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GDL Law Notes GDL Equity and Trusts Notes

Investment Notes

Updated Investment Notes

GDL Equity and Trusts Notes

GDL Equity and Trusts

Approximately 631 pages

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Equity & Trusts : Investment

Investment

  • Positive duty on trustee to invest trust property for benefit of beneficiaries. Cannot let it stagnate; or only limited growth; or deteriorate in value.

  • The power of investment varies (trust instrument; or TA 2000):

    • Express provisions in trustee deed: In majority of cases, eg if you employ a trust lawyer to compose trust deed for you. Most trust deeds drafted well will include powers—wil outline what trustee will/won’t do, can even indicated the specific types of investment to be made.

    • Statute--But some informal trust deeds/small ones, don’t express provisions for investment powers: then statutory provisions, TA 2000, apply.

Trustee Act (TA) 2000:

  • (1) Introduces new statutory duty of care

  • (2) Widens the range of investments

    • Under old law, extremely limited invested options for trustees unless trust instrument contained broad powers of investment (as many did).

    • TA widens the possibilities.

    • NB, s8: equitable interests in land and overseas investments in land, remain unauthorised investments.

  • (3) Deals with remuneration for trustees

    • Under old law, trustees could not charge unless trust instrument had an express charging clause.

    • This has now changed for professional trustees.

  • (4) Allows delegation of investment decisions

    • Under old law: trustees not able to delegate investment decisions unless authorised by trust instrument. Could not employ a manager to run discretionary portfolios.

    • Now changed:

  • Structure of TA, 6 parts:

    • Part I—new statutory duty of care.

    • Part II—Trustee investment powers (other than land)

    • Part III-Trustee investment powers over land.

    • Part IV—Agents/nominees and delegation.

    • Part V-Remuneration

    • Part VI--Miscellaneous

Section 1, TA 2000, Duty of Care

  • Originated from case law. S1 is a codification of duty of care from case law.

  • Codified case law duty: Speight v Gaunt, Re Whiteleys

  • ‘Prudent man of business’ test, Speight v Gaunt (1883); Re Whiteleys.

  • S1(1): ‘T(s) must exercise such care and skills as is reasonable in all the circumstances’, having regard in particular:

    • (a) to any special knowledge or experience that he has or holds himself out as having,

    • and (b) if he acts as a trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession.

  • Objective and subjective elements

  • S1(1)(a) is partially a subjective test: if a trustee holds themselves out as being particularly expert on investment, they will be judged by a higher standard.

  • S1(1)(b) is an objective test: the standard in (b) will always apply to a professional trustee. (a) may apply, depending on how the trustee has advertised themselves.

  • Objective ‘reasonable’ test; but subjective element of taking into account ‘all the circumstances.’

  • So professional v lay trustee

    • A professional trustee: will be held to a much higher duty of care/higher standard, because ‘in their circumstances’, their experience and knowledge, the care/skill is higher.

    • CF lay trustee: lower duty.

    • So the subjective element, ‘all the circumstances’, of the objective ‘reasonable’ test.

  • Under old law (which the TA codifies)

    • there was an equitable duty of prudence (Speight v Gaunt (1883), Re Whiteley, Whiteley v Learoyd (1886)).

    • This is the duty of a trustee to be prudent & exercise the degree of care they would in conducting their own affairs, but mindful they are dealing with another’s property.

    • It subsequently developed that a paid trustee was expected to exercise a higher degree of diligence and knowledge than an unpaid trustee (Re Waterman’s WT (1952)).

    • And a professional corporate trustee was expected to use the special care and skill which it professed itself to have in its advertising materials and dealings with the trustee (Barlett v Barclays`(1980)).

  • The intention of Law Commission with TA was to codify the common law duty.

  • NB: the equitable duty is still relevant, as the new statutory duty of care only applies to some aspects of a trustee’s work.

  • The Duty of Care applies, not only to investments. When does the duty—not to all functions, but those listed in Schedule 1 TA:

    • Applies ‘when exercising’ statutory or other powers of investment, acquiring land, compounding liabilities, insuring trust property, and ‘when entering into’ arrangements for hiring agents, nominees and custodians.

    • Exercise of statutory/express power of investment (doesn’t matter where power of investment comes from, still subject to statutory duty of care).

    • When using the SIC.

    • When you obtain and consider proper advice (duty of care applies when choosing who to take advice from).

    • Applies to Power to acquire land (duty of care in deciding what land to purchase/invest in/let beneficiary reside in).

    • Applies to delegations.

    • Does not appear to cover an omission to consider exercising those powers/entering into those arrangements. However, such an omission would seem to fall wthin the statutory duty when ‘carrying out’ duties in ss4, 5 and 22 respectively. These relate to: exercise of power of investment; review of investments; or review of agents, nominees and custodians.

    • So only re power of insurance is it necessary to fall back on the equitable duty of care.

  • Statutory duty of care applies to trusts whenever created, before or after TA 2000

  • Excluding the duty, Schedule 1 Para 7: the duty care be partly or completely excluded by the trust instrument.

Interaction with equitable duty:

  • Investment

    • Re Whiteley (1886): trustee must 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 obliged to provide’. = a high, objective standard, emphasizes need for cautious investment strategy.

    • A paid trustee historically expected to exercise a higher standard of diligence/knowledge than unpaid trustee (Re Waterman’s WT).

    • And a corporate trustee expected to use special care &...

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