Trust Admin: DOC, Investment, Delegation

Question 1

‘Bare trust’

Answer 1

Not in a vest, bare, do not invest it - not clothed with any duty of investment

Question 2

Why is investment a risk?

Answer 2

Because money is always exposed to inflation, always a risk, that is why you have to invest it over time

Question 3

General standard - Duty of Care

Answer 3

Speight v Gaunt → A trustee should invest like an ordinary man of prudence (care) - an objective test

Question 4

Learoyd v Whiteley

Answer 4

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

Question 5

Standard for DOC

Answer 5

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

Question 6

Re Vickery *Bad judgement

Answer 6

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

Question 7

Exemption clauses

Answer 7

In a DEED

Armitage v Nurse → clause effective to exclude liab as long as had not been dishonest

Question 8

Hyme v City Bank

Answer 8

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

Question 9

Armitage v Nurse

Answer 9

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

Question 10

Trustee Act 2000 → S1

Answer 10

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

Question 11

Trustee investment → lottery tickets

Answer 11

Investing money into lottery tickets is no investment → careless and reckless

Question 12

Re Peczenik’s ST *OLD

Answer 12

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

Question 13

Harries v Church Commissioner

Answer 13

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

Question 14

Insider dealing

Answer 14

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

Question 15

Modern portfolio theory

Answer 15

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

Question 16

Nestle v National Westminster Bank Plc

Answer 16

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

Question 17

New “General power of investment”

Answer 17

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)

Question 18

Investment in Mortgages

Answer 18

S8, 9 Trustee Act 1925

Question 19

Investment in limited companies

Answer 19

Duty as trustee to ensure adequate representation on the board - Bartlett v Barclays Bank Trust Co

Question 20

Cowan v Scargill

Answer 20

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

Question 21

Harries v Church Commissioner

Answer 21

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

Question 22

Duty to act impartially

Answer 22

Nestle v National Westminster Bank

Fairness v equality - not the same

Question 23

Liability for imprudent behaviour

Answer 23

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?

Question 24

Delegation

Answer 24

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

Question 25

Re Pilkington’s WT

Answer 25

→ 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

Question 26

Statutory authority to delegate

Answer 26

Part IV Trustee Act 2000 s11-27 → delegable unless in list of non-delegable s11(2)
→ Procedural safeguards under s25 Trustee Act 2000

Question 27

Fry v Tapson

Answer 27

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.

Question 28

Individual delegation

Answer 28

Trust Delegation Act 1999

Use of an attorney

Question 29

Collective delegation

Answer 29

Part IV Trustee Act 2000

Question 30

Supervision of agent

Answer 30

Speight v Gaunt

Question 31

S61 Trustee Act 2000

Answer 31

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.

Question 32

What did Hoffmann say about the modern portfolio theory?

Answer 32

‘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.