Daniel & Ors v Tee & Ors [2016] EWHC 1538 (Ch)

“Discussing with [Mr Tee] and agreeing that on the whole if Glyn is going to know most of the situation in any event he may as well come. Subsequently leaving message for Amy to that effect, saying we were slightly reluctant to involve him as she has had to wait until she was 25 and he still has another two years to go but if she would like him there then that is no problem at all”

“In the light of these considerations, the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses' recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose – though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth.”

“As the Trust needed to generate a capital return over an 8 to 10 year time period, whilst not exposing the Trust to high degrees of risk, in my opinion the risk profile should have been medium. On a scale of 1 to 10, this would equate to level 5.”

“The principle applicable to cases of this description was stated … to be that a trustee ought to conduct the business of the trust in the same manner that an ordinary prudent man of business would conduct his own, and that beyond that there is no liability or obligation on the trustee … 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 investment for the benefit of other people for whom he felt morally bound to provide.”

“This principle remains applicable however wide, or even unlimited, the scope of the investment clause in a trust instrument may be. Trustees should not be reckless with trust money. But what the prudent man should do at any time depends on the economic and financial conditions of that time …”

“… “A trustee must not choose investments other than those which the terms of his trust permit”: Speight v Gaunt (1883) 9 App Cas 1, 19, per Lord Blackburn. So confined, the trustee must also “avoid all investments of that class which are attended with hazard”: Learoyd v Whiteley (1887) 12 App Cas 727, 733, per Lord Watson. The power of investment “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”: Cowan v. Scargill [1985] Ch 270, 287. Since the Trustee Investments Act 1961 came into force a trustee has been required by section 6(1) to have regard in the exercise of his powers of investment “to the need for diversification of investments of the trust, in so far as is appropriate to the circumstances of the trust.”

“Professional trustees, such as banks, are under a special duty to display expertise in every aspect of their administration of the trust.””

“This is an extremely flexible standard capable of adaptation to current economic conditions and the contemporary understanding of markets and investments … Modern trustees acting within their investment powers are entitled to be judged by the standards of current portfolio theory, which emphasises the risk level of the entire portfolio rather than the risk attaching to each investment taken in isolation … one must be careful not to endow the prudent trustee with prophetic vision or expect him to have ignored the received wisdom of the time.”

“That was the basis on which [Neuberger J] applied the ‘no reasonable trustee’ test to the pleading and the proof of the claims against Mr Olswang. That test is not applicable to the main case which is actually pleaded, namely that Mr Olswang refused to consider a bid for the shares.”

“… one simply looks at the ultimate action in relation to the shares … and asks oneself whether or not that was something which a trustee, complying with the test laid down by Lord Watson, could reasonably have done.”

“Mr Steinfeld's first point is that, assuming that there were breaches of trust on the part of Mr Olswang … the claim cannot succeed unless the claimants plead and establish that no reasonable trustee could have done other than sell the shares … In other words, he says — to use a degree of shorthand — the test of whether a trustee has acted in breach of trust when it comes [to] deciding, or implementing a decision to sell, shares is to be assessed objectively. In a well-known observation in Learoyd v Whiteley [1887] 12 AC 727 at 733 Lord Watson said this: “As a general rule the law requires of a trustee no higher degree of diligence in the execution of his office than a man of ordinary prudence would exercise in the management of his own private affairs.”

“Those who hold themselves out as qualified to practise … professions, although they are not liable for damage caused by what in the event turns out to have been an error of judgment on some matter upon which the opinions of reasonably informed and competent members of the profession might have differed, are nevertheless liable for damage caused by their advice, acts or omissions in the course of their professional work which no member of the profession who was reasonably well-informed and competent would have given or done or omitted to do.” … I have come to the conclusion that Mr Steinfeld's formulation is to be preferred. In this connection, I think that considerable assistance may be found from the judgment of Millett LJ in Bristol and West Building Society v Mothew [1998] Ch 1. In a passage at 17G-18C, the learned Lord Justice said this: “Although the remedy which equity makes available for breach of the equitable duty of skill and care is equitable compensation rather than damages, this is merely the product of history and in this context is, in my opinion, a distinction without a difference. Equitable compensation for breach of the duty of skill and care resembles common law damages in that it is awarded by way of compensation to the plaintiff for his loss. There is no reason in principle why the common law rules of causation, remoteness of damage and measure of damages should not be applied by analogy in such a case. It should not be confused with equitable compensation for breach of fiduciary duty, which may be awarded in lieu of rescission or specific restitution. This leaves those duties which are special to fiduciaries and which attract those remedies which are peculiar to the equitable jurisdiction and are primarily restitutionary or restorative rather than compensatory. A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary.”

“The problem in that case was that trustees had been directed by their testator to realise his investments and invest the proceeds in one or other of two forms of investment; but the trustees had delayed the realisation of the testator's investments. When they actually sold they realised more than they would have realised if they had sold immediately after the testator's death, but less than if they had sold immediately after the testator's death and had thereupon invested the proceeds in one, rather than the other, of the two authorised forms of investment. It was sought to charge the trustees for what they would have received if they had followed that course of realisation and investment which in the event would have been the most favourable to the beneficiaries, but the court rejected that claim. The ratio, in the leading judgment of Lord Cranworth LJ, seems to have been in part, at pp257–258: “Where a man is bound by covenants to do one of two things, and does neither, there in an action by the covenantee, the measure of damage is in general the loss arising by reason of the covenantor having failed to do that which is least, not that which is most, beneficial to the covenantee: and the same principle may be applied by analogy to the case of a trustee failing to invest in either of two modes equally lawful by the terms of the trust.” and in part, at p259, that the liability of the trustee should not depend on the accident of the subsequent rise of one particular investment. With every respect to the court, however, the first ground is flawed since there is no true analogy between a covenantee acting in his own interests who can choose the cheapest way to himself to perform or get out of his obligations — cf Lavarack v Woods of Colchester Ltd [1967] 1 QB 278 , 293 — and a trustee who owes duties to his beneficaries, and cannot prefer his personal interest to theirs. If what had happened in the present case had been that the bank, through failure to inform itself as to the true scope of its investment powers, had invested the whole of the annuity fund in fixed interest securities, and no part in equities, for the whole period from 1922 to 1960, then, as on the evidence loss would clearly have been proved to have been suffered, the appropriate course would have been to require the bank to make good to the trust fair compensation — and not just the minimum that might have got by without challenge — for failure to follow a proper investment policy. On this I find the Canadian decision in Guerin v The Queen (1984) 13 DLR (4th) 321 helpful.” “Where a man is bound by covenants to do one of two things, and does neither, there in an action by the covenantee, the measure of damage is in general the loss arising by reason of the covenantor having failed to do that which is least, not that which is most, beneficial to the covenantee: and the same principle may be applied by analogy to the case of a trustee failing to invest in either of two modes equally lawful by the terms of the trust.”

“ … if I had found a breach of trust in this respect, I would have been reluctant to accept that compensation should be measured by the difference between the actual performance of the fund and the very least that a prudent trustee might have achieved. There is said to be 19th century authority to that effect; but I would be inclined to prefer a comparison with what a prudent trustee was likely to have achieved — in other words, the average performance of ordinary shares during the period.”

“In Guerin v The Queen (1984) 13 DLR (4th) 321 the Crown leased to a golf club land belonging to an Indian band to which the Crown owned a fiduciary duty. Since the terms of the lease were unsatisfactory and the lease for 85 years was irrevocable, the court had to evaluate the loss to the band, and did so by presuming against the Crown that the band would have made the most profitable use of the land by letting it for residential development. That loss had been suffered by the letting to the golf club was obvious: the presumption applied in proving the extent of the loss by relieving the band from the need to prove that they would have let the land for development. In my judgment either there was a loss in the present case or there was not. Unless there was a loss, there was no cause of action. It was for the plaintiff to prove on balance of probabilities that there was, or must have been, a loss. If proved, the court would then have had to assess the amount of it, and for the purpose of doing so might have had recourse to presumptions against the bank. In short, if it were shown that a loss was caused by breach of trust, such a presumption might avail the plaintiff in quantifying the loss. The plaintiff's difficulty is in reaching that stage.”

“The case was very fully argued before us a few days since, and as there has been a difference of opinion in different branches of the Court on the subject of the duties and liabilities of executors, and the rights of a tenant for life in cases like the present, we desired a short time to look into those authorities before we came to a decision.”

“This has not been achieved in any reported case in England, but probably the measure of compensation would be the difference between the value of the fund at trial and an estimate of what a prudent trustee would have been likely to achieve, based on the average performance of ordinary shares. Such loss was proved in a New Zealand case (Re Mulligan [1998] 1 NZLR 481).”

“It might be different where a “tracker fund” was available (none were in 1972), although the management costs would have to be taken into account.”

“It follows that the liability of a trustee for breach of trust, even where the trust arises in the context of a commercial transaction which is otherwise regulated by contract, is not generally the same as a liability in damages for tort or breach of contract. Of course, the aim of equitable compensation is to compensate: that is to say, to provide a monetary equivalent of what has been lost as a result of a breach of duty. At that level of generality, it has the same aim as most awards of damages for tort or breach of contract. Equally, since the concept of loss necessarily involves the concept of causation, and that concept in turn inevitably involves a consideration of the necessary connection between the breach of duty and a postulated consequence (and therefore of such questions as whether a consequence flows “directly” from the breach of duty, and whether loss should be attributed to the conduct of third parties, or to the conduct of the person to whom the duty was owed), there are some structural similarities between the assessment of equitable compensation and the assessment of common law damages. Those structural similarities do not however entail that the relevant rules are identical: as in mathematics, isomorphism is not the same as equality. As courts around the world have accepted, a trust imposes different obligations from a contractual or tortious relationship, in the setting of a different kind of relationship. The law responds to those differences by allowing a measure of compensation for breach of trust causing loss to the trust fund which reflects the nature of the obligation breached and the relationship between the parties ...”

“… although it is subject to limiting principles, equitable compensation is a more flexible concept than common law damages. Kirby J in the High Court of Australia put it this way in Maguire v Makaronis (1997) 188 CLR 449 , 496: “[Equitable] remedies will be fashioned according to the exigencies of the particular case so as to do what is ‘practically just’ as between the parties … The fiduciary must not be ‘robbed’; nor must the beneficiary be unjustly enriched …” “[Equitable] remedies will be fashioned according to the exigencies of the particular case so as to do what is ‘practically just’ as between the parties … The fiduciary must not be ‘robbed’; nor must the beneficiary be unjustly enriched …”

“This may explain the adoption of different bases of loss in different circumstances, ensuring that the award of equitable compensation operates fairly between the defaulting trustee and the beneficiaries”

“Our attention was helpfully drawn to relevant authority especially as to the relationship between solicitor and counsel and as to how far the former can rely on the latter's advice. In particular, citation was made from the following cases: Davy-Chiesman v Davy-Chiesman [1984] FAM 49 , Orchard v S.E. Electricity Board [1987] QB 565 , Swedac v Magnet and Southern plc [1990] FSR 89 and Manor Electronics v Dickson [1990] NLJ 590 . The principles relevant to the present case to be derived from those authorities can be shortly stated. (1) In general, a solicitor is entitled to rely upon the advice of counsel properly instructed. (2) For a solicitor without specialist experience in a particular field to rely on counsel's advice is to make normal and proper use of the Bar. (3) However, he must not do so blindly but must exercise his own independent judgment. If he reasonably thinks counsel's advice is obviously or glaringly wrong, it is his duty to reject it …”

“We endorse the guidance given on this subject in Locke v Camberwell Health Authority [1991] 2 Med LR 249. A solicitor does not abdicate his professional responsibility when he seeks the advice of counsel. He must apply his mind to the advice received. But the more specialist the nature of the advice, the more reasonable is it likely to be for a solicitor to accept it and act on it.”

“If it appears to the court that a trustee, whether appointed by the court or otherwise, is or may be personally liable for any breach of trust, whether the transaction alleged to be a breach of trust occurred before or after the commencement of this Act, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the court in the matter in which he committed such breach, then the court may relieve him either wholly or partly from personal liability for the same.”

“Though a trustee acted honestly and reasonably, the court still has to consider whether the trustee should fairly be excused, having regard to all the circumstances. A key factor in that assessment is the effect of the breach on the beneficiaries. That the trustee acted on legal advice is not, without more, a passport to relief. Efforts to recoup the loss are required; it comes at a price and should not be described as an act of mercy on the part of the court. And trustees may be at risk for failure to obtain counsel’s opinion instead of relying on their solicitor. It is thought that lay persons, unremunerated, ought to be excused where they take decisions within the limits of their experience and knowledge, listen to reason, and do not act irrationally or obdurately. The same can also be said where the actions of the trustee are the subject of technical legal guidance, when the trustee is unaccustomed to problems of such nature. But with a trustee acting for remuneration (such as a trust corporation), though relief under the section is not barred, the court is reluctant to grant relief and, certainly, a much stronger case for relief must be made out, especially if the trustee has put itself into a position of conflict.”

“12. The Trustees breached the aforesaid duties in a number of different respects from 1999/2000 through to 2002 at which point, having sought advice from Mr Duncan Scott (an Investment Manager at [Stanley Tee]), the Trustees sought to rectify the prior errors that had been made. 12.1 The Trustees did not give proper consideration to, and/or did not seek proper advice on, the portfolio of investments that the Trust ought to hold. The Trustees ought to have considered (and reviewed from time to time) the appropriate risk profile for the Trust and then select a range of investments, appropriately diversified, to reflect the risk profile. A portfolio of primarily low risk assets such a cash deposits and bonds (UK government and corporate bonds) with a small weighting in equities in the range of 15% to 30% was appropriate for the Trust. 12.2 The Trustees did not invest so as to produce an appropriately diversified portfolio of investments. The Trustees initially sought to build up an investment portfolio comprised almost entirely of equities and which were over exposed to the Technology, Information Technology and Telecommunications sectors (“the Tech, IT and Telecoms sectors”). The Trustees only made such investments on a limited basis initially and retained large amounts of cash that the Trustees simply did not invest at all. The Trustees continued to make further investments until by year end 5 April 2001 well over 50% of the monies received by the Trustees had been invested in equities and the portfolio of equities thereby created was substantially overexposed to the Tech, IT and Telecoms sectors. 12.3 The Trustees failed to properly review the portfolio of investments made on a timely basis and/or when deciding to make further investments on behalf of the Trust the Trustees failed to properly consider the suitability of the particular proposed investments and to properly consider the need for diversification of investments of the Trust. 12.4 The Trustees, in undertaking such reviews of the portfolio of investments as they did, failed initially to give any proper consideration to investments other than equities and/or failed to give any proper consideration to the question of whether the portfolio of investments was over exposed to any particular sector (and, in particular, the Tech, IT and Telecoms sectors which were particularly volatile in 2000-2002). Further in 2001 the Trustees failed to properly consider the suitability of investment in zero dividend preference shares and the suitability of the particular companies, the zero dividend preference shares of which the Trustees proposed to acquire.”

“12.5 The Second and Third Defendants delegated the exercise of their investment powers to the First Defendant (who in turn delegated decisions as to suitability to [Taylor Young]) and did not themselves consider whether the investments made on behalf of the Trust were suitable and/or whether the portfolio was appropriately diversified. The Second and Third Defendants were not permitted, as a matter of law, to delegate the exercise of their investment powers in this manner and the Claimants will say that the Second and Third Defendants are liable for the loss suffered by the Claimants arising from this impermissible delegation.”

“10. It is denied that the Defendants were in breach of their duties as trustees either as alleged in paragraph 12 or at all. 11. As to paragraph 12.1 it is denied that the Defendants did not give proper consideration to and did not seek proper advice on the portfolio of investments which the Trust ought to hold. The Defendants will rely on the exchange of letters in February 2000 set out in paragraphs 15.1 and 15.3 and will refer to the full terms thereof. The Defendants specifically sought advice from [Taylor Young] whom the Defendants reasonably believed to be qualified to give it by their ability in and practical experience of financial and other matters relating to the proposed investments and who in fact the Defendants had every reason to believe were skilled and experienced financial advisers well versed in advising trustees on investment of trust funds. The Defendants aver that the request which was made for advice as to investment from [Taylor Young] implicitly, by its disavowal of the requirement for significant income from the investments, made it clear that long term protection of the capital of the Trust was required with [Taylor Young] being specifically informed that having regard to the ages of the beneficiaries the funds of the Trust were likely to be invested for at least 9 years. The Defendants deny that it was any breach of their duties as trustees to seek and follow as they did the advice of [Taylor Young] as advisers whom the Defendants (at the time the advice was sought and given) reasonably believed to be qualified to give it by their ability in and practical experience of financial and other matters relating to the proposed investment. The allegation as to what it is alleged was an appropriate portfolio for the Trust is noted but denied as being the product of hindsight. 12. The first sentence of paragraph 12.2 is denied. Save that the Defendants deny the appropriateness or accuracy of words which are pejorative or attribute motives to the Defendants namely “sought to build up” “over-exposed” , “simply “ “at all” and “substantially over-exposed”, and save that the “large amounts of cash” were retained in interest bearing accounts, the factual allegations in paragraph 12.2 are otherwise admitted. The Defendants aver that what they were doing was following the advice of [Taylor Young] whom they reasonably believed to be qualified to give it by their ability in and practical experience of financial and other matters relating to the proposed investment who they had every reason to believe were skilled and experienced financial advisers well versed in advising trustees on investment of trust funds. 13. Paragraph 12.3 is denied but it is impossible to plead more fully thereto in the absence of any precise allegation as to what precisely the Defendants ought to have done or failed to do and precisely when, so as to constitute a failure to “properly review the portfolio of investments on a timely basis” or a failure “to properly consider the suitability of the particular proposed investments” or a failure ”to properly consider the need for diversification”. 14. Paragraph 12.4 is denied. The Defendants gave consideration to other investments and reasonably decided to make the investments which they did. In the absence of any particularisation of the respects in which (as is implicitly alleged) zero dividend preference shares and particular companies were unsuitable the Defendants can only deny that they failed properly to consider the suitability of investment in zero preference shares.”

“14A. As to paragraph 12.5 the Defendants plead as follows: (1) The unparticularised allegation that there was delegation by the Second and Third Defendants to the First Defendant is inconsistent with the Claimants’ pleaded case that the First Defendant is liable as a Trustee de son tort. (2) It is in any event denied that there was any blanket delegation to the First Defendant by the Second and Third Defendants of their duties in relation to the exercise of their powers of investment; the reasons for the denial are first that the decision to invest the trust funds with a view to relatively long term growth was a joint decision in which the Second and Third Defendants were participants and second that the decision to seek investment advice from [Taylor Young] through the First Defendant was also a joint decision in which the Second and Third Defendants were participants. (3) It is denied that there was any delegation to [Taylor Young] which was engaged to provide investment advice to the Defendants as Trustees. (4) It is in any event denied that any delegation which occurred was impermissible and the Defendants say that such delegation as occurred was permissible: a. On the basis of the principle of “moral necessity” under which it was always permissible for trustees to act by other hands if to do so was to act prudently as a trustee in accordance with the common usage of mankind or the usage of business; b. Under Section 23(1) of the Trustee Act 1925 (in force till 1 February 2001) by which “Trustees or personal representatives may, instead of acting personally, employ and pay an agent, whether a solicitor, banker, stockbroker, or other person, to transact any business or do any act required to be transacted or done in the execution of the trust, or the administration of the testator's or intestate's estate, including the receipt and payment of money, and shall be entitled to be allowed and paid all charges and expenses so incurred, and shall not be responsible for the default of any such agent if employed in good faith”; c. On the basis that it was conformable with what the Defendants aver is the overarching duty of Trustees to take such care as an ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide. (5) It is in any event denied that any loss was suffered arising from the alleged impermissible delegation; the reason for the denial is that the Second and Third Defendants, themselves lacking investment expertise and not being authorised to give investment advice would (taking such care as an ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide) have made the same or virtually the same investments of the trust fund as were actually made.” (1) The unparticularised allegation that there was delegation by the Second and Third Defendants to the First Defendant is inconsistent with the Claimants’ pleaded case that the First Defendant is liable as a Trustee de son tort. (2) It is in any event denied that there was any blanket delegation to the First Defendant by the Second and Third Defendants of their duties in relation to the exercise of their powers of investment; the reasons for the denial are first that the decision to invest the trust funds with a view to relatively long term growth was a joint decision in which the Second and Third Defendants were participants and second that the decision to seek investment advice from [Taylor Young] through the First Defendant was also a joint decision in which the Second and Third Defendants were participants. (3) It is denied that there was any delegation to [Taylor Young] which was engaged to provide investment advice to the Defendants as Trustees. (4) It is in any event denied that any delegation which occurred was impermissible and the Defendants say that such delegation as occurred was permissible: a. On the basis of the principle of “moral necessity” under which it was always permissible for trustees to act by other hands if to do so was to act prudently as a trustee in accordance with the common usage of mankind or the usage of business; b. Under Section 23(1) of the Trustee Act 1925 (in force till 1 February 2001) by which “Trustees or personal representatives may, instead of acting personally, employ and pay an agent, whether a solicitor, banker, stockbroker, or other person, to transact any business or do any act required to be transacted or done in the execution of the trust, or the administration of the testator's or intestate's estate, including the receipt and payment of money, and shall be entitled to be allowed and paid all charges and expenses so incurred, and shall not be responsible for the default of any such agent if employed in good faith”; c. On the basis that it was conformable with what the Defendants aver is the overarching duty of Trustees to take such care as an ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide. (5) It is in any event denied that any loss was suffered arising from the alleged impermissible delegation; the reason for the denial is that the Second and Third Defendants, themselves lacking investment expertise and not being authorised to give investment advice would (taking such care as an ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide) have made the same or virtually the same investments of the trust fund as were actually made.”

“The beneficiaries could therefore derive a significant advantage from framing their claim as a substitutive performance claim rather than as a reparation claim, in a case where the trustee’s decision to delegate management of the trust portfolio is negligent as well as unauthorised. In such a case, their reparation claim for breach of the trustee’s equitable duty of care would be subject to principles relating to causation, foreseeability and remoteness that would not apply to their substitutive performance claim.”

“It will be found to be the result of all the best authorities on the subject, that, although a personal representative, acting strictly within the line of his duty, and exercising reasonable care and diligence, will not be responsible for the failure or depreciation of the fund in which any part of the estate may be invested, or for the insolvency or misconduct of any person who may have possessed it, yet, if that line of duty be not strictly pursued, and any part of the property be invested by such personal representative in funds or upon securities not authorised, or be put within the control of persons who ought not to be intrusted with it, and a loss be thereby eventually sustained, such personal representative will be liable to make it good, however unexpected the result, however little likely to arise from the course adopted, and however free such conduct may have been from any improper motive.”

“Nevertheless the position was reached where, under general law, trustees could employ an agent where (i) such employment was expressly authorized by the trust instrument, or (ii) ex necessitate rei it was impossible for the trustee to do the particular act himself or (iii) the act was merely ministerial and the employment of an agent was reasonably necessary in the circumstances or was in accordance with ordinary business practices.”

“If a trustee wrongfully delegates to an agent or attorney acts involving the exercise of his discretion, then not only is the trustee answerable for all the wrongful consequences of the delegation but the exercise of the discretion by the agent or attorney will also be void.”

“Until the Trustee Act 2000 came into force those provisions - primarily section 23(1) - allowed trustees to delegate the carrying out of ministerial tasks, or in other words, the performance of acts which the trustees had already decided should be done; for the most part, the delegation of discretions was still prohibited in the absence of a power conferred by the trust instrument or some other enactment.” (2) The Law Commission Report (Law Comm No 260) which preceded the Trustee Act 2000 and summarised the existing law at para 7 of Appendix C (emphasis added): “7 …. The principal limitations and uncertainties are as follows: (1) Section 23(1) authorizes trustees to delegate their ministerial powers, but not their fiduciary discretions. This fact is readily apparent when the provision is compared with subsection (2) [which did expressly permit the delegation of discretions in connection with property which is situated outside of the United Kingdom]. (2) Section 23(1) does not appear to authorize trustees to confer on any agent they appoint a power to subdelegate. ….” (3) Lewin, 19th edn, at para 36-053 (emphasis added): “Section 23(1) was limited to the employment of an agent “to transact any business or do any act required to be transacted or done”

“(1) The trustees may not authorise a person to exercise any of their asset management functions as their agent except by an agreement which is in or evidenced in writing. (2) The trustees may not authorise a person to exercise any of their asset management functions as their agent unless— (a) they have prepared a statement that gives guidance as to how the functions should be exercised (“a policy statement”), and (b) the agreement under which the agent is to act includes a term to the effect that he will secure compliance with— (i) the policy statement, or (ii) if the policy statement is revised or replaced under section 22, the revised or replacement policy statement. (3) The trustees must formulate any guidance given in the policy statement with a view to ensuring that the functions will be exercised in the best interests of the trust. (4) The policy statement must be in or evidenced in writing. (5) The asset management functions of trustees are their functions relating to— (a) the investment of assets subject to the trust, (b) the acquisition of property which is subject to the trust, and (c) managing property which is subject to the trust and disposing of, or creating and disposing of an interest in, such property.”

“36-039 There are also provisions (referred to in section 15(2)) extending the trustees’ duty to supervise the agentwhen they have delegated any of their assets management functions. Section 22(2) and (3) provide: “(2) If the agent has been authorised to exercise asset management functions, the duty under subsection (1) includes, in particular— (a) a duty to consider whether there is any need to revise or replace the policy statement made for the purposes of section 15, (b) if they consider that there is a need to revise or replace the policy statement, a duty to do so, and (c) a duty to consider whether the policy statement (as it has effect for the time being) is being complied with. (3) Subsections (3) and (4) of section 15 apply to the revision or replacement of a policy statement under this section as they apply to the making of a policy statement under that section.”

“… where trustees act by other hands, either from necessity, or conformable to the common usage of mankind, they are not answerable for losses. There are two sorts of necessities: 1st, Legal necessity. 2d, Moral necessity … from the usage of mankind. If a trustee acts as prudently for the trust as for herself, and according to the usage of business.”

“It is hardly too much to say that it revolutionizes the position of a trustee or an executor so far as regards the employment of agents. He is no longer required to do any actual work himself, but he may employ a solicitor or other agent to do it, whether there is any real necessity for the employment or not. No doubt he should use his discretion in selecting an agent, and should employ him only to do acts within the scope of the usual business of the agent; but, as will be seen, a question arises whether even in these respects he is personally liable for a loss due to the employment of the agent unless he has been guilty of wilful default.”

“Although the distinction between fiduciary powers and ministerial acts is easily stated the dividing line between those functions which only a trustee may perform and those which may be delegated is not easily drawn.” (2) At paragraph 3.9: that the majority of cases in which trustees were held liable for the default of their agents “were ones in which the trustees had –(1) failed to take reasonable care in their choice of their agent (2) employed an agent to perform some function that was outside his or her competence or (3) failed to exercise proper control over an agent once appointed.” (3) At paragraph 3.11: that in Re Muffett (1886) 56 LJ Ch 600 “the Court of Appeal held that trustees who had delegated the entire management of some eighty rented properties to agents were not as a result entitled to an annuity given to them under the testator’s will for their services. The court did not question the propriety of the delegation despite its extensive nature”; that the cases suggest that “the rule against delegating discretions was viewed pragmatically”; and that “had not statute intervened the doctrine of necessity might have been developed to allow the delegation of fiduciary discretions in appropriate circumstances.”

“If specific restitution of the trust property is not possible, then the liability of the trustee is to pay sufficient compensation to the trust estate to put it back to what it would have been had the breach not been committed: Caffrey v Darby (1801) 6 Ves. 488; Clough v Bond (1838) 3 M & C 490. Even if the immediate cause of the loss is the dishonesty or failure of a third party, the trustee is liable to make good that loss to the trust estate if, but for the breach, such loss would not have occurred.”

“Equitable compensation for breach of trust is designed to achieve exactly what the word compensation suggests: to make good a loss in fact suffered by the beneficiaries and which, using hindsight and common sense, can be seen to have been caused by the breach.”

“what would have happened if that had not occurred?”

“a two tier market has developed in which the general run of equities has not performed particularly impressively, while growth stocks, especially in the technology sectors, have outperformed spectacularly”

“I would therefore suggest that the £2m is invested into the growth companies we know and like for their superior growth prospects. As I have indicated above, the area in which growth is focused at the moment is in technology and IT stocks, though I would of course encourage investments in other sectors to spread the risk. I propose investing in roughly 30 companies, in unit sizes of about £70,000, in what we class as a Growth portfolio. In this respect, I would propose that at least 25% of the portfolio be invested in large FTSE 100 companies, with the balance being invested in medium and smaller sized growth companies. I outline on the attached page some suggestions as to the individual equities I would be happy to buy for their long term growth prospects.”

“Do you have a limit to which you would allow the share price to fall? Similarly, how high would you let a share price rise before profiting? … Amy is taking a very keen interest in this, vested interest aside, so any buying/selling strategy, and any other company info you have, she would like to know”

“He is firmly of the view that we should add some more money to the market now in a mixture of different shares and indeed he would be looking to do this on a regular basis. He would buy Colt, Autonomy, Baltimore, Capita, Infobank, Sage, Photobition, Redstone Telecom, Telemetrix, Xaar and Activcard. Suggesting we put £25,000 into each. Confirming we would proceed.”

“the timing of the latest lot of purchases was slightly unfortunate on a short term basis, although I am absolutely positive that on a longer term basis we will see the rewards”, and explained that “My letter was of course written before the latest fall and therefore I was perhaps being slightly optimistic”

“The contingency plan is merely to hold more in cash and wait to see how things evolve. We are looking for a long term growth portfolio and I think it would be fair to say that never in the history of the market has there been such volatility over such a long period. There is absolutely no knowing which way the market is going, although the advice we are getting from Taylor Young, and they have a very good track record, is that we should be in the market to a limited degree. We have invested less than half of the cash that we are holding and I do not propose to do very much more, other than perhaps to add to one or two of the holdings if we are still happy that they are the right ones to buy. These would be small amounts, not large, but the absolute priority is to ensure that Nicholas Taylor-Young is happy to continue to hold these shares.”

“I would also be grateful for your comments and thoughts about spreading the portfolio into less IT sectors and particularly those where we might be looking to generate some income from the fund.”

“In some cases, there have been large falls in the share prices of [telecommunications and IT] stocks, despite the underlying businesses continuing to grow well. This has provided an opportunity for buying more shares at a much lower price …”

“Consequently, I would encourage adding to telecom holdings such as Colt, Redstone and Easynet, and software companies such as Sage, Autonomy and Baltimore. Elsewhere, the electrical equipment manufacturers, Xaar and Telemetrix, could both be added to … The holdings in Invensys, the large FTSE 100 engineer, could also be added to, as the shares have begun to regain some of their losses, helped by their acquisition of Baan, the German control systems software company … In the support services sector, I would be happy to add to Capita, the outsourcing company whose share price has not fallen far from its recent highs … Other than the companies which are exposed to telecoms or IT, we have been buying some Celltech, a fast growing biotech company, with a strong pipeline of drugs. There are now 25 holdings in the portfolio, and I believe that less than half of the funds have been invested … I would be happy to recommend that another £300,000 is invested into the market over the next month or so … A number of the most frequently voiced concerns have been addressed in the Investment Outlook, in which you will also read that out strategy remains intact … we remain convinced that investing in the growth companies of tomorrow will provide long-term investors with above average returns.”

“I aim to review matters again in September, with a view to adding more funds to the market if it seems appropriate, but we will still be less than one half invested, which gives huge room for future growth.”

“… Though a number of [TMT] stocks had clawed their way back to original cost, Richard thought it would be a sensible client taming exercise to reduce some of the IT stocks which had recovered, to around £30,000 unit sizes …[He] had moved towards buying in £30,000 lumps, as he was aware of the Trustees’ nervous view towards markets. He said that he might be reducing Staffware given its recent strength, and I agreed with him that this would seem sensible given his Trustees’ attitude to risk ...”

“While it is disappointing to note that a number of shares have performed so poorly, we are looking for a long term performance and I think it is right that we continue to add to the growth stocks favoured by Taylor Young to benefit from the upturn in the market which undoubtedly will come.”

“… Whilst it is disappointing that the fund still shows considerable losses, there is one slightly heartening note in that the fund’s performance between February and August has actually beaten the FTSE 100 index by some 3% …I do believe that we are beginning to get things right and I write to confirm that I have followed their advice by selling a number of the poorer performing telecoms and other shares, as well as top slicing and taking profits from some of the better performing shares. I have not as yet taken any decision as to reinvestment, and I think this we will be doing some time next week …”

“We need to sit down when you have had a chance to think through as to how we ought to look at the portfolio and what action we ought to be taking”

“With the benefit of hindsight it is clear that too much was invested into certain sectors at a time when prices were quite high and I also believe that the structure of the portfolio does not necessarily reflect the Trustees’ risk profile … The Trustees have been unfortunate in that some of the Investment Trusts have lost value, particularly the Zero Dividend Preference Shares, where I think the general panic about those type of split capital trusts has meant that the market price does not necessarily reflect the true value of the investments. I am confident that in time the price of these shares will recover …I am less confident of some of the other Investment Trusts …My initial feeling would be to dispose of those three Investment Trusts … For the time being I would suggest that we hold the majority of the investments … I propose to look at the portfolio on a weekly basis and I suggest that we adopt a policy of disposing of any stocks that have fallen by more than 20% compared to the value as at 1st February. The Trustees are still holding a considerable amount of cash which can be invested in the market over a period of time. Initially I would recommend adding £100,000 and investing this in Government Stocks … My initial strategy is to try to take some of the volatility out of the portfolio and reduce the overall risk rating. To do this I will be looking to buy more defensive stocks, particularly those which give an above average yield. I will be looking for Unit Trusts or Investment Trusts to provide the growth element in the portfolio. Although the Government Stocks give little prospect of capital growth, they do provide a good income yield and this can be reinvested and in effect provide growth in the portfolio …”