Analysis
The defendants were professional solicitor trustees of a trust established by the will of the claimants’ father. The claimants were the beneficiaries of the will trust, who were minors when their father died. The deceased’s will provided that the claimants’ shares would be held on trust for them until they turned 25, so the defendants invested the trust fund with the assistance of professional investment advice given by Taylor Young Investment Management Ltd (Taylor Young).
The claimants subsequently sought compensation from the trustees in the sum of £1,476,076 on the basis that for a two-year period their investment of the trust funds had constituted a breach of trust. In particular, the claimants claimed that:
(a) The defendants failed to formulate and implement a suitable investment strategy.
(b)The defendants failed to properly review the investments and simply relied on Taylor Young’s advice and recommendations.
(c)The defendants wrongly delegated all decision-making to Taylor Young.
(d)The second and third defendants wrongly delegated their investment decision-making to the first defendant.
The defendants emphasised that they had acted sensibly and appropriately by seeking and following the advice of Taylor Young, who were experienced investment advisors with well versed in advising trustees on the investment of trust funds.
The defendants also denied that there had been any improper delegation, but any delegation that did take place was a prudent act to ensure that the trust fund was properly invested by those with professional skills and experience to do so. In any event, it was perfectly natural for the second and third defendants to consult the first defendant, who was more experienced in such matters, and for all of the defendants to consult the experts at Taylor Young.
The defendants did not deny that the fund had lost value in the period in question, and with hindsight this could have been avoided by not following Taylor Young’s advice, the defendants’ actions at the time were prudent.
Held:
- 1) The correct test to apply was the ‘no reasonable trustee’ test – ie that no reasonable trustee acting prudently would have made the investment decisions made by the defendants.
- 2) The ;defendants’ decision to follow a ‘growth’ based investment strategy was one which no prudent trustee could have taken, and was therefore a breach of trust. However, the court was not satisfied that getting these matters right would have made any material difference to the initial investment decision that was made in February 2000; in fact, the evidence was that the advice of Taylor Young (which would have been followed by the defendants) would have been to invest in such a way, and the court held that following this advice was not an action that no prudent trustee could have taken.
- 3) Despite establishing some breaches of duty, the claimants were unable to prove that they had suffered loss as a result of those breaches.
- 4) The defendants’ other actions as trustees were not actions that no prudent trustee could have taken. If the court was incorrect about this, then the defendants ought to be wholly relieved of liability under s61 of the Trustee Act 1925.
- 5) There had been no unlawful delegation; the defendant trustees exercised proper scrutiny of the financial advisors’ advice. If the court was wrong about this then the defendants ought to be fully relieved of liability under s61.
Obiter:
- 6) When assessing equitable compensation, where loss has clearly occurred but it is difficult to prove the quantum of that loss, it may be appropriate to make presumptions in favour of the beneficiaries.
- 7) When calculating the quantum of equitable compensation, the tax advantages of off-setting losses arising from investments which made in breach of duty should be taken into account when quantifying any entitlement to compensation in respect of breach of duty.
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