Trustees’ Duties I

Cases

Spencer v. Kinsella

[1996] 2 ILRM 401

 

BARRON J In all cases of trust, it is a truism to say that no trustee should allow his interests to conflict with his duty. Mr Byrne assumed that in making decisions he was there to protect the interests of the coursing club. Mr Kinsella has been cast in the same role on behalf of the football club.
It is difficult in a small town to find local people who would have no
affiliation with any organisation seeking to use the grounds. Clearly, trustees should be persons without such affiliations. If such people cannot be found, then persons who are not too closely identified with any such organisation must act.
The deed provides for a management committee. Its function should be to
ensure the smooth working of the use of the grounds having regard to the terms upon which the clubs and other organisations are entitled to use them. It is on this committee that those closely identified with any particular club or organisation have their proper place.
Part of the fault in the present situation lies with the officials of the department who became involved in 1976 and following the letter in 1993. It must have been clear to them that the fault lay as much with the absence of implementation of clause 11 of the trust deed as with the attitude of the trustees. These proceedings have been brought to have the trustees removed. The question for determination is whether having regard to the causes of the present situation which have been identified such a course is appropriate.
In Arnott v. Arnott (1924) 58 ILTR 145, Murnaghan J accepted the guiding principle for the removal of a trustee as being the welfare of the beneficiaries. In that case there was a long and irreconcilable dispute between two members of the Arnott family. As a result it was found that there would be a danger to the trust in the future if the trustee to be removed was allowed to continue in her office. In that case the trustee had engaged in a long drawn out course of conduct which opposed all and every action of her co-trustee and would have continued to do so to the detriment of the trust.
A trust is set up for the welfare of its beneficiaries. In my view therefore before determining whether or not any trustee should be removed from his or her office it is necessary to determine whether his or her continuation in that office will be detrimental to such welfare.
In the present case the main problem lies in the failure of the trustees to execute agreements with the users of the trust. There is also the further problem that some of the trustees are too closely identified with the interests of some of those users to be regarded as being capable of being truly impartial in any decision making process involving the trustees. None of these faults have resulted from any deliberate or conscious conduct or misconduct on the part of the trustees. Nevertheless where conflict of interest arises it is doubtful that a continuation by such persons in office could be remedied.
I accept the submission on behalf of the minister that it is the function of the court and not of the minister to dismiss trustees if that be the appropriate course and that the court has no function to direct the minister to exercise his powers in that regard. I do not accept however that the remedy for the present disputes lies in the operation of s. 69(3) of the Land Act 1923. The issues go beyond the reversal of the decisions of the trustees.
The welfare of the beneficiaries is being affected by the present situation. There is a conflict of interest which I have identified and it would be difficult to reorganise with such conflict on the part of some of the trustees continuing to exist. It is accordingly appropriate that such persons should step down. It will however serve no purpose if they step down, but at the same time no other reorganisation takes place.
What is needed is the appointment of trustees who are, so far as is possible, impartial as between the users of the grounds. The execution of agreements with such users and the appointment of a management committee to manage in accordance with such agreements is a further necessity.
I do not propose to exercise the powers of the court at present. It is essentially a matter for the people of Gorey and the department to reorganise the administration of the trust. Any order made by the court must, having regard to the matters in issue before it, deal only with part of what is required, which would not be satisfactory.
Accordingly the matter will be adjourned for six months to enable the administration of the trust to be placed upon a proper footing. Only if this cannot be done will the court consider how the exercise of its powers can be used to alleviate the then situation.”

 

 

 

 

Re O’Connor

[1913] 1 IR 69

 

O’CONNOR MR  “The principal question for determination is whether the trustees of the will had power to invest the testator’s residuary estate in the purchase of freehold or leasehold property as well as on loan or in the purchase of such stocks, shares, or other property as they should think fit. One thing is certain, however unlimited the power of investment may be, the trustee remains subject to the jurisdiction of the Court. The trustee has no power to act dishonestly, negligently, or in breach of trust to invest on insufficient security, but, subject to the power of the Court to compel a dishonest, grossly negligent, or grossly incompetent trustee to account for money he has so invested, it is in the power of a testator or settlor to place in the hands of his trustee money to be invested in the fullest sense of the word, andI need no further or better authority for the proposition that a power to invest simpliciter enables a trustee to invest in the purchase of real estate, provided he does so honestly and as a reasonable man, than the Trustee Act, 1893, section 6 of which is a sufficient justification for the conclusion at which I have arrived on that point. The section runs as follows: – “A trustee having power to invest in the purchase of land or on mortgage of land may invest in the purchase or on mortgage of any land, notwithstanding the same is charged witha rent, under the powers of the Public Main Drainage Acts, 1846 to 1856, or the Landed Property Improvement (Ireland) Act, 1847, or by an absolute order made under the Improvement of Land Act, 1864, unless the terms of the trust expressly provide that the land to be purchased or taken in mortgage shall not be subject to any such prior charge.” The word “invest” is there used as equivalent to purchase. A reference to Murray’s New English Dictionary
shows that the term “invest” is used in the sense of to purchase, as well as placing out money on loan or other security.
In my opinion, the dictionaries, lay and legal, support the view of Mr. Brown that the term “invest,” unless cut down or minimized by the testator or settlor, embraces purchase of land with moneys, as well as placing money on loan. But Mr. Wilson’s argument was a very cogent one, that the liberty given by the testator to the trustees to invest the proceeds of the sale of his property as they thought most desirable, except in British funds, did not authorize them to purchase land, and that a power to invest was not regarded as a power to purchase, and that all the provisions of the Trustee Act assumed or begged the question that there was on the face of the instrument a power to purchase land. In my opinion there is the clearest and most express power in this will to invest in land, the only investment that is barred by the testator being that which is always regarded as most secure, the British funds. He empowers his trustees to sell all his property, and to invest the proceeds “as they think most desirable, but not in the British funds”. There are no restrictions here except one, investment in British funds. If I may misuse the maxim expressio unius est exclusio alterius, it comes to this that the negation of the power to invest in British funds is an expression of a power and liberty to invest in any kind of investment known to the law, but the testator was well aware that the Court of Chancery would hold the trustees responsible for moneys that came to their hands, for the benefit of minors and others, if they did not act in the way in whicha reasonable man acting with reasonable prudence and not grossly negligent would act, and that when trustees came to make up their accounts with their cestui que trusts, it could not be said that they had authority to purchase, e.g., a number of houses in a street in such a state of disrepair that the local authority would order them to be pulled down.”

 

 

 

Stacey v. Branch

[1995] 2 ILRM 136

 

MURPHY J “What is the nature of the duty imposed upon a trustee? A trustee must, of course, invest trust funds in the securities authorised by the settlement or by statute. To invest in any other securities would be of itself a breach of trust; but, even with regard to those securities which are permissible, the trustee must take such care as a reasonably cautious man would take having regard not only to the interest of those who are entitled to the income but to the interest of those who will take in the future. In exercising his discretion a trustee must act honestly and must use as much diligence as a prudent man of business would exercise in dealing with his own private affairs; in selecting an investment he must take as much care as a prudent man would take in making an investment for the benefit of persons for whom he felt morally bound to provide. Businessmen of ordinary prudence may, and frequently do, select investments which are more or less of a speculative character; but it is the duty of a trustee to confine himself not only to the class of investments which are permitted by the settlement or by statute, but to avoid all such investments of that class as are attended with hazard.
Neither party dissented from the foregoing views taken from the leading textbooks and based on the decision of the House of Lords in Learoyd v. Whiteley (1887) 12 App Cas 727. Counsel on behalf of the plaintiffs emphasised the matter of fact that the beneficiary was at all material times an infant in need of financial support and asserted the proposition of law based on the decision in Charles v. Jones (1887) 35 Ch D 544 that a trustee is bound to set aside trust monies in such a way ‘as to be fruitful for the benefit of the persons beneficially entitled to it’. However, without necessarily accepting either proposition, I am convinced that the course adopted by Mr Branch in relation to the property at Bettystown would not have amounted to an adequate discharge by a trustee of his duties as such in the absence of special authority or provision in that behalf.
Counsel on behalf of Mr Branch draws attention to the fact that the trustee was given, in certain respects at any rate, an ‘absolute discretion’ and it is asserted that provided that such discretion was exercised honestly it was not open to review by the court or capable of giving rise to an action for breach of trust. Reliance upon a discretion expressed to be absolute can be deceptive. In Snell’s Equity, 29th ed. at p. 225 the authors comment as follows:
However wide the language of such clauses, they give the trustee an absolute discretion in appearance only; as in the case of all discretionary powers, he must act honestly and with ordinary prudence. If, therefore, he selects an investment for the purpose of making a private gain, or if at the request of an importunate cestui que trust he invests the trust funds in notoriously doubtful security, even though it may be expressly authorised, he would be liable for any resulting loss.
That quotation is perhaps misleading. It is true to the extent that words such as ‘absolute discretion’ would not necessarily relieve a trustee from his duty to exercise reasonable care and prudence. On the other hand there is no doubt that an absolute owner of property can settle his affairs in such a way and on such terms as would relieve his trustees from the responsibility to exercise the degrees of care and prudence which would otherwise be inferred (see Gisborne
v. Gisborne (1877) 2 App Cas 300 and Tabor v. Brooks (1878) 10 Ch D 273). At the end of the day the extent of the obligations imposed on a trustee or the degree to which he is relieved from responsibilities ordinarily assumed is a matter of the construction of the terms of the document under which the trustee is appointed.
The brief paragraph dealing with the trust of Windswept contains a number
of clear provisions. First, the trustee was directed to hold the particular land in trust for John Stacey. The trustee was to hold Windswept and, subject to the exercise of any of the powers conferred on him, to transfer that property to the beneficiary as and when he attained the age of twenty one years. Secondly, no part of the trust property and in particular the trust of Windswept comprised or included liquid assets so that there was no fund available from the property as settled with which to make advances for maintenance or education or even to discharge such costs as might properly arise in the administration of the trust. Thirdly, it was expressly provided that ‘in the meantime’ – that is between the date of the trust deed and the attainment by the beneficiary of his majority – ‘the trustee should have full power to deal with the aforesaid property as he in his absolute discretion shall think fit’. The powers of dealing with the property were expressed as including leasing the land on such conditions as the trustee should think fit and selling the land but in the latter case it is to be noted that the power to sell the land only arose if a sale was, or became, ‘necessary’. Fourthly, the trusts declared of this property expressly provided that in the event of it being sold, the monies realised, to the extent that they were to be invested in funds, were required to be invested ‘in investments for the time being authorised by or for the investment of trust funds’. Fifthly, it was expressly provided that in the event of any income being derived from the property known as Windswept, the trustees might at their discretion advance the same to Mrs Monahan for the maintenance and education of her son.
There is, therefore, an extraordinary emphasis placed on the discretion
conferred upon the trustee to deal with the property as originally settled. It is in relation to that, and that alone, that ‘full power to deal with’ and ‘absolute discretion’ is conferred. Cash investments are limited expressly to trust securities and the sale of the property could only be permitted to the trustee or justified to a purchaser by establishing that such a sale was ‘necessary’. The power ofleasing which is included in the power ‘to deal’ is to be on conditions as the trustee ‘thinks fit’.
Further assistance may be obtained by contrasting the trusts declared of Fairwinds with those declared in respect of Windswept. In relation to the former he expressly provided for the keeping of the property in a reasonable condition have regard to its age and condition where no such provision was made in explicit terms at any rate for Windswept.
It is clear that the settlor intended that Windswept should be kept by the trustee and ultimately transferred to his son. That would necessarily involve taking some steps to preserve the property between the creation of the trust and the property vesting in possession in the beneficiary. No funds were provided for that purpose. It was in those circumstances that the settlor purported to confer on the trustee ‘full power to deal with the aforesaid property as he in his absolute discretion shall think fit’. In my view, the settlor meant what he said. He intended the trustee to have and to exercise his own honest but absolute discretion as to how this basic objective should be achieved. I am satisfied that the decision of Mr Branch to put the premises in the occupation of Mr Desmond Stacey was a decision made bona fide in pursuance of that discretion. It was not made with the dominant intention of benefiting Mr Desmond Stacey, though no doubt it did have that effect. Nor do I believe that the decision was made for the trustee’s own convenience. Whilst I doubt that any competent valuer or other expert would have recommended or approved the course adopted by the trustee, I do have some sympathy with Mr Branch’s viewpoint. He expressed his view that the sale of the property and the investment of the proceeds in shares would not necessarily have provided a good solution. He was sceptical of the wisdom of investing in shares. Likewise, he was critical of the solution which involved lettings to a succession of tenants. He is entitled to say that the property has, by and large, been well preserved over the past fourteen years and he states with confidence that it would be vested in the beneficiary on his majority in that good condition. Unusual though the trustee’s attitude has been and unsupported by expert evidence as it is, I believe that his decision was honestly made and that it was made in exercise of the discretion which the settlor conferred on the trustee and reflected the trust and confidence reposed in him. In these circumstances it seems to me that an action for breach of trust must fail and I will dismiss the claim accordingly.”

Cowan v. Scargill

[1985] Ch 270

 

MEGARRY VC “I turn to the law. The starting point is the duty of trustees to exercise their powers in the best interests of the present and future beneficiaries of the trust, holding the scales impartially between different classes of beneficiaries. This duty of the trustees towards their beneficiaries is paramount. They must, of course, obey the law; but subject to that, they must put the interests of their beneficiaries first. 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. In the case of a power of investment, as in the present case, 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 of the yield of income and capital appreciation both have to be considered in judging the return from the investment.
The legal memorandum that the union obtained from their solicitors is
generally in accord with these views. In considering the possibility of investment for “socially beneficial reasons which may result in lower returns to the fund,” the memorandum states that “the trustees’ only concern is to ensure that the return is the maximum possible consistent with security”; and then it refers to the need for diversification. However, it continues by saying:
“Trustees cannot be criticised for failing to make a particular investment for social or political reasons, such as in South African stock for example, but may be held liable for investing in assets which yield a poor return or for disinvesting in stock at inappropriate times for non-financial criteria.”
This last sentence must be considered in the light of subsequent passages in the memorandum which indicate that the sale of South African securities by trustees might be justified on the ground of doubts about political stability in South Africa and the long-term financial soundness of its economy, whereas trustees could not properly support motions at a company meeting dealing with pay levels in South Africa, work accidents, pollution control, employment conditions for minorities, military contracting and consumer protection. The assertion that trustees could not be criticised for failing to make a particular investment for social or political reasons is one that I would not accept in its aims to prevent a tenant for life enjoying assets of a wasting nature to the detriment of a remainderman and to prevent the latter benefiting from future or reversionary interests which a tenant for life cannot take advantage of.

Re Harris

[1907] 1 IR 32

SIR SAMUEL WALKER stated at pp.35-38: “The question in this case is whether the well-known rule established in Howe v. Lord Dartmouth (1802) 7 Ves 137 applies to the bequest in this will, or whether the case is taken out of the rule by an intention to enjoy the property in specie being shown by the language of the will. The general rule is, that where there is a general residuary bequest of personal estate, including chattels real, to be enjoyed by persons in succession, the Court puts upon the bequest the interpretation that the persons indicated are to enjoy the same thing in succession, and converts the property as the only means of giving effect to that intention.
It is said, in at least one case, that a slight indication of intention to the contrary will be sufficient, but I adopt the rule laid down by James, L.J., in Macdonaldv. Irvine (1878) 8 ChD 101, that the rule in Howe v. Lord Dartmouth must be applied unless, upon the fair construction of the will, you find a sufficient indication of intention that, it is not to be applied, and that the burden in every case is upon the person who says the rule of the Court ought not to be applied in the particular case.
There are numerous cases in which the burden was held to be discharged by the language of the particular will in question, and two especially were referred to by Mr. Matheson: Collins v. Collins (1838) 2 Myl & K 703 and Pickering v. Pickering (1839) 2 Beav 31, which he said were undistinguishable from the present.
The first consideration is the language of the will we have to construe:­ [His Lordship referred to the terms of the will]. The leading subject dealt with all through is “the rest and remainder of my property of every kind.” It is out of that the annuity is given, and what is given to the husband for life in the first instance is “the remainder of the income to be derived from my said property or the investments representing the same”; this clause is more consistent with the interpretation “investments for the time being,” but the meaning is not very clear, and the same remaining income, after his decease, is given to the two nieces. It is out of the same property the £4,000 is to be raised if it becomes payable; and, subject to the annuity and the husband’s life estate, the appellant gets “one-half of my said property absolutely, and the other two nieces the remaining half absolutely. Each of the devisees gets the same subject described in the same words, one getting it for life and the others in succession.
Primafacie, a clearer case for the application of the rule in Howe v. Lord Dartmouth (1802) 7 Ves 137 cannot be stated.
Let us see now what were the bequests in the two cases mainly relied on. In Collins v. Collins (1838) 2 Myl & K 703 the bequest was: “I give to my wife, Sarah Collins, all and every part of my property in every shape, and without any reserve, and in whatsoever manner it is situated, for her natural life ; and at her death the property is left to be divided in the following manner.” The Master of the Rolls gives no reasons for his conclusions, but the argument shows that the points relied on were the words, in the wife’s case, “without any reserve,” and the language of the direction for the division as showing there was to be no conversion till after the decease of the wife.
In Pickering v. Pickering (1839) 2 Beav 31 the bequest was as follows: “I give and bequeath to my said wife all the interest, rents, dividends, annual produce and profits, use and enjoyment of all my estate and effects whatsoever, real and personal, for and during the term of her natural life.” It appears the executors paid the income to the wife as if she was entitled in specie for thirty years, which influenced Lord Cottenham in his decision, but he relies on – (1) Collins v. Collins in the direction to divide after the death; (2) the gift of the rents, dividends, annual produce and profits, during her life; (3) the language of the specific gift of the chattels; and, lastly, the gift, after her life, of “the rest and residue of the estate,” which was not the rest and residue at the testator’s death. The judgment of Lord Langdale proceeded mainly upon the language of the gift to the wife herself.
On the other hand, the case of Macdonald v. Irvine (1878) 8 Ch D 101 seems a very strong authority in favour of the appellant:-[His Lordship referred to the terms of the will there in question, and continued]. Thesiger, L.J., there said: “I come to the consideration whether there can be gathered from the will and codicil in the present case any expression of intention that the property in question is to be enjoyed in specie. In almost all, if not all, the cases which have been cited in argument, where such an intention was found to exist, we find either words, in their natural and literal sense, importing use and enjoyment of the property in the state in which the testator left it at his death, or directions contained in the will as to the conversion of the property which were inconsistent

 

 

Chaine-Nickson v. Bank of Ireland

[1976] IR 393

 

KENNY J “When a beneficiary has a vested interest in a trust fund so that he has a right to payment of the income, the trustees must at all reasonable times at his request give him full and accurate information as to the amount and state of the trust property and permit him, or his solicitor, to inspect the accounts and vouchers and other documents relating to the trust: See Underhill on the Law relating to Trusts and Trustees – 11th ed. (1959) at
p. 401. When a beneficiary asks for copies of accounts or trust documents, he is bound to pay the copying charges for these. However, in the case of a discretionary trust, none of the potential beneficiaries have any right to be paid capital or income. All the trust fund is held by the trustees in this case on discretionary trusts and, if the plaintiff is not entitled to the trust accounts and particulars of the investments, it follows that none of the potential beneficiaries have a valid claim to any information from the trustees. The result is that the
trustees are not under an obligation to account to anyone in connection with their management of the trust fund. This logical conclusion from the defendants’ argument leads to remarkable consequences.
The amount of remuneration to which the trustees are entitled is specified in the settlement and the potential beneficiaries have an interest in seeing that the amount is not exceeded, for they are the persons who will ultimately benefit by payments of capital and income The defendants’ contention, however, has the result that they do not have to account for or disclose the amount of their remuneration. This seems to me to be contrary to the basic concept of a trustee being accountable for his management of the trust fund. In a case where the investment powers of trustees under a discretionary trust are limited, the beneficiaries have a clear interest in getting information as to how the trust fund has been invested but again, if the defendants’ contention is correct, the potential beneficiaries can never get the details to ascertain whether the trust fund has been invested in accordance with the terms of the settlement. Indeed, the trustees might make loans out of the trust fund to themselves, and the potential beneficiaries would have no means of ascertaining this. These remarkable results of the defendants’ argument convince me that the proposition advanced by their counsel is not the law and that a potential beneficiary under a discretionary trust is entitled to copies of the trust accounts and to information as to the investments which represent the trust fund. The obligation of the trustees is not satisfied by giving particulars of the payments made by them.
This conclusion in principle gets some support from one of the cases which were cited. In Moore v. McGlynn [1894] 1 IR 74 the testator left all his property to his brother and his son to be held by them in trust and to be managed by them for the benefit of his wife and children and he gave them power “to arrange for the settlement of my children as they may determine, and in case they disagree, I will that the parish priest, Reverend M. Gaffney, have full and absolute power to determine both as to amount payable and times of payment.” The trustees managed the business owned by the testator for some years, then made a valuation of the property available for distribution and divided the sum at which it was valued in 10 equal shares. The testator had been survived by a widow and nine children. When they offered this sum to one of the children, she declined to accept it and brought proceedings for the administration of the estate. The trustees had refused to give any account of the property which was subject to the trust or of their administration of it.
Vice-Chancellor Chatterton said that while the division of the estate into equal shares was free from objection it was going too far to contend that the ascertainment of the assets to be divided was not subject to investigation by the Court. At p. 86 of the report he said:
“The trustees may have had full and absolute authority to arrange and settle the shares to be given to each child of the sum to be divided; but it would be dangerous to hold that there is no control over their ascertainment of the total amount. They would in such case be judges in their own cause. They had from the death of the testator the entire administration of the assets entrusted to them, including the management of the trading carried on by them. The amount distributable among the children of course depended on the due discharge of those duties, so that if their decision on that amount was to be conclusive, it would be in their power to protect themselves against liability for any default. It is not necessary for the cestuis que trust to prove any breach of duty by the trustees for the purpose of having accounts taken of the trust property, as their right to this results from the mere relation between them … There must, therefore, be the usual accounts of the real and personal estate.”
Counsel for the plaintiff has argued that the trust in Moore v. M cGlynn [1894] 1 IR 74 was a discretionary one only and that if one of the potential beneficiaries was entitled to an account of the estate subject to the trust, it must follow that each potential beneficiary under a discretionary trust is entitled to information as to the way in which the trust fund has been invested and of the dealings by the trustees with it. I think that this conclusion is correct and is in accordance with principle.
The other case, Londonderry’s Settlement; Peat v. Walsh [1965] Ch 918, seems to me to have no relevance to the matters in issue in this case. The Seventh Marquess of Londonderry had made a settlement under which the trustees could divide the capital among the members of a specified class in such shares and proportions as they thought fit. Until the capital had been distributed, the trustees were to hold the income of the trust fund upon trust for such member or members of the specified class as the trustees might determine and, in default of any such determination, upon trust to pay an annuity to the wife of the Seventh Marquess and, subject thereto, to pay the income to his eldest son during his life and, after his death, to the child or children of the Seventh Marquess for the time being living and, if more than one, in equal shares until the death of the last survivor of them. The widow of the Seventh Marquess and the Eighth Marquess had died and a daughter of the Seventh Marquess sought details of the administration of the trust fund. Before the proceedings were brought, she had been given copies of the trust accounts and so her right to these was not discussed. The trustees had decided on a division of the capital, and the information sought by the daughter related to the reasons which the trustees had for their decision. The trustees then brought proceedings for a decision as to what information they were bound to disclose to the daughter. She had a vested interest in the income which had not been distributed under the discretionary trust and was, therefore, not a potential beneficiary but one who had an enforceable right against the trustees.
In Peat’s Case the High Court (Plowman J.), misled by a grossly inaccurate report of an earlier decision, ordered the trustees to furnish information as to their meetings and as to the correspondence which they had received from the beneficiaries. The Court of Appeal decided that the trustees were not bound to disclose the agenda of the meetings of the trustees, correspondence passing between the individuals who were trustees and the persons whose consent to the exercise of the trustees’ powers had to be obtained, correspondence between the trustees and beneficiaries, and minutes of meetings of the trustees. The case is not a decision that a potential beneficiary is entitled to copies of the trust accounts or as to the information to which he is entitled. It decides only what trustees under a discretionary trust are not obliged to disclose.
It seems to me that legal principle and the one relevant authority establish that a potential beneficiary under a discretionary trust is entitled to copies of the trust accounts and to details of the investments representing the trust fund. I do not propose to order any accounts to be taken by the Court, butI will declare that the plaintiff, as a potential beneficiary under the settlement of the 2nd March, 1956, is entitled at his expense to be furnished by the defendant
with copies of the trust accounts relating to that settlement since 1956 and to the balance sheet and profit and loss accounts of Muckmore Investments since the incorporation of that company. I shall also declare that the plaintiff is entitled to be informed by the defendants of the names of the persons residing in any landed property purchased by the trustees and of the outgoings in connection
with it paid out of the trust funds.
As there was no decision by the Courts on this matter, and as the trustees
were acting on the advice of counsel, the plaintiff and the defendants will be awarded their costs of these proceedings to be paid out of the capital of the funds settled by the settlement of 1956.”

Re O’Neill

[1943] IR 562

 

MAGUIRE P

“I have previously granted at least two applications of this nature. In one case the facts were very similar to those now presented to me, and I allowed an advance out of the capital of a trust fund which was not sanctioned by the will of the settlor, but which was clearly for the benefit of the minors. In the other case I also allowed an advance out of capital but I required that an assurance policy upon the life of the minor concerned should be taken out to cover the extent of the advance.
Neither of these cases appears to have been reported. In both casesI took the view that in applications of this kind something more is required than evidence that an advance would be of benefit to the minors. I must be satisfied that such a course is not only beneficial but necessary to the welfare of the minors. As to this I accept the view expressed by Kekewich J. in In re Tollemache [1903] 1 Ch 457, at p. 459. He says:- “The most common application going beyond the administration of a trust according to the instrument creating it is one for advances for the benefit of an infant out of capital not sanctioned by the instrument creating the trust. I have never hesitated to do this where satisfied that the advancement is certainly beneficial, and where the infant is contingently interested, as, for instance, entitled only on attaining majority, I have included in the advance the sum necessary to effect
a policy of insurance to cover the contingency. This is an illustration of the maxim that necessity has no law.”
The jurisdiction to make an advance out of capital is not to be exercised lightly. Where a minor is actually destitute the way is clear, but where the minors, as here, are not destitute, the question of the existence of a sufficient element of necessity becomes a difficult problem.
In the present case there is a considerable capital fund subject to the trusts of the will of the minors’ father. The terms of the will require that the trustees shall pay to the minors’ mother the entire income of the estate during widowhood for her own support and maintenance, and the support, maintenance and education of the four minors, and that on her death the capital of the estate shall pass to the minors equally as tenants in common. The evidence before me shows that the minors have reached an age when, if they are to take the position in life for which their upbringing has been preparing them, the expenditure upon their education and maintenance must be increased to a sum greater than the income available. Their mother strongly supports the application. It clearly may be to the advantage of a child to expend capital moneys to which he is absolutely entitled upon his education. Where, however, as here, the interest of the child in the fund is merely an interest in remainder, I have to ask myself, not only would such an expenditure be to the child’s advantage, but is it necessary.
Taking all the circumstances into consideration, I hold that the expenditure which I am asked to sanction is necessary. Accordingly I allow the application, and direct the payment out of capital of the sum of £301 8s. 4d., being the amount of the past expenses already incurred on foot of the maintenance and education of the minors, together with the sum of £146, being the amount certified by the Registrar to be required for their maintenance and education for the coming year.”

 

French v. Graham

(1860) 10 Ir Ch R 522

BRADY LC “In this case there has been clearly a breach of trust committed, accompanied by much carelessness and negligence; but I must acquit the trustees of everything like mala fides. There was a sum of
£700, included in Mr. French’s settlement, which, in the inception of these transactions, was well secured by the mortgage of an estate sufficient for the purpose, and by an assignment of a charge for nearly £2000, payable out of the funds in the cause of Beytagh v. Concannon. The settlement authorised a loan, upon approved security; and so matters stood until the money was paid off by Mr. M’Nevin, and restored to the hands of the trustees, to whom it was properly payable. I must treat the lodgment to their credit as a payment to them; and the money remained quite safe, and at their disposal, until Mr. M’Nevin negotiated with them for a new loan, to which the trustees agreed. All through, this is spoken of as a new loan, and not as a rescission of the original payment, even if such a thing could be. In the meantime, however, Mr. M’Nevin had dealt with his property, had subjected the whole, or a con­ siderable portion of it, to a strict settlement, for full and valuable consideration, and had made the residue of it a fund for indemnifying the settled portion against all charges then affecting it. The property in fact became so much entangled that, from being an ample security, it rested totally on the covenant of Daniel Charles M’Nevin. It is impossible to consider this a fitting security for the investment of trust funds. In point of fact, it was utterly valueless, and the money was lost by this transaction.
In that state of facts, it seems to me that the trustees are responsible. Mr. Graham having taken on himself to be his own adviser and the adviser of his co-trustee, they cannot be held less responsible than they would have been had they obtained the advice of Counsel, in the ordinary way, which never would have absolved them if they had fallen into such a manifest error. Mr. Graham contends that Mr. Digby French is bound to recoup him; and perhaps he might be, save for this, that Mr. French cast on him the onus of considering and advising in this transaction; so that it is not possible here to separate his position as trustee from that of professional adviser. He cannot say, I have given you advice which has misled you, but you are bound to indemnify me for the loss which that advice has occasioned to me as your trustee. On the contrary, it is a question whether an action for negligence might not have been maintained against Mr. Graham, and therefore it seems to me that he is not entitled to be in any way indemnified by Mr. Digby French.
There is, however, considerable difficulty, in my mind, respecting Mr. Edward Hyde French, the other trustee. He was not a professional man; he rested on the skill and character of Mr. Graham, and, at the same time, he stood in the ordinary position of a trustee who has been induced to commita breach of trust, at the request of one of his cestuis que trust. I will assume that he knew everything which Mr. Graham or Mr. Digby French knew; but if he was induced by Mr. Digby French to concur in this loan, it then becomes precisely similar to the common case of money lent to a tenant for life. That is not an answer to a suit against the trustee, but it gives him a right to be recouped as against the tenant for life. Here, certainly, there are letters from Digby French, which lead to the inference that he did induce his brother to join in the new transaction; and there are paragraphs in Miss French’s affidavit, which, not being answered, must be taken to be true, and would be primafacie conclusive that such was the real state of facts. If no further inquiry be pressed for,I must take them to be true. The primary consequence of this will be, that if Miss French admits assets, she must be ordered to bring in the amount. The order must be on both, to bring in the entire amount; and then, as to one moiety of the interest, Miss French will be entitled to it forthwith, and she will be entitled
to be indemnified, even so far as the principal, out of any interest Mr. Digby French has in the fund to be brought in.
Then the question arises, what will be the result of that arrangement upon Mr. Graham and I cannot see that if Mr. Edward Hyde French’s assets be absolved by the act of Digby French, any further or more stringent decree ought, on that account, to be made against Mr. Graham. As to the principal,
that must be brought in by both; but as to one moiety of the interest, Miss French is entitled to retain it.
The case of Raby v. Ridehalgh (1855) 7 De GM & G 104 certainly seems to have gone a great length in relieving trustees, as against the cestui que trust who asks trustees to do what amounts to a breach of trust. It was a case in which executors, not having an express power to lend on real security, invested the fund on mortgage, by the wish of a tenant for life, who had requested them not to invest in stock, but on mortgage. Of course it was quite right to charge the tenant for life with the increased interest which had been received by him; but it was going very far to make his whole future life estate responsible to replace the trust fund which had been lost, the Court not deciding that the loan upon mortgage at all was a breach of trust. If it had decided that, I could have better understood the principle, as the tenant for life had actually interfered to the course to be taken as against the tenant for life. Here the petitioner Digby French has, by his own conduct, become bound to indemnify one of the trustees; but I do not think that this gives any right to shift an increased responsibility upon the other.”

Macnamara v Carey

[1867] IR 1 Eq 9 (Chancery Appeal)

 

Blackburne C: This is an appeal from an order of the late Lord Chancellor, by which he dismissed the petition of the appellant, Richard Francis Macnamara, against the respondent, Henry Carey. The petitioner and appellant is the son of Connell W Macnamara and Esther Jane Carey, the sister of the respondent, Henry Carey, who were married in the year 1839. On that occasion a settlement was executed, whereby various landed properties of the husband were conveyed to Francis P Smith and Henry Carey, the respondent, for various uses.

Francis P Smith died, insolvent, a great many years since; and Connell W Macnamara, the husband, being also dead, and the title of the petitioner as issue of the marriage to the property settled having accrued, the object of this suit is to make Henry Carey – the uncle of the petitioner, and the surviving trustee in the settlement – answerable for the value of certain portions of the settled estate, to which, as the issue of the marriage, the petitioner is entitled.

Two questions arose in the case. The first is one of the construction of the settlement of the 9th of May 1839. The trustees of this settlement were, as I have said, the respondent, Henry Carey, the brother of Esther Jane Carey, and Francis Pratt Smith. This deed, after reciting that Connell W Macnamara was possessed of different properties, and amongst these of the lands of Quilty, in the county of Clare, and of certain premises in Gardiner’s-place, in this city, and that it had been agreed to settle the property recited on the trusts therein declared, in pursuance of this agreement, and in consideration of Esther Jane Carey’s fortune paid to her husband, he and she severally convey all the premises thereinafter mentioned to the trustees. It is the fact, however, that in this enumeration Quilty and the lands in Gardiner’s-place are omitted. The settlement was not registered until 1843, before which time – in the year 1842 – Connell W Macnamara mortgaged several of the denominations to Hedges E Chatterton, who had no notice of the settlement, and amongst them the premises in Gardiner’s-place.

The first question that arises is, whether the parcels enumerated in the recitals of this deed, but not mentioned in the words of grant, passed or not. This is a question of construction; and it seems to me plain on authority, that, as the operative part of the deed conveying the parcels omits them, they did not pass to the trustees. If they had been omitted from accident, or other cause, when they were agreed or intended to be included, the deed could be reformed on satisfactory proof of the contract to include them; but, as matter of construction, the deed remaining as it was when executed, the denominations omitted did not pass to the trustees.

The second question is caused by the non-registration of the deed of settlement. This is the ground of relief sought as to certain other parcels of the lands conveyed. These, in consequence of the omission to register the settlement, remained in the disposition and name of the husband, and were by him mortgaged to Hedges E Chatterton, who had not notice of the settlement. The liability of the trustees, of whom Henry Carey is the survivor, by reason of this omission, has been the principal matter of controversy. Considering the vast variety of circumstances under which questions of this kind may and must arise, it is, I conceive, not possible to lay down any rule of general application: each case must depend on its own peculiar facts. But assuming, as I think we must do, that there are possible facts and circumstances under which this duty may arises the question is, did such a duty devolve on Henry Carey and his co-trustee, and is he responsible for the omission to perform it? The order appealed from exonerates Henry Carey from this liability; but, assuming, as I have said we must do, that there are possible cases in which it may be the duty of a trustee to see that the deed vesting the trust estate in him be registered, the question is, whether in this case, having regard to its special circumstances, such a duty was imposed on him, and is he responsible for the neglect to discharge it? It is plain that he must have been a party to the negotiation for the settlement, and became a trustee of it with full notice of its provisions. It is also matter of reasonable presumption that he knew that registration was essential to the security of the title, for which, as his sister’s trustee, he must have been in treaty on behalf of her and her children. How, then, can it be said that he was not responsible for the consequences of an omission by which the property was left under the absolute dominion of the husband? The preparation of the settlement was left to the husband; but, although this was not objectionable in itself, surely it was in the last degree culpable to leave him in possession of power to alienate or incumber the very property which the trustees were appointed to protect and secure. Indeed, his own act in registering the deed, when he found that advantage had been taken of his neglect and the confidence he reposed in the petitioner’s father had been abused, is evidence that he knew his duty, and the consequences of the omission to discharge it. I think, therefore, that, without laying down a rule which would involve all trustees in an obligation to cause the trust deed to be registered, the extreme imprudence and neglect which mark this transaction oblige us to hold Mr Carey responsible for these consequences.

The case of Lester v Lester, decided by the late Lord Chancellor, appears to me to be an authority bearing directly on the question before us. The registration of the deed was as essential to make the assurance and title safe and indefeasible as was the registration of the judgment in Lester v Lester. But there is a further ground on which, as it strikes me, Mr Carey has rendered himself responsible for the value of the trust property, which, in fraud of the settlement, the petitioner’s father alienated or incumbered – I mean the covenant for further assurance contained in the settlement by Connell W Macnamara to the trustees. This has not been relied on, as far as I recollect, in the course of the argument; but yet it is obvious that, when the trustees discovered (as they did in 1843) that a portion of the settled lands had been alienated, they had a right, and as trustees a duty cast on them, to call on Connell W Macnamara either to procure a reconveyance of the premises, or to pay to them, for the benefit of their cestui que trusts, a full equivalent for the settled property fraudulently sold or incumbered by him. It is not possible to argue that this was not a remedy available to the trustees, or that it was not one which they were bound to resort to for the protection of their cestui que trusts. On the whole, I am most reluctantly compelled to hold Mr Carey liable for the omission to have the settlement of 1839 registered, and for having omitted to sue Mr Macnamara for the breach of his covenant. I need not add, that the reluctance has been increased by the consideration that at the instance of a son we are inflicting a severe penalty on his uncle for the fraud which was practised by his father.

I have only to add, that the premises in Gardiner’s-place, which did not pass by the settlement, and are parcel of those mortgaged to Mr Chatterton, will be applicable in the first place to pay the mortgage debt, and the deficit must be made good by Mr Carey.

Christian J: I have the honour to be of the same opinion as my Lord Chancellor on both the points in this case. With respect to the first – namely, the omission of two of the recited denominations from the granting part of the settlement – as I have the good fortune to be upon that in accord with the late Lord Chancellor also, I do not think it necessary to read the portion of my judgment which has relation to it. The reasons which have been just assigned by the Lord Chancellor, with those given by his learned predecessor are, I think, abundantly satisfactory.

It should be observed, that the materiality in the case of that first question consists mainly in its bearing upon the other and more important question which remains. The decision we are now making on that first point ascertains that the Gardiner’s-place premises are a primary fund for relief of the respondent from any liabilities which our decision on the second question may throw upon him. Except in that view, the first question could scarcely be raised in a suit constituted like the present. The petitioner, being heir at law of his father, could not maintain a suit merely for the purpose of bringing into the settlement omitted denominations; for that would be to increase the settled estate at the expense of his own unsettled estate. In such a suit his proper place would obviously be that of a respondent. His only equity, therefore (whatever might be the case with his sister, if she were petitioner), can only be to have the settled estate, whatever it is, relieved from his father’s incumbrances, or rather from so much of them as any unsettled estate upon which they are also charged shall not suffice to satisfy. Our decision on the first point places Gardiner’s-place precisely in that position with reference to Mr Chatterton’s mortgage, to which only, the petitioner’s counsel admit, their case on the second question must be confined. Thus we are brought to the consideration of the second (the real) question in the case, with this as one of its conditions. Macnamara, after the execution of the settlement, had two estates, and an unsettled estate; but the settled estate was, unfortunately, by the neglect to register it, left as absolutely subject to his control and disposition as the unsettled one; and parcels of both were included in the mortgage to Mr Chatterton. And the question which thereupon arises is one of those painful questions, so frequent in courts of equity, which of two innocent parties must bear the loss occasioned by the fraud of a third? Shall it be the children of the marriage, who came of age only a few years ago; or the trustee, of whom, probably, the worst that can be said is, that he trusted too much to the honour of his sister’s husband.

I confess this appears to me to be a question of no common importance; and, as the opinion I entertain upon it is at variance with that which appears to have been very deliberately arrived at by the Late Lord Chancellor, and furthermore, as it so happens that, by means of the present Lord Chancellor differing from his predecessor, my voice (though but an accidental adjunct for a few hours to the Court) will in fact decide the fate of the appeal. I feel that I could not with propriety withhold the reasons which have weighed with me, conscious though I am that they can be little more than a dilution of what has been so well condensed by my Lord Chancellor. I have given the case very anxious consideration, and I have studied with all the care which was due to it the judgment of the late Lord Chancellor; and I think the key to the decision will be found in a sentence or two, which I shall now read. After some remarks on the action taken by Mr Carey, as soon as he heard of Macnamara’s malpractice, his Lordship defines the question which he considers he has to decide in these terms: “Of intentional negligence I hold him entirely absolved; and there is nothing more in the case than the single abstract question of the duty of a trustee to see to the registration of the deed of settlement.” And he then proceeds: “The Registry Act has been in force about 160 years. Settlements without number have been executed since it came into operation, and doubtless very many of them have been affected by want of registration, yet this is the first attempt which has been made to hold a mere trustee of the lands liable for neglect in such a case.” And the judgment concludes with these words: “No case, in my apprehension, has gone the length which I am asked to sanction in this case, and I shrink from making the precedent.”

With the utmost deference, I feel constrained to think that these passages show that the case has been misconceived. There is surely a great deal more in this case than the single abstract question “of the duty of a trustee to see to the registration of the deed of settlement.” Nay, further, I venture to think that that question, in the abstract, does not exist in the case at all. And, as to shrinking from making a precedent, it seems to me that immeasurably a more formidable, more dangerous precedent would be made by dismissing this petition, than by granting the limited relief to which the case is now reduced.

To grant that relief would be merely to say that, under the highly special and exceptional circumstances of this case, the trustee did not act with the caution and foresight which the Court expects from a trustee placed in such circumstances. But to dismiss the petition generally would be to say, that in almost no conceivable state of circumstances need a trustee of real estate trouble himself at all about either the custody of the title deeds or the registry of the title, vital though that be to the safety of the trust, until at last he hears that there is danger actually on foot; that is to say, in most cases, until more or less irreparable mischief has been done.

I shall now state the facts which, in my opinion, make of this a highly special and exceptional case. In doing so, it will be necessary to go a little behind the settlement. It is, no doubt, true that in the present suit Mr Carey cannot be made responsible for anything but some breach of the duty which attached upon him by reason of his having executed this settlement. But, in judging whether what he did under it amounted to due and reasonable diligence, it is legitimate and necessary to look at his antecedent position. Conduct which would be due diligence in one, might be negligence in another.

The first peculiarity in the case is this – before the settlement was made at all, Mr Carey stood already in a fiduciary position towards his sister. He was his father’s executor; and, in that capacity, her fortune of £1700 was standing in his name, or was under his control and management, and it was by his hands that it was paid over to Macnamara on the marriage. These facts are stated in an affidavit of Mrs Macnamara, filed the 15th of February 1866, which was specially replied to by Mr Carey on the 1st of March, but without any denial of those statements. They were stated and commented on by counsel, and there is no doubt of their truth. Plainly, therefore, he had been a trustee of this money for his sister. No blame can be imputed to him for paying over the money. His sister was of age, and mistress of her own actions, and such was her marriage treaty. But the equivalent she was to get was the settlement of her intended husband’s estate upon herself and her children: her brother was her selected trustee for this. The settlement was, therefore, in effect a shifting of Mr Carey’s fiduciary obligations from the money to the land; but with this important difference, that, whereas he had been trustee of the money for self-competent cestui que trust, he became trustee for the land for one disabled by coverture, and for those still more helpless beings whose existence lay in the future; accordingly, the trusts declared by the settlement were active, operative trusts. This was no case of mere releasees to uses, whose only duty would be to refrain from joining in any act to destroy the contingent remainders. The whole legal estate in all these leasehold interests remainded in the trustees. The first trust was, “out of the rents and profits to pay head rents and outgoings” (thereby throwing expressly on the trustees the duty of caring for the preservation of the interests). The next trust was, “to reimburse themselves the expenses of the said trusts” (an unequivocal indication that their part was to be no passive one); and lastly came the trust, “to pay” (not to “permit and suffer to receive”) “the residue of the rents” to the husband, wife, and children, in the order prescribed. Active care and intervention by the trustees were, therefore, contemplated and prescribed. Surely it is not too much to say, that Mr Carey was bound to take at least as much care of the land as he had been of the money which was given for the purchase of it. And, if it had been the money that had been put in settlement, can any one doubt that he would be held responsible, if he let it fall under the power of the husband?

The second specialty to be noted is this – the settlor was a solicitor, and he was the only solicitor employed in the transaction. The usual course of business, when the gentleman makes a settlement in consideration of the lady’s fortune, is, that the preparation and perfecting of the deed belong to her solicitor. Here the duty was committed wholly to the settlor himself. For this unfortunate peculiarity I do not hold Mr Carey responsible as its origin. The lady and her mother were presumably capable of choosing for themselves; unhappily, they left all to Mr Macnamara. But the moment the settlement was executed, Mr Carey’s position and duties were altered; new rights sprang into existence, of which he was a constituted guardian; the time for independent action by the trustees had arrived.

Thirdly – Mr Carey was himself a skilled professional man – a practising barrister, and he executed the deed. Perfect knowledge of its contents – of the rights and duties which it created – of the proper depository for it, as well as for the title deeds, and of the consequences of non-registration – all this knowledge must clearly be imputed to the trustee in this case, even while we give full credit to what he has sworn that he did not act as his sister’s counsel.

But the matter does not rest on presumption. There is ample evidence that Mr Carey’s attention was, in fact, awake to the necessities of the occasion. Trustees have often, perhaps most frequently, suffered for the neglect of things unknown or forgotten: not so here. A most important passage was read from Mr Carey’s affidavit, to this effect: “The said Connell Wilkins Macnamara expressly undertook to have the settlement registered; and I bona fide believed that same had been duly registered.” That is to say, his thoughts dwelt on the subject at the time; and the result was, that, instead of employing an impartial and competent solicitor of his own to register the settlement, he concluded to repose on Macnamara’s assurance that he would himself take care of it – Macnamara, the very person on whom the settlement was a fetter – a fetter to be riveted by registering, but shaken off at pleasure so long as that remained undone. And, that no facility or temptation for foul play might be wanting, he left with him all the title deeds, the head leases of the settled denominations, as well as any others there may have been. In a word, he, not ignorantly or inadvertently, but knowingly and advisedly, permitted the settlor to remain as absolutely master of the settled estate as of his own unsettled estate.

Lastly, having left in this position of deadly peril the provision for his sister and her children which he had just purchased with her fortune, he dismissed the subject from his thoughts; never made an inquiry whether his confidence had been justified or abused, whether Macnamara had kept his undertaking or broken it – never asked even to see the settlement, a glance at which would show whether he had or not remained simply supine for close on four years; and then, hearing what was going on, which common foresight would have anticipated, after two irreparable invasions had been already made on the trust estates, he at last awakes, and without trouble or difficulty does the simple act which, if done when it ought to have been done, would have preserved the estates intact.

Is this, then, let me now ask, a case of which it can truly be said, that “there is nothing more in the case than the single abstract question of the duty of a trustee to see to the registration of the deed of settlement?” Is there here nothing special, nothing exceptional, nothing peculiar? A brother, with his sister’s fortune in his hands, investing it in the purchase of a settlement on her and on her children of her intended husband’s estates of which he (the brother) is made the trustee on active and operative trusts, leaving that settlement in circumstances which, as a practising barrister, he knew, put it absolutely at the mercy of the settlor, that settlor an attorney, and the only other professional person concerned; and never for four years, nor until he hears that mischief has been actually done, making so much as one solitary inquiry.

But it was strongly argued that the registering of a settlement is no part of a trustee’s duty at all. The title, it is said, is complete, the constitution of the trust complete, on the execution of the deed; and all the trustees need do is to perform the things set down for them in the declaration of the trusts. Registering is a matter which the settling parties, as they were called, must look to. I answer, that the title is not complete, notwithstanding the estate has passed, so long as it is left in the settlor’s power to destroy it at his pleasure; and that the very first duty of the trustees is to place the trust property, whether it be real or personal, in a state of security. I do not say that trustees are to hunt back into the title in search of flaws (as the case of Lester v Lester would seem to warrant); but, if there be in the very framework of the machinery by which the trust is constituted, and to which they are parties, a patent defect, which the trustees (either by being themselves possessed of the technical knowledge, or by being told of it by those who are) know makes the trust insecure, but which it is in their powers to remove, I do say, it is their duty to do the act which will remove that defect. And just as a mortgage, or an ordinary purchaser, owes a duty to himself to register his conveyance, and take up his title deeds, so I hold that a trustee of real estate, upon operative trust for persons under disability, owes a like duty to them.

The respondent’s counsel admit that, when the trustee became aware that the settlor was tampering with the estate, it became his duty to interfere, and to get the settlement registered; and, that if he had neglected to do so, he would have been responsible. But the moment that is admitted, if follows that the act of registering is one not in its nature alien to the office of trustee, and appertaining to the settling parties; for if it were the trustee could not be responsible for danger proceeding from such a source, and the utmost he could be called on to do would be to give notice to the settling parties. But if the act be one germane to his office, which therefore he must do as soon as he hears of danger, it seems to me to be repugnant to the principles of this Court to say that he may postpone the action until then. I have always understood it to be the law of this Court, that, if there be an act which it is in the province of a trustee to do, the not doing of which carries in it the seeds of future danger, that it is at the trustee’s own peril if he leave that act undone; and if evil ultimately come of it, however unthought of, he must make it good.

Again, it was said, the danger was only a contingency, and that contingency one of fraud; and are trustees, it was asked, bound to presume fraud? No; they need not presume fraud, but they should take ordinary precautions against the possibility of it. The duty of trustees is not to (as has been said of the law itself) trust to what men will do, but to guard against what they may do. If men were always honest, and provident, and faithful to their engagements, we need not have settlements or trustees at all. But it is because those qualities sometimes fail under temptation that restrictions are necessary.

Extreme cases were put in argument; and it was asked, would trustees be liable for bad registry, as well as for non-registry; or for non-registry of some deed occurring in the anterior state of the title? My answer is, that, when such cases arise, they will be dealt with according to their circumstances. The fallacy of all that class of reasoning lies in the assumption that we are dealing here with an abstract question, instead of with a highly special case. I should myself say, as present advised (special circumstances apart), that if the trustees employ a disinterested and presumably competent solicitor to register the trust deed, and ascertain by inquiry that he has done so, they fulfil the obligation of reasonable diligence, and ought not to be held responsible for the solicitor’s want of skill, or mistake. And, as to older deeds, I should have thought (at least, unless the case of Lester v Lester be law) that trustees could not be held responsible for defects of which they had no notice in the title anterior to the creation of the trust.

There is one conclusive test by which to try cases of this kind. It is now the settled doctrine (notwithstanding a dictum of Lord Northington, in 1 Eden 148) that a trustee must exert precisely the same care and solicitude in behalf of his cestui que trust as he would do for himself. This is nowhere more clearly laid down than by Lord Nottingham, in the case cited by one of Mr Carey’s counsel, Morley v Morley 2 Chan Ca 2. Suppose, then, that the £1700 had been Mr Carey’s own money, instead of his sister’s, and that the deed of May 1839, instead of being her marriage settlement, had been a mortgage for that money; would Mr Carey – would any prudent mortgagee – have left, not only all the title deeds, but the mortgage deed itself, unregistered, in the hands of the mortgagee, trusting in his promise to register it, and never making one inquiry as to whether his confidence had been justified or abused? Does any one doubt that he would have had his own solicitor, that his deed would have been promptly registered, if not the title deeds taken up; and if he would have so done for himself, so much, and not less, he was bound to do for his cestui que trusts.

I ought not to close without some reference to the authorities by which, if the case be not touched, it is certainly very closely encompassed. Much stress was laid on the absence of any case in point. No doubt that class of argument is entitled to certain weight; though the worst of it is, that it is not often easy to say on which side it tells whether it shows complaint to be desperate, or resistance hopeless. The truth is, as we all know, that new points are constantly springing up; and, when they present themselves, all we can do is to bring to bear on them the light afforded by decisions in analogous cases, taking care to extract essential principles, and to disregard immaterial accidents.

We have been referred to the familiar cases in Beavan’s Reports, Fenwick v Greenwell, McGachan v Dew, Dix v Burford, and others; to which may be added, Clough v Bond 3 M & Cr 490. The principle which stands out distinct and clear upon those authorities is this: that it is not enough for a trustee to keep within the four corners of the deed, and perform literally what is there set down. The very first point to which he must direct his thoughts is the placing of the trust property in security; and, above all, the making it impossible that it shall ever fall under the control of unauthorised persons. If he, even by mere inaction, suffer a state of things to exist or to continue, which, however apparently at the time natural and harmless, results, in the course of future events, in the fund getting under unauthorised control, even though it be that of a co-trustee only – still more that of the settlor himself – and loss follows, the trustee must make it good. Look, for example, at the force of that case of Dix v Burford. A testator, possessed of a mortgage on a copyhold, bequeathed the money specifically to his executors on certain trusts. The executors assented to the bequest, whereby the money became vested in them in the capacity of trustees. Now, there is held to be this very subtle distinction between executors and trustees, viz, one executor may receive and give a discharge for money, but trustees must all join. The benefit of this distinction would have been secured for the cestui que trusts in this case if the executors had, after assent, got themselves formally admitted on the court roll joint-tenants of the copyhold. This, naturally enough, they never thought of. The legal estate, therefore, still remained in them qua executors; and one of them took advantage of the circumstance, received the money, and discharged the estate. The other was decreed to make it good, merely for having neglected to assimilate the condition of the legal estate in the land to that in which the money had been placed by the assent. Lord Langdale says: “It is obvious that the moment Yells accepted the trust, it became his duty to take proper stops to prevent his co-trustee alone receiving the money … The moment he was constituted a trustee, it became his duty, by notice or otherwise, to make it impossible for his co-trustee to receive and misapply the trust fund” – and surely, a fortiori, in our case – to make it impossible for the settlor himself to alien and make away with the trust estate. Again, in Fenwick v Greenwell 10 Beav 412, there was a covenant in a marriage settlement with the trustees that £5000 Consols, described as part of the intended wife’s estate, should be transferred to the trustees on the trusts of the settlement. There was then in the lady’s name a sum of £4946 Three per cents; the trustees took no steps to compel a transfer; and the Stock was sold out and misapplied by the husband, who became bankrupt. Lord Langdale was of opinion that that sum of Three per cents was not specially bound by the settlement; but he thought that the trustees might, by proper measures, have procured a transfer of it, and he held them responsible for having neglected to take such measures. “Though”, he says, “they had recognised the trust by executing the deed, and had become liable for their non-performance, they did nothing; they performed no trust whatever, but omitted to pay any attention to the duty which they had undertaken to perform.” In Ghost v Waller 9 Beav 497, trustees for sale were held liable for having left the deed of conveyance to a purchaser in the hands of a solicitor, with their receipt for the purchase money indorsed, by means of which the solicitor was enabled to obtain and misapply the money. But there is a case which, I think, was not cited, which seems to me in some respects to touch this case more nearly. It is Mathews v Brise 6 Beav 239: – An executor and trustee, having £5600 in his hands, which he was in treaty to invest in a mortgage, in order to make it profitable in the mean time, directed it to be invested in Exchequer Bills. He gave it for that purpose to certain brokers, and brokers who had been in the testator’s confidence, and they made the investment. Now, down to this the Court held that the trustees were fully justified, ie in the temporary investment in Exchequer Bills, and in the employment of the brokers. But they never inquired how the brokers had done their duty; and it was found afterwards that they had kept the bills undistinguished from others of their own. The brokers afterwards, before the mortgage was completed, became bankrupts; and it was held that the trustees were liable. The language of the Master of the Rolls seems singularly applicable, mutatis mutandis, to this case. (His Lordship read the judgment in that case.)

Another strong case, not cited, was Challen v Shippam 4 Hare 555. The defendant, the trustee, there, having £300, part of the trust estate, paid to him, was told by the cestui que trusts to invest it in the funds. He deposited it with an old-established banking firm, with directions in writing to invest it in his name for the trusts. So far all was correct, and in the ordinary way of business. But the trustee made no inquiry as to how the bankers fulfilled his directions; and it proved, when too late, that the bankers had by mistake, instead of investing the money, opened an account with themselves to the credit of the trustee. Five months afterwards they became bankrupt, and the money was lost. The plaintiff’s counsel rested their case on the delay of five months without inquiry. The Vice-Chancellor said, that “the period of months, all but a few days, having elapsed after the deposit of the money without investment, and without inquiry by the defendant, he was answerable for the loss which was sustained.” Now, the especial bearing of the two last cases is this: that, even supposing Mr Carey were justified originally in leaving the duty of registering the settlement to Macnamara, the subsequent neglect for four years to inquire whether he had done so would constitute of itself a distinct breach of trust which would make him responsible. The case of Jacob v Lucas 1 Beav 436 contains a clear intimation of Lord Langdale’s opinion, that when the subject of settlement is a fund standing in the names of other trustees for the settlor, the trustees of the settlement must give notice of it to the former trustees; and that, if they neglect to do so, and the settlor is thereby enabled to deal with the fund in favour of third parties, who gain priority by giving the first notice, the trustees of the settlement must make good the loss – a case extremely analogous to the neglect to register a deed of real estate.

I cannot at all appreciate the way in which these cases were dealt with in the Court below. It seems to have been supposed that they proceeded on something peculiar to trusts of money and stock. It was said, the acts to be done in those cases were necessary to vest the trust fund in the trustees, and that steps were necessary to be taken by the trustees which they alone could take. But in Mathews v Brise, or in Challen v Shippam, or in Ghost v Waller, the vesting of the funds in the trustees was complete; and in the cases on the non-transfer of stock agreed to be settled, the step necessary was not only not one which the trustees alone could take, but was one which could be done only by the settlor. But the judges who decided those cases did not base them on any fanciful niceties of this kind, but upon the broad and irrefragable principle that the trustee was above all things bound to care for the stability of the trust, and to keep the fund out of wrong hands. He must, in Lord Langdale’s emphatic words, “make it impossible” for any unauthorised person to receive and misapply the fund. And if we will look at realities, and not at delusive forms of speech, what is the difference between leaving stock or money in the hands of the settlor, or of a co-trustee, or of a banker or a broker, and deliberately leaving a settled estate mixed up and confounded with the settlor’s unsettled estate, by leaving him in possession of all outward indicia of absolute ownership, and placing it at his simple discretion whether the settlement shall ever see the light? Is there sense, or substance, or reality, in telling us gravely, in such a case, the conveyance is complete – the estate has passed? If this deed had been a deed of purchase by Mr Carey for himself, and with his own money, whose business would the registration of it have been – who would have looked sharply and carefully after it? And is it to be laid down in the Court of Chancery that a trustee owes a less duty to the feme covert and the infants whom he has undertaken to protect than he would owe to himself? But there still remains the case, which goes so far beyond the requirements of the present as at once to show that the question here is not whether we shall make a precedent, but whether we shall overrule one. I am to the present moment utterly unable to discern how the dismiss in this case and the decree in Lester v Lester 6 Ir Chan Rep 513 can both be law. The difficulty I feel about that case is, I must confess, that I think it a little too strong. If the case made against Mr Carey had been that he had neglected to find out that some former old lease or deed was unregistered, it would be necessary to rest on Lester v Lester, and it might perhaps suffice for the purpose; for what the trustee there was held responsible for was, not leaving undone anything that was necessary to vest the fund in himself – not for neglecting to keep the security such as he found it – but for a thing omitted years before this judgment had been assigned to him, of the necessity for which, or of its non-existence, he, an unprofessional person, was in utter ignorance, and could only discern by a retrospective scrutiny into the security. The conusee of the judgment, one of the subjects of the settlement, had thought proper, whether inadvertently or advisedly, to keep the judgment in its primary condition of a merely personal security, and had assigned it to the trustee in that condition; and the trustee merely kept it so, without the faintest notion that it was in his power to make it better. The only distinction suggested here in argument between that case and the present was this: After the passing of the Judgment Mortgage Act (1850) (many years after the marriage), the petitioner and her husband got the trustee to make an affidavit for registry as a mortgage under that Statute; and it was said the trustee’s attention was thereby called to the position of the judgment, and that it was considered insecure. But the question is, was there anything in that transaction calculated to awaken a suspicion that there was any defect in the judgment qua judgment? To my mind, I confess, it seems quite the other way. No complaint whatever of the judgment – no suggestion that it was not as good as any judgment could be; but, “we want, in addition, something better than any judgment can be, namely, a mortgage; and this new Act gives us the means of getting it.” How can it reasonably be said that there was anything in this to awaken a thought that there was something else which might be done to make the judgment better as a judgment? Can it seriously be said that, if the trustee would not otherwise be liable for the non-registry under the Act of 1844, this transaction would fix him with that liability? But the Chancellor in that case bases his judgment on broader grounds: “It does not seem,” he says (p 516), “that the petitioner or her husband was aware that the judgment was unregistered, and it was rather the trustee’s duty than theirs to make the inquiry; they were ignorant, and he was ignorant; no moral blame attaches to either; but it was the trustee’s business to have made the inquiry, and it was not theirs.”

The trustee there was an unprofessional person; the wife there (the petitioner) was a quasi feme sole, for her life estate was to her separate use; her husband had no adverse interest; yet there it was said the duty of inquiry was on the trustee, not on her or her husband. Here the trustee was a practising barrister: the wife was a pure feme covert; the petitioner now is one of the children then unborn; the thing to be inquired about was an essential to the perfecting of the transaction in which the trustee was himself an actor; the person from whom danger impended was the husband; and yet we are told, in the same Court in which the former case was decided, that this trustee was absolved from the duty of inquiry which the other was held subject to; and the obligation of vigilance was held imposed on the feme covert (for there was no one else to exert it), and against her own husband. Beyond all comparison, the strongest case in the books in support of the relief which was refused in this case, is that case of Lester v Lester. But I do not rest my own judgment upon it; I feel safer with the English cases, though not so much in point; but I must add, that I consider it wholly impossible that we could affirm this dismiss, unless we were prepared at the same time to affirm that Lester v Lester is not law.

I will now ask, in conclusion, if this decree were to stand, what would be its range as an authority hereafter? There are other things besides registry necessary to the perfecting of a settlement. Suppose the settlor is a tenant in tail; would it be a perfectly innocent thing for a trustee knowingly and advisedly to leave the business of enrolling the deed in Chancery under the Statute to the settlor himself, and never make an inquiry whether it was done or not? Strong cases were put in argument; let me put this case: A tenant in tail, who has two sons, settles the estate, on the marriage of his second son, upon trust, after his own decease, for the uses of that marriage. The lady’s fortune is paid to the settlor by her trustee, who executes the settlement. The eldest son happens to be an attorney; he is the only attorney employed in the matter; and the trustee (say, himself a practising barrister) intrusts to him the duty of enrolling the deed under the Statute, and troubles himself no more about the matter. The eldest son does not enrol the deed; and, years after, the father dies; the unbarred estate tail descends on the attorney, the eldest son, who at once himself executes and enrols a disentailing deed, sells the estate to innocent purchasers, and absconds, or dies insolvent. Must the wife and children of the second son lose all? Would not the decree now under appeal by an express authority that there would be no redress against the trustees? Is there, then, no mode whatever of protecting the helpless and unborn against such wrongs as these? I can see none, if their specially constituted protectors, who have accepted that position, may with impunity, though with knowledge, neglect the most simple and ordinary precautions. Therefore it is that it has appeared to me that the fear of making a dangerous precedent which swayed the Court below was misapplied; and that, in truth, it has had the effect of landing the Court in the very danger which it apprehended.

In expressing my concurrence with my Lord Chancellor that this dismiss should be reversed, I disclaim all notion of dealing with any abstract proposition; I found my opinion on the special circumstances of the case. I simply hold that a trustee, who is fixed with such antecedents and such knowledge as attach of this trustee, does less than his duty when he commits the registering of such a settlement as this to the settlor himself, and puts him at the same time under temptation to blink that duty, by leaving him master of the title deeds, and by letting years pass by without inquiry into his conduct.

It is but just, however, that the petitioner should be obliged to take measures (say, by proceeding in the Landed Estates Court) for realizing the proceeds of the Gardiner’s-place premise, before he ever comes upon the trustee; and that the decree against the latter shall be only for the deficiency, if any. The decree will be drawn up on that principle.

The Lord Chancellor concurs with me in thinking that, as the petitioner has failed in a considerable part of the case made by his petition, the parties should abide their own costs both here and in the Court below.

UK Cases

Fryv Tapson

 

KAY J: … Speight v Gaunt did not lay down any new rule, but only illustrated a very old one, viz., that trustees acting according to the ordinary course of business, and employing agents as a prudent man of business would do on his own behalf, are not liable for the default of an agent so employed. But an obvious limitation of that rule is that the agent must not be employed out of the ordinary scope of his business. If a trustee employs an agent to do that which is not the ordinary business of such an agent, and he performs that unusual duty improperly, and loss is thereby occasioned, the trustee would not be exonerated.
Suppose, for example, that in selling trust property, or changing an investment, trustees were to allow the trust fund to pass into the hands of their solicitors, and that it was lost in consequence, they would be liable. I take that illustration because I am afraid it not unfrequently happens that trustees do allow trust funds to be in their solicitors’ hands without sufficient reason. It would be no excuse to say, as one of the witnesses said in this case, ‘Solicitors often do so.’ The question is not what they often do, but what is properly within the scope of their employment as solicitors.

 

Gisborne v Gisborne

(1877) 2 App Cas 3

LORD CAIRNS LC: … My Lords, larger words than those, it appears to me, it would be impossible to introduce into a will. The trustees are not merely to have discretion, but they are to have ‘uncontrol­ lable,’ that is, uncontrolled, ‘authority.’ Their discretion and authority, always supposing that there is no ma/a fides with regard to its exercise, is to be without any check or control from any superior tribunal. What is the subject-matter with regard to which they are to exercise this discretion and this authority? The subject-matter is the payment, or the application, not merely of the whole of the income of his real and personal estate, but of such portion only as they deem it proper to expend. It is for them to say whether they will apply the whole, or only a part, and if so what part. And how are they to decide, if they do not apply the whole; what is the part which they are to apply? They are to decide upon this principle, that it is to be such part as they shall think expedient, not such part as shall be sufficient, not such part as shall be demanded by or for the person to be benefited, but such part as they shall think expedient; and upon the question of what is expedient it is their discretion which is to decide, and that discretion according to which they are to decide is to be uncontrolled ..
My Lords, in a case like this, where the Court of Chancery recognises that the trustees and not the Court, are to be the judges of the quantum to be allowed, where the trustees are willing to exercise the discretion which they claim to exercise, and where the Court allows and declares their right to exercise that discretion, I do not understand it to be the habit of the Court to go on and express any opinion as to whether the exercise of the discretion by the trustees is a wise or an unwise exercise of that discretion ..

Mettoy Pension Trustees Ltd v Evans and others

[1990] 1 WLR 1587

WARNER J: … I have come to the conclusion that there is a principle which may be labelled ‘the rule in Hastings-Bass.’ I do not think that the application of that principle is confined, as Mr Nugee suggested, to cases where an exercise by trustees of a discretion vested in them is partially ineffective because of some rule of law or because of some limit on their discretion which they overlooked. If, as I believe, the reason for the application of the principle is the failure by the trustees to take into account consider­ ations that they ought to have taken into account, it cannot matter whether that failure is due to their having overlooked (or to their legal advisers having overlooked) some relevant rule of law or limit on their discretion, or is due to some other cause.
For the principle to apply however, it is not enough that it should be shown that the trustees did not have a proper understanding of the effect of their act. It must also be clear that, had they had a proper understanding of it, they would not have acted as they did. That is apparent from /n re Hastings-Bass [1975] Ch 25 itself, … There may well be cases where the court, giving effect to the rule in Hastings­ Bass, comes to the conclusion that, had the trustees not failed to take into account considerations which they ought to have taken into account, they would not have acted as they did at all, but would either have done nothing or done something quite different. In such a case the court must declare void the whole of the purported exercise of the trustees’ discretion. There may however be cases where the court is satisfied that the trustees would have acted in the same way but with, for instance, the omis­ sion of a particular provision in a deed. I do not see why, in such a case, the court should not declare only that provision void. It seems to me, that the remedy to be adopted by the court must depend on the circumstances of each case.

In a case such as this, where it is claimed that the rule in Hastings-Bass applies, three questions arise:
(1) What were the trustees under a duty to consider? (2) Did they fail to consider it? (3) If so, what would they have done if they had considered it? …
I now come to the all important third question: what would the trustees have done if they had con· sidered the matters that they failed to consider? In dealing with that question, two important points must be borne in mind. First, as I have said, for the rule in Hastings-Bass to apply it must be clear that the trustees would not have done what in fact they did. The decision in In re Hastings-Bass itself [1975] Ch 25 shows how stringent a requirement that is. It is not enough to show that the trustees would have realised that what they were doing was to some extent unsatisfactory. Secondly, it is implicit I think in In re Baron Vestey’s Settlement [1951] Ch 209 and in In re Hastings-Bass [1975] Ch 25 that the trustees would have been correctly advised as to the effect in law of what they were doing. It cannot be right to consider what they would have done if they had been wrongly or inadequately advised .

 

Bartlett v Barclays Bank Trust Co. Ltd (No. 1)

[1980] Ch 515

BRIGHTMAN J  What, then was the duty of the bank and did the bank fail in its duty? It does not follow that because a trustee could have prevented a loss it is therefore liable for that loss. The questions which I must ask myself are: (1) what was the duty of the bank as the holder of
99.8 per cent of the shares in BTLand BTH? (2) was the bank in breach of duty in any and if so in what respect? (3) if so, did that breach of duty cause the loss which was suffered by the trust estate? (4) if so, to what extent is the bank liable to make good that loss? In approaching these questions, I bear in mind that the attack on the bank is based, not on wrongful acts, but on wrongful omissions, that is to say, non-feasance not misfeasance.
The cases establish that it is the duty of a trustee to conduct the business of the trust with the same care as an ordinary prudent man of business would extend towards his own affairs: see Re Speight, Speight v Gaunt (1883) 22 ChD 727 at 739, 762 per Jessel MR and Bowen U (affirmed on appeal (1883) 9 App Cas 1 and see Lord Blackburn at 19). In applying this principle, Lindley U (who was the third mem­ ber of the court in Re Speight) added in Re Whitely (1886) 33 ChD 347 at 355:
… care must be taken not to lose sight of the fact that the business of the trustee, and the busi­ ness which the ordinary prudent man is supposed to be conducting for himself, is the business of investing money for the benefit of persons who are to enjoy it at some future time, and not for the sole benefit of the person entitled to the present income.The duty of a trustee is not to take such care only as a prudent man would take if he had only himself to consider; the duty rather is to take such care as an ordinary prudent man would take if he were minded to make an invest­ ment for the benefit of people for whom he felt morally bound to provide. That is the kind of business the ordinary prudent man is supposed to be engaged in; and unless this is borne in mind the standard of a trustee’s duty will be fixed too low; lower than it has ever yet been fixed, and lower, certainly than the House of Lords or this court endeavoured to fix it in Speight v Gaunt.
On appeal Lord Watson added (1887) 12 App Cas 727 at 733:
Businessmen of ordinary prudence may, and frequently do, select investments which are more or less of a speculative character; but it is the duty of a trustee to confine himself to the class of investments which are permitted by the trust, and likewise to avoid all investments of that class which are attended with hazard.
That does not mean that the trustee is bound to avoid all risk and in effect act as an insurer of the trust fund: in Re Godfrey (1883) 23 ChD 483 at 493 Bacon V-C said:
No doubt it is the duty of a trustee, in administering the trusts of a will, to deal with property intrusted into his care exactly as any prudent man would deal with his own property. But the words in which the rule is expressed must not be strained beyond their meaning. Prudent busi­ nessmen in their dealings incur risk. That may and must happen in almost all human affairs.
The distinction is between a prudent degree of risk on the one hand, and hazard on the other. Nor must the court be astute to fix liability on a trustee who has committed no more than an error of judgment, from which no businessman, however prudent, can expect to be immune: in Re Chapman [1896] 2 Ch 763 at 778, Lopes U said:
A trustee who is honest and reasonably competent is not to be held responsible for a mere error in judgment when the question which he has to consider iswhether a security of a class author­ ised but depreciated-in value, should be retained or realised, provided he acts with reasonable care, prudence and circumspection……

The prudent man of business will act in such manner as is necessary to safeguard his investment. He will do this in two ways. If facts come to his knowledge which tell him that the company’s affairs are not being conducted as they should be, or which put him on enquiry, he will take appropriate action. Appropriate action will no doubt consist in the first instance of enquiry of and consultation with the directors, and in the last but most unlikely resort, the convening of a general meeting to replace one or more directors. What the prudent man of business will not do is to content himself with the receipt of such information on the affairs of the company as a shareholder ordinarily receives at annual general meetings. Since he has the power to do so, he will go further and see that he has sufficient information to enable him to make a responsible decision from time to time either to let matters proceed as they are proceeding, or to intervene if he is dissatisfied. This topic was considered by Cross Jin Re Lucking’s WT [1968] 1 WLR 866

…
I do not understand Cross J to have been saying that in every case where trustees have a controlling interest in a company it is their duty to ensure that one of their number is a director or that they have a nominee on the board who will report from time to time on the affairs of the company. He was merely outlining convenient methods by which a prudent man of business (as also a trustee) with a controlling interest in a private company, can place himself in a position to make an informed decision whether any action is appropriate to be taken for the protection of his asset. Other methods may be equally satis­ factory and convenient, depending on the circumstances of the individual case. Alternatives which spring to mind are the receipt of the copies of the agenda and minutes of board meetings if regularly held, the receipt of monthly management accounts in the case of a trading concern, or quarterly reports. Every case will depend on its own facts. The possibilities are endless. It would be useless, indeed misleading, to seek to lay down a general rule. The purpose to be achieved is not that of moni­toring every move of the directors, but of making it reasonably probable, so far as circumstances per­ mit, that the trustee or (as in Re Lucking’s wn one of them will receive an adequate flow of information
in time to enable the trustees to make use of their controlling interest should this be necessary for the protection of their trust asset, namely the shareholding. The obtaining of information is not an end in itself, but merely a means of enabling the trustees to safeguard the interests of their beneficiaries.
The principle enunciated in Re Lucking’s WT appears to have been applied in Re Miller’s Deed Trusts, decided by Oliver J. No transcript of the judgment is available but the case is briefly noted in a journal of the Law Society (1978) 75 LS Gaz 454). There are also a number of American decisions proceeding on the same lines, to which counsel has helpfully referred me.
So far, I have applied the test of the ordinary prudent man of business. Although I am not aware that the point has previously been considered, except briefly inRe Waterman’s WT [1952] 2 All ER 1054, I am of the opinion that a higher duty of care is plainly due from someone like a trust corporation which car­ ries on a specialised business of trust management. A trust corporation holds itself out in its advertis­ ing literature as being above ordinary mortals. With a specialist staff of trained trust officers and managers, with ready access to financial information and professional advice, dealing with and solving trust problems day after day, the trust corporation holds itself out, and rightly, as capable of providing an expertise which it would be unrealistic to expect and unjust to demand from the ordinary prudent man or woman who accepts, probably unpaid and sometimes reluctantly from a sense of family duty, the burdens of a trusteeship. Just as, under the law of contract, a professional person possessed of a particular skill is liable for breach of contract if he neglects to use the skill and experience which he pro­ fesses, so 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. The advertising literature of the bank was not in evidence (other than the scale of fees) but counsel for the bank did not dispute that trust corporations, including the bank, hold themselves out as possessing a superior ability for the conduct of trust business, and in any event I would take judicial notice of that fact. Having expressed my view of the higher duty required from a trust corporation, I should add that the bank’scounsel did not dispute the proposition.
In my judgment the bank wrongfully and in breach of trust neglected to ensure that it received an adequate flow of information concerning the intentions and activities of the boards of BTL and BTH. It was not proper for the bank to confine itself to the receipt of the annual balance sheet and profit and loss account, detailed annual financial statements and the chairman’s report and statement, and to attendance at the annual general meetings and the luncheons that followed, which were the limits of the bank’s regular sources of information …
I hold that the bank failed in its duty whether it is judged by the standard of the prudent man of busi­ ness or of the skilled trust corporation.

Re Lucking’s WT, Renwick v Lucking

[1968] 1 WLR 866

CROSS J: In support of the proportion that a trustee who is carrying on an unin­ corporated business is only liable for negligence in his supervision of a manager employed by him if the negligence amounts to ‘wilful default’, counsel relied on the decision of Maugham J in Re Vickery, Vickeryv Stephens [1931] 1 Ch 572. In that case an executor employed a solicitor to obtain payment of sums of money due to the estate and furnished him with documents of title for the purpose. The solici­ tor made away with the money and it was said that having regard to what the executor had learnt of the reputation of the solicitor in question he ought to have cancelled the authority given him before the money got into his hands. Maugham J held thats. 23 of the Trustee Act 1925 empowered the executor to employ the solicitor for the purpose in question in the first instance; and he held further that ass. 30 of the Act provided, inter alia, that a trustee should not be liable for the defaults of any person with whom any trust money or securities might be deposited unless the resulting loss happens through his own wilful default, the executor in the case before him would only be liable if he were guilty of wilful default. I see no reason whatever to think that Maugham J would have considered that a person employed by a trustee to manage a business owned by the trust was a person with whom trust money or securities were deposited within the meaning of s. 30. In support of the proposition that directors are only liable for ‘wilful default’ counsel referred to Re City Equitable Fire Insurance Co. Ltd [1925] Ch 407; but there one of the company’s articles provided that directorsshould only be liable for ‘wilful default’. Romer J made it clear in his judgment (1925] Ch at p. 500 that, but for that article, he would have held some of the directors liable in some matters for negligence falling short of ‘wilful default’. In my view, ‘wilful default’ does not enter into the picture in this case at all. The conduct of the defendant trustees is, I think, to be judged by the standard applied in Re Speight, Speight v Gaunt (1883) 22 ChD 727, namely, that a trustee is only bound to conduct the business of the trust in such a way as an ordin­ ary prudent man would conduct a business of his own.
Now, what steps, if any, does a reasonably prudent man who finds himself a majority shareholder in a private company take with regard to the management of the company’s affairs? He does not, I think, content himself with such information as to the management of the company’s affairs as he is entitled to as shareholder, but ensures that he is represented on the board. He may be prepared to run the business himself as managing director or, at least, to become a non-executive director while having the business managed by someone else. Alternatively, he may find someone who will act as his nominee on the board and report to him from time to time as to the company’s affairs. In the same way, as it seems to me, trustees holding a controlling interest ought to ensure so far as they can that they have such information as to the progress of the company’s affairs as directors would have. If they sit back and allow the company to be run by the minority shareholders and receive no more information than shareholders are entitled to, they do so at their risk if things go wrong.

Henderson v Merrett Syndicates Ltd

[1995] 2 AC 145

LORD BROWNE-WILKINSON: The liability of a fiduciary for the negligent transaction of his duties is not a separate head of liability but the paradigm of the general duty to act with care imposed by law on those who take it upon themselves to act for or advise others. Although the historical development of the rules of law and equity have, in the past, caused different labels to be stuck on different manifestations of the duty, in truth the duty of careimposed on bailees, carriers, trustees, directors, agents and others is the same duty: it arises from the circumstances in which the defendants were acting not from their status or description. It is the fact that they have all assumed responsibility for the property or affairs of others which renders them liable for the careless performance in what they have undertaken to do, not the description of the trade or position which they hold (at 205).

Nestle v National Westminster Bank pie

(1996) 10(4) TLJ 11

HOFFMANN J: … This brings me to the second principle on which there was general agreement, namely that the trustee must act fairly in making investment decisions which may have different con­ sequences for different classes of beneficiaries. There are two reasons why I prefer this formulation to the traditional image of holding the scales equally between tenant for life and remainderman. The first is that the image of the scales suggests a weighing of known quantities whereas investment decisions are concerned with predictions of the future. Investments will carry current expectations of their future income yield and capital appreciation and these expectations will be reflected in their current market price,but there is always a greater or lesser risk that the outcome will deviate from those expectations.A judgment on the fairness of the choices made by the trustees must have regard to these imponder­ ables. The second reason is that the image of the scales suggests a more mechanistic process than I believe the law requires. The trustees have in my judgment a wide discretion. They are for example ent­ itled to take into account the income needs of the tenant for life or the fact that the tenant for life was a person known to the settlor and a primary object of the trust whereas the remainderman is a remoter relative or a stranger. Of course these cannot be allowed to become the overriding considerations but the concept of fairness between classes of beneficiaries does not require them to be excluded. It would be an inhuman law which required trustees to adhere to some mechanical rule for preserving the real value of the capital when the tenant for life was the testator’s widow who had fallen upon hard times and the remainderman was young and well off.