EQUITY AND TRUSTS

TRUSTEES 1
 Trustees and their role in
administration of the trust
First we will consider some general
principles and then:
• Appointment and retirement of
trustees
• Powers
• Breach
• Remedies
 General Principles
Is trusteeship a privilege?
• Trustees subject to many duties
and powers
• Personal liability
• Majority paid professionals
provision for payment usually made
in the trust instrument
 Duties and Powers
• A duty is an obligation and must be carried out /
powers are discretionary - confer an element of
choice upon the trustee as to whether to exercise it or
not.
• Duties and powers of trustees are implied into trusts
by the rules of law (statutory and equitable).
 Effect of trust deed
• Scope of the duties and powers outlined in the trust
instrument – trust instrument is first place to see if it
has varied implied rules.
• Normally are varied particularly where trustee is
professional – providing for remuneration, trustees’
liability + increase trustees’ powers.
• Implied powers before the Trustee Act 2000 (TA
2000), were quite narrow – did not allow trustees
modern investment opportunities. Most express
trusts vary statutory and common law rules – will
probably continue to do so.
 Old and new rules will need
consideration
• Next few lectures will concern general law i.e. – the
default position, in particular the TA 2000.
• TA 2000 does not codify the law, certain areas still
governed by the old rules.
• Will examine both old and the new rules and
identify which rules apply in any given situation.
• NB it is important to familiarise yourself with the
general statutory and case law provisions AND
the common ways they are altered by express
terms.
 The standard of care
• S1 TA 2000 provides general standard of care. See Schedule1 :
investment, acquisition of land, appointment of agents.
• When standard does not apply e.g. when exercising duties on being
appointed, exercising powers under the TA 1925 or TLATA 1996, then
general equitable duty of care applies: see Speight v Gaunt (1883) 9
App. Cas. 1. The trustee should have taken all those precautions which
an ordinary prudent man of business would have taken in managing
similar affairs of his own.
• NB duty of care can be expressly excluded (Sch1, para7): “if or in so
far as it appears from the trust instrument that the duty was not
meant to apply” 
• Professionally drafted trust instruments usually include express
exemption clause excluding the statutory duty of care (will also
exclude the general equitable duty of care).
Commencement and termination
of trusteeship
 Appointment of trustees
• Anyone with necessary capacity to manage own
affairs – children not under s20 LPA 1925 (can
be trustees of resulting trust see e.g. Vinogradoff
[1935] Wn 68).
• Corporations: must satisfy trust corporation
status – definition: (a) public trustee, trustee in
bankruptcy, treasury solicitor (b) court
appointee, (c) list in s3(4) Public Trustee Act
1906.
• Most private trusts trust corporations are banks.
 Appointment of trustees
• S14(2) Trustee Act 1925 sole trustee
cannot give valid receipt
• S34 TA 1925 land: 4 trustees maximum.
Does not apply to personalty but
generally adhered too
• S36(6) TA 1925 appointment of
additional trustees.
 Appointment of trustees

• Appointment of the first trustees made by settlor.

Can appoint self or anyone with necessary capacity
and who agrees.
• Can give power in trust to others to appoint.
• If there are no trustees willing and able to act when
the trust first takes effect court will not allow trust to
fail for want of trustees and will make an
appointment.
Appointment of subsequent trustees
• Trust is independent of settlor once commenced – so no
power of appointment
• Can retain this power by including it in the instrument
• Subsequent trustees who else can appoint?
• S.36 TA 1925 deals with appointment of additional /
substitution trustees.
• Additional t’s act together with existing trustees when
numbers drop / expertise needed (must have ref to
restrictions e.g. S34 TA 1925).
• Substitutions replace one or more existing trustees.
 S.36 TA 1925
• Additional trustees can be appointed where a
sole trustee (other than a t. corporation was
appointed) or no more than 3 trustees.
• Appointee (by order of priority):
(a) person named in trust instrument
(b) surviving / continuing trustees
• If no appointment then can request court under
s41 TA 1925.
• S36 says “may appoint another person” i.e. not
himself.
 Appointment by substitution
Necessarily involves retirement / death / removal
of trustee
Appointer can appoint self unlike s36(6)
Who can appoint? Anyone named for this purpose
in trust instrument (in order of priority):
• Surviving or continuing trustees
• Personal reps of last trustees
• The court – should not be used where others can
appoint even when bens ask for referral.
 S.36(1) TA 1925
Sets out circumstances for appointment:
(1) Trustee dead
(2) Trustee remains outside of UK for >12 months
(3) Trustee unfit or refuses to act
(4) Trustee is infant
(5) Trustee asks to be discharged
Bens have no influence (other than in t’s of land or where
provided for in t instrument) + there is no stat duty to take
account of their views. Bens can influence when all of
age/competent/represent whole beneficial entitlement see
Saunders v Vautier (1841) 4 Beav.115.
 S11 TLATA 1996
Position modified in respect of t’s of land:
S11 – obligation to consult with bens who are entitled to
interest in possession + to give effect to majority wishes
(n.b. can be excluded in instrument)
 

S19 – where no person to appoint new ts and bens are of

full age / capacity and are entitled to entirety of t property:
can direct one or more ts to retire / appoint new trustees
S20 – bens have similar right where trustee is mentally
unable and there is no one under s36 TA 25 to appoint.
 Retirement of trustees
Retirement: s.36(1) TA 1925

Outgoing trustee retires on appointment

of new trustee

Can be used to bring about forced

retirement (but restricted to sits set out
above).
 Retirement
S39 TA 1925: retirement without
substitution permitted if:
• two trustees or corporation remain
• deed is completed
• consent of co-trustees and anyone
with power of appointment obtained
(by deed)
 Ss 19 & 20 TLTA 1996

Contain provisions that may be used by

bens to obtain trustee retirement.
 Removal of trustees
Can be done by other trustees (e.g. by
refusal to take part in appointment of
new trustee – but only where Act or
trust instrument provides)

Where trustee agrees = retirement.

 Removal under s41 TA 1935

Court has power to appoint new

trustee as substitute or in addition.
 Courts’ inherent powers

Court has inherent power to remove

trustees even where fit provided this is
for benefit of trust.
 Disclaimer
Appointment as trustee can be disclaimed

• Provided: must not have done any act to

indicate acceptance
• Disclaimer can be oral / written implied by
conduct (e.g. inactivity)
• Evidence needed to avoid future liability.
 Vesting of trust property
T property must be vested in trustees

Settlor must do this or cause it to be done by

method appropriate to type of property

Can self-declare as trustee

If property is not transferred to trustees then it

will be incompletely constituted.
 Vesting
Existing trusts normally contain vesting
declaration see s40 TA 1925

S40: if appointment made by deed and

it contains vesting declaration property
becomes vested in trustees.
 Trustees’ duties and powers
In this section we will consider the following:

1. The actions trustees MUST take in the

administration of the trust (DUTIES).
2. The matters about which they have a
CHOICE (powers).
3. The standard of care in relation to duties
and powers.  
 Initial duties
Upon appointment trustees under duty to to familiarise
themselves with the details of the trusts, the trust property and
the terms of the trust instrument
+
To collect in and safeguard the trust assets. The trustees must
make sure that the trust property is in a state of security and
under the joint control of all the trustees. NB the extent of this
duty: Re Brogden (1888) 38 Ch. D 546; Buttle v Saunders
[1950] 2 AER 193. Must ensure no breach by previous trustees

  Trustees have a continuing duty to safeguard the assets and the

documents giving title. Continuing duty also to ensure that the
assets remain vested in the joint names of all the trustees.
 Duty to invest

Trustees have a duty to invest but a power

over what to invest in

Such investments are governed by statutory

default provisions (previously Trustee
Investment Act 1961 (TIA 1961) now TA 2000
or by express power in trust instrument).
 TIA 1961
Applied in so far as not expressly excluded by trust

TIA listed authorised investments in Schedule 1

(narrower – low risk and wider range – higher risk
investments). Trustees permitted risky investments
in equities for first time.

Wider range investments governed by certain criteria:

quoted companies / shares fully paid up / company
with capital of £1m + dividends paid for previous five
years.
 TIA 1961
Imposed duties
6(1) required regard for diversification +
suitability of investment
6(2) certain investments required advice
to be sought by trustee
6(3) requirement to determine when to
seek advice about retained investments.
 TIA 1961
Considered restrictive – land / private company shares not
permitted

Splitting fund a crude form of risk management potentially

lowering returns

Requirements of wider range investments actually made them

low risk

Requirement for advice burdensome

Act normally excluded therefore.

 Express clauses
Express clauses used to allow for wider
investment. Re Harari [1949] 1 AER 430
such clauses should be given plain / literal
meaning
Example of a simple express clause:
“To invest as freely as if they were absolutely
beneficially entitled”.
Trustees thereby permitted to invest as if
absolute owners.
 Trustee Act 2000
Trustee Act 2000 now governs trustees’
powers of investment where no express
provision made (i.e.. they are default powers).

Applies to all trusts whether created before or

after it comes into force.

Existing trusts now have the new investment

powers.
General power of Investment
S.3 TA 2000 general power of investment:
a trustee may make any kind of investment
that he could make if he were absolutely
entitled to the assets of the trust

Note that the general power of investment

does not authorise the purchase of land
(governed by S.8).
 Meaning of invest?
What does “invest” mean? See Re
Wragge [1919] 2 Ch 58:
“to apply money in the purchase of
some property from which interest or
profit is expected and which property is
purchased in order to be held for the
sake of the income which it will yield”
 When is an investment an
investment?
Whether the power to invest derives from s3 or an
express clause we need to know what counts as an
investment?
• Re Power [1947] Ch 572 – house for occupation by a
beneficiary producing no income not an investment.
• Modern judicial attitudes – investments that accrue in
value considered legitimate see for e.g. Cowan v
Scargill [1985] Ch 270, per Megarry VC “the
prospects of the yield of income and of capital
appreciation both have to be considered in judging
the return from the investment.”
 Principles governing investment
• Harries v Church Commissioners per Nicholls VC: trustees
should seek “the maximum return, whether by way of
income or capital growth…” Known as concept of
maximum or total return.
• EN 22 (explanatory note) – the trustees can invest in a
way which which is expected to produce an income or
capital return.
• No definition of investment in TA 2000. ENs are not part
of the Act – is it income producing (traditional approach) or
can investment include income or capital appreciation in
accord with modern judicial view?
 Investments in land
S.8 TA 2000 special rules re land:
investments in freehold or leasehold land.
Under TIA 1961 investments in land not
permitted except by express clause (but note
effects of Re Wragge and Re Power).
Authorised in UK if the land is:
(a)    as an investment
(b)   for occupation by a beneficiary
(c)    for any other reason
 Protection for beneficiaries
Trustees not absolute owners of assets. Beneficiaries
may feel inclined to invest speculatively. Law
Commission considered that beneficiaries need
protection against investment risks. Legislation to set
out specified trustee duties when making investment.
Hence:

• S4 Standard Investment Criteria

• 4(3):
• - (a) suitability
• - (b) diversification
 Investment criteria
• EN 23 – investments must be suitable. “Suitability”
relates both to the kind of investment proposed and
to the particular investment as an investment of that
kind
• Includes considerations such as the size and risk of
the investment, appropriate balance between income/
capital growth (life tenant’s income and capital for
remainder man)
• Includes any relevant ethical considerations
• But compare Cowan/Harries re ethical
considerations.
 Investment criteria
• In Cowan – trustees must put aside their own
personal interests and views
• In Harries – investments to be made solely on
the basis of investment criteria
• Trustees can only make a financially
disadvantageous investment decision for
ethical reasons in extremely limited
circumstances e.g. where aims conflict with
aims of charity (e.g. tobacco/cancer)
 Standard investment criteria
• Under criteria there is need for diversification
• Modern portfolio theory
• See Hoffmann J. in Nestle v National
Westminster Bank PLC (1st instance, 29th June
1988 unreported affd [1994] 1 All ER 118 CA)
• Trustees judged by the standards of current
portfolio theory – risk level of entire portfolio
rather than the risk attaching to each
investment taken in isolation.
Trustees subject to duty of care
Duty of care contained in s1 TA 2000.
EN 25 – as the exercise of the power of
investment is subject to the duty of care
in S1, trustees may need to have regard
to other matters in addition to the SIC.
However, the SIC will be of central
importance in every case.
 Advice
TIA 1961 required advice to be sought and considered for anything
other than
low risk investments. (See LC Report 260) Under TA 2000:
• S. 5 before investing trustees must have obtain and consider
“proper advice” with regard to SIC
• Unless 5(3) T reasonably concludes it unnecessary or
inappropriate
• EN 26: example of where investment = small – cost of advice is
disproportionate
• Trustees possess the skills
• Ss(4) “proper advice” – advice of person reasonably believed by
T to be able to give it
• Ss (2) advice when reviewing about varying investments.
 Other safeguards

NB stat duty of care set out in S1

TA 2000 applies when exercising
the power of investment, when
carrying out the section 4 and 5
duties and exercising the power
under section 8 to buy land
 General investment duties
• Cowan v Scargill [1985], per Megarry
VC:
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 the different classes
• This is a paramount duty.
 Two points to note
• Best interests = financial interests (but caveat
below) – power of investment must be
exercised to yield the best return, judged in
relation to the risks of the investment in
question; income yield & capital appreciation
both to be considered
• Ts must act fairly between the beneficiaries.
 Also
• Ts must put aside own interests and views
• Ts may need to act dishonourably if required (see
Buttle v Saunders [1950] 2 All ER 193)
• Caveat – benefit does not inevitably and solely
mean bens financial benefit. If only bens are all
adults with strict moral views might not be to their
benefit to make investments to which they morally
object. In v. rare cases Ts can take into a/c non-
financial considerations leading to actual financial
disadvantage.
 Standard of care
• Ts under duty to meet standard of care in Learoyd
v Whiteley (1887) the duty including the duty to
seek advice on matters T does not understand
and on receipt acting with same degree of
prudence.
• Under Learoyd standard for investment is such
care is as an ordinary prudent man would take if
he were minded to make investment on behalf of
others for whom he felt morally bound to provide.
NB Replaced by S1 TA 2000.
 Cowan v Scargill
Facts: mineworkers pension fund. V wide
investment powers. Ten trustees aided by
experts. Five from NUM refused investment
plan unless overseas investments withdrawn
and no energy industries in competition with
coal.
Court held: Ts in breach unless adopt
investment strategy – had to act in best
interests of bens and put aside personal
views.
 Review of investments
• Review requirements under section 4(2) – trustee
must from time to time review the trust investments
and consider whether they should be varied
• EN 24 – S4(2) codifies the common law position,
under which “a trustee with a power of investment
must undertake periodic reviews of the investments”:
Nestle v National Westminster Bank (supra)
• Must obtain and consider proper advice when
reviewing see S.5(2).
 When will these powers apply?
Power of investment under s3 applies to all trusts
• TA Ss 6 power is additional to any powers conferred on trustees
subject to any restriction
• Ss 9 & 10 contain similar provisions regarding land under s8.
• NB power of trustee to apply to court under Variation of Trusts
Act 1958 or s57 TA 1925 to widen investment powers. Rare
since TIA 1961 because difficult to extend beyond modern
powers in statute. Re Kolb principle: Re Kolb’s WT [1962] Ch.
531, compare with Trustees of the British Museum v AG [1984]
1 WLR 418).
• Investment powers now extended under TA 2000.
• Further duties and powers will be considered in the next lecture.