balanced portfolio - mix of shares and private/public companies. If they kept same portfolio - would have been £1.1m - what happened? Passed law in 1961 - Investment Act - bank did not take legal advice, were scared and sold investments & placed them in a deposit bank.
→ COA said were careless and imprudent - should be judged to a high standard. Sold original portfolio (bad) and didn’t do what other banks were doing. Inflationary time → investment now worth less than beginning
→ Court agreed but she got nothing - no provable loss
→ How can we say what sum of compensation would be?
→ Care in investment
New “General power of investment”
Trustee Act 2000 - Part 2 - Investment
S3(1) no limitations → T can make any kind of investment - but no definition of investment
S4 standard investment expenditure
S5 Advice
S8 Investment in land (in mortgages - s8/9 1925 act)
S14 Asset management: special restrictions (trustee to decide level of risk, estate agent/stock broker to go buy)
Investment in Mortgages
S8, 9 Trustee Act 1925
Investment in limited companies
Duty as trustee to ensure adequate representation on the board - Bartlett v Barclays Bank Trust Co
Cowan v Scargill
Court said you cannot put your own views/politics before the B’s. Cannot cut out huge investment opportunity because of political view
→ Investment policy and ethical (social responsible) investment
Harries v Church Commissioner
You can only invest morally if you expect the same financial returns. Opened the way to ethical investments - when investment is at odds with purpose of trust, ok to put ethics before money e.g. cancer research do not need to invest in tobacco
Duty to act impartially
Nestle v National Westminster Bank
Fairness v equality - not the same
Liability for imprudent behaviour
Difficult to prove breach of trust because prudent trustees invest similar funds in widely divergent ways & reasonable for trustee to have diff views as to which investments are likely to have fair balance between B’s and conflict of interest
→ Duty to quantify loss suffered?
Delegation
Trustee has to do their own job - cannot delegate choices - can get people to invest for them
→ ensures personal proximity in relationship between original parties and moral accountability
Re Pilkington’s WT
→ Personal service ‘rule’
→ Trustees cannot delegate unless they have authority to do so. The presumption is encapsulated in the maxim delegatus non potest delegare (‘a person to whom responsibility has been delegated has no power to delegate). In other words, trustees are presumed to be subject to a duty of personal service
Statutory authority to delegate
Part IV Trustee Act 2000 s11-27 → delegable unless in list of non-delegable s11(2)
→ Procedural safeguards under s25 Trustee Act 2000
Fry v Tapson
Trustee must choose agent prudently: a trustee (even an honest one) will be liable for losses caused to the fund by an agent who was appointed to perform task outside that agents field or expertise
The fiduciary duty (loyalty) and the DOC apply to the appointment and supervision of agents, just as they apply to the exercise of every other trust power. So, unless authorised to do so, a trustee must not appoint his own firm to act as an agent to the trust and, if he does, he will be subject to a fiduciary duty to account for any commission or other such gains. The trustees must also choose an agent suited to the task (fry v tapson) and keep a watchful eye on his activities (speight v gaunt), or they may be liable for breach of their DOC.
Individual delegation
Trust Delegation Act 1999
Use of an attorney
Collective delegation
Part IV Trustee Act 2000
Supervision of agent
Speight v Gaunt
S61 Trustee Act 2000
Determine whether a trustee ought to be relieved of liab
→ Amateurs still more likely to ‘breach liab’ than professionals because prof uses EXEMPTION CLAUSES in contract to limit their liab.
What did Hoffmann say about the modern portfolio theory?
‘modern trustees acting within their investment powers are entitled to be judged by the standards of current portfolio theory, which emphasises the risk level of the entire portfolio rather than the risk attaching to each investment taken in isolation”. That judgment was reported in 1996 and since then, the TA 2000 has laid down ‘standard investment criteria’, which, according to the explanatory notes accompanying the Act, are intended to facilitate trustee investment in accordance with modern portfolio theory.
