Trustees Lecture 1
Judith Puech
Track/Slide 1
Trustees
Track/Slide 2
We have looked at the requirements to set up a valid express trust. This section deals with trustees
and their role in the administration of a trust. Firstly we will look at some general principles then at
the appointment and retirement of trustees. Then we shall consider the trustee's duties and powers
in administering the trust and what happens if something goes wrong. What the beneficiaries can
do.
Track/Slide 3
It would be hard to describe being a trustee as a privilege. It will be seen that trusteeship is an
onerous task. Trustees are subject to many duties and powers and personal liability if they fail to
meet the standard set. Hence the majority of trustees are paid professionals, express provision for
payment usually being made in the trust instrument. We shall look at this later when we look at the
question of remuneration.
Track/Slide 4
A duty is an obligation and must be carried out. A power is discretionary. It confers 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, both statutory and equitable.
Track/Slide 5
In reality however the precise scope of the duties and powers will be outlined in the trust
instrument. Hence the starting place must be the trust instrument to see if it has varied the implied
rules. Generally the opportunity will have been taken to vary them, particularly where a professional
trustee is appointed. To provide for remuneration, to deal with trustees' liability for any breaches
and to increase the trustees' powers. The implied powers, especially those in connection with the
financial management of the trust have until the advent of the Trustee Act 2000 been quite narrow
and did not allow the trustees to take advantage of modern investment opportunities. Most express
trusts, whether by will or deed, vary the statutory and case law rules and despite the wider powers
conferred by the Trustee Act 2000 will probably continue to do so and we'll consider this in more
detail when we look at the Act.
Track/Slide 6
The general law which we will discuss is the default position which applies when the trust
instrument has not provided to the contrary, in particular the Trustee Act 2000. Unfortunately the
Act does not codify the law so certain areas are still governed by the old rules. We will have to
examine both the old and the new rules so that we are able to identify which rules apply in any given
situation. Also in looking at this area it is important that we familiarize ourselves not only with the
general, statutory and case law provisions which we shall discuss but also with the common ways in
which they are altered by express terms.
Track/Slide 7
Section 1 of the Trustee Act 2000 provides for a general standard of care. This duty of care applies in
the situations outlined in schedule 1 of the Act, basically to investment, acquisition of land and
appointment of agents. In situations where the new standard does not apply, functions not
governed by the 2000 Act, for example when exercising the duties on being appointed trustee of
familiarizing oneself with the trust or in exercising powers under the Trustee Act 1925 or TLATA 1996
then the general equitable duty of care will apply from the case of Speight v Gaunt. All thatis
required is that 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. This standard preceded the new
standard and applied in all areas of trustees' duties and powers arguable with a higher standard
expected of paid trustees. Note however that the duty of care can be expressly provided under
schedule 1 paragraph 7 of the Act and in fact most professionally drafted trust instruments will
include an express exemption clause which will have the effect of excluding the statutory duty of
care. In fact it will also exclude the general equitable duty of care. We will look at common exclusion
clauses and their effect later.
Track/Slide 8
We will look in detail at powers and duties in a little while. Firstly however there are some points on
the commencement and termination of trusteeship which must be noted.
Track/Slide 9
Appointment of trustees.
In general anyone who has the necessary capacity to manage his or her own affairs can be appointed
to be a trustee. Children may not be expressly appointed to be trustees as a result of section 20 of
the Law of Property Act 1925. But this does not prevent them from becoming trustees of a resulting
trust. See Vinogradoff for example. Corporations – in order to be appointed expressly, corporations
must satisfy trust corporation status. The definition of a trust corporation is any of
a) the public trustee, the trustee in bankruptcy or the treasury solicitor
b) a corporation appointed by the court to be trustee in any particular case
c) a corporation satisfying the requirements referred to in section 3 subsection 4 Public Trustee
Act 1906.
In most private trusts a trust corporation is typically a bank.
Track/Slide 10
Appointment of original trustees
By section 14.2 of the TA 1925 a sole trustee of land cannot give a valid receipt. As a result of section
34 TA 1925 it is only possible to have a maximum of 4 trustees in a trust of land. Settlements of
personalty are not subject to this but in practice adhere to it, especially where the settlement may
wish to acquire land.
Track/Slide 11
The appointment of the original trustees is usually made by the settler when the trust is set up. He
could appoint himself or anyone else who has the necessary capacity and who has agreed to act. If
the settler has not appointed the initial trustees, it is possible that this is because he is given power
in the trust instrument for other persons to do this. If this is the case, those others will make the
appointment. If no persons are appointed or alternatively the appointees are unable or refuse to act,
the court will not allow a trust to fail for want of trustees and upon application of any interested
party will make an appointment.
Track/Slide 12
Appointment of subsequent trustees
Once the trust has commenced, it is independent of the settler. He will have no further power of
appointment unless it has been specifically reserved to him by the trust instrument. If a settler
wishes to retain control of the appointment of trustees which is not unusual, steps should be taken
in the drafting to reserve the necessary power. Section 36 TA 1925 sets out who may make
appointments of further trustees. It deals with appointment of additional trustees and appointment
of substitutional trustees. Additional trustees are appointed to act together with the existing
trustees. This may be done where the numbers are low or where special expertise needs to be
brought in. This power should be read in light of any restriction in the maximum number of trustees.
For example section 34 TA 1925. Substitutional trustees are appointed to replace one or more of the
existing trustees.
Track/Slide 13
By section 36 subsection 6 Trustee Act 1925 additional trustees may be appointed where a sole
trustee other than a trust corporation was appointed or where there are not more than three
trustees. The person who may appoint is
a) a person named in the trust instrument as having the power to appoint the new trustees.
This could be the settler, his spouse, a beneficiary or anyone else.
b) The surviving or continuing trustees
If the above fail to produce an appointment, the court can always be asked to make one under
section 41 Trustee Act 1925. The list is in order of priority. Therefore no person in group b can
appoint unless there is no one in a willing and able to act. The wording of the section is that the
appointer may appoint another person to act. This has been taken to mean that, subject to any
specific provision to the contrary contained in the trust deed, the person making the appointment
under this power cannot appoint him or herself.
Track/Slide 14
Appointment by substitution
Exercise of this power involves retirement, death or removal of an existing trustee and the
appointment of a substitute. Because of the element of substitution, this means that the
appointment will necessarily be coupled with removal or retirement of one or more of the existing
trustees. Unlike the power in section 36 subsection 6, this provision allows the appointer to appoint
himself as trustee. Appointment may be made by
1) The person if any named in the trust instrument to exercise statutory power of appointment
2) The surviving or continuing trustees if any
3) The personal representatives of the last surviving trustee
4) The court
The court is given wide jurisdiction but application should not be made to it where there are persons
willing and able to appoint under section 36.1. This should be the case even where a majority of the
beneficiaries ask for the matter to be referred to the court. And again the list is in order of priority.
Track/Slide 15
Section 36 subsection 1 sets out the circumstances in which an appointment can be made.
1) Where a trustee is dead
2) Where a trustee remains out of the UK for more than 12 months
3) Where a trustee is unfit or refuses to act
4) Where a trustee is an infant
5) Where a trustee desires to be discharged from the trusts
In theory other than for trusts of land the beneficiaries have no influence over any appointment
made under this power as the statute does not impose any duty upon the appointer to take notice
of their views. Similarly the court may not always be able to act upon their views as we considered
earlier. In practice they may be able to influence an appointment where they are all of age and
mentally competent and represent the whole beneficial entitlement because acting together they
have the right to bring the trust to an end under the rule in Saunders v Vautier. Subject to this
however, beneficiaries have no specific right to appoint trustees or to directly influence an
appointment unless the trust instrument reserves such a power to them.
Track/Slide 16
The situation has been modified in respect of trusts of land. Section 11 of TLATA 1996 provides that
there is an obligation to consult with beneficiaries of full age who are entitled to an interest in
possession in the land and to give effect to the wishes of the majority so far as possible. Note
however that this can be excluded by the trust instrument. By section 19 TLATA 1996 where there is
no person nominated to appoint new trustees and the beneficiaries are of full age and capacity and
together are entitled to the entirety of the trust property, they may direct one or more of the
trustees
a) To retire from the trust
b) To appoint persons specified by the beneficiaries to be trustees
By section 20 TLATA 1996 a similar right is given to the beneficiaries where a trustee is incapable of
continuing because of mental disability and there is no person willing and able to appoint a
replacement under section 36 TA 1925. However, all these provisions may be excluded by the trust
instrument.
Track/Slide 17
Retirement of trustees. Firstly section 36 subsection 1 retirement on substitution of a new trustee.
The outgoing trustee will retire on the appointment of the new trustee. The appointment of a new
trustee and substitution under 36.1 will clearly affect the retirement of the old one. This could be
used if necessary to bring about the removal of a trustee against his own wishes but is restricted to
those situations set out in section 36 which we have just considered.
Track/Slide 18
Provisions for retirement are also made under section 39 of the Trustee Act 1925. Retirement of a
trustee without replacement by a substitute will be permitted if after retirement there will be
1) At least 2 trustees or a trust corporation remaining
2) The retiring trustee must declare his desire to retire by deed
3) The consent of his co-trustees and any person having power to appoint new trustees must
be obtained by deed
Note that as the deed will also be used to transfer the trust property from the original trustees to
the remaining trustees, the necessity to signify by deed the intention to retire and the agreement to
this by the co-trustees will not greatly add to the expense of the exercise as the same deed will be
used for all functions.
Track/Slide 19
Sections 19 and 20 TLATA 1996 set out earlier contain provisions which, if used by beneficiaries, may
result in a trustee retiring from the trust.
Track/Slide 20
Removal of Trustees
This can be done firstly by the other trustees. Appointment of a substitute by the remaining trustees
can have this effect if the outgoing trustee refuses to join in the appointment. As considered, this
can only be done in those situations where the Act or the trust instrument gives power to do so.
Where the outgoing trustee agrees to join in his successor's appointment the situation would appear
technically to be a retirement.
Track/Slide 21
Removal can also be effected by the court under section 41 TA 1925 which gives the court power to
appoint a new trustee either in substitution for an existing one or in addition. As noted, application
should not be made to the court where persons with a higher priority to appoint are ready and
willing to act.
Track/Slide 22
Further, the court also has inherent jurisdiction to remove trustees. This can be used even though a
trustee is fit to act if such a removal can be shown to be for the benefit of the trust.
Track/Slide 23
It is possible to disclaim appointment as trustee and this should always be considered because the
position of trustee, as we shall see, is an onerous one. Disclaimer is however only available to a
trustee who has not intermeddled with the trust, i.e. he must not have done any act indicating
acceptance of the trust. A trustee must either disclaim the whole trust or none. Disclaimer can be
made orally, in writing or even implied by conduct, most likely inactivity. It should be done in writing
for reasons of evidence, especially as a trustee who takes no part in the running of the trust can be
equally liable for breach of trust with the others if the court were to reach the conclusion that the
inactivity had not indicated disclaimer but been mere idleness.
Track/Slide 24
The trust property must be vested in the trustees. For new trusts the settler must either do this or
cause it to be done by the method which is appropriate to the type of property involved. He can
either ensure transfer of title to the trustees or he can declare himself henceforth to hold the
property which he formerly held beneficially for himself on trust for the beneficiaries. If he does not
cause the property to become properly vested in the trustees, the trust will be incompletely
constituted, giving rise to the problems which we discussed in our section on the constitution of
trusts.
Track/Slide 25
In the case of existing trusts, the appointment of a new trustee, if it is made by deed, will solve the
problem of vesting the trust property because it is almost certain to contain a vesting declaration in
accordance with section 40 of the Trustee Act 1925. Section 40 provides that so long as the
appointment is made by deed if the deed contains a vesting declaration, the property becomes
vested in the trustees.
Track/Slide 26
We have looked at the office of trustee in general, the appointment, retirement and removal of
trustees and in this section of the lecture we identify the actions trustees must take in the
administration of the trust, the matters about which they have a choice and the standard of care in
relation to duties and powers.
Track/Slide 27
The first duties to consider are those of the trustees to collect in and safeguard the trust assets and
the control of trust property. Upon appointment trustees are under a duty to familiarise themselves
with the details of the trusts, the trust property and the terms of the trust instrument. They should
make sure that the property is in a state of security and under joint control of all the trustees. They
should also make sure that there have been no breaches of trust by their predecessors. If there have
been, there is an obligation to remedy this as soon as possible. This may involve instituting action
against them if there has been a loss to the trust fund. Trustees have a continuing duty to safeguard
the assets and the documents giving title thereto. Similarly there is a continuing duty to ensure that
the assets remain vested in the joint names of all the trustees.
Track/Slide 28
An important aspect of safeguarding the trust assets is the duty to invest. Trustees have a duty to
invest, i.e. they must invest but a power over what they can invest in. What trustees can and can't
invest in is governed firstly by statutory default provisions, previously the Trustee Investment Act
1961, now the Trustee Act 2000, or by an express power in the trust document.
Track/Slide 29
Before looking at the statutory powers of investment under the Trustee Act 2000, a few points
should be noted about the TIA 1961. This Act applied insofar as it had not been excluded by the trust
instrument and indeed it was usually excluded for reasons which will become apparent as we carry
on. The Act listed authorised investments. The list of authorised investments was contained in
schedule 1 and were divided into narrower range and wider range investments. Narrower range
were lower risk investments whereas wider range were of higher risk and the Act allowed trustees to
make risky investments. Before 1961 trustees could not invest in equities, that is ordinary shares in
companies, and the Trustee Investment Act allowed this. To take advantage of investing in equities
the trustees had to divide the fund into 2 parts of a ratio 25% narrower range investments and 75%
in the wider range. If the trustees wished to invest in the wider range investments then certain
criteria had to be satisfied. For instance the company to be invested in must be quoted on a
recognised stock exchange. The shares must be fully paid up. The company must have a capital of
£1,000,000 and have paid dividend on all its shares for the past 5 years.
Track/Slide 30
There were duties imposed on trustees under the Act. Under section 6 subsection 1 the trustees had
to have regard to the need for diversification of investments of the trust and to the suitability to the
trust of the investment. Under subsection 2 of section 6 investments of parts 2 and 3 of schedule 1
required advice to be sought by the trustee and under subsection 3 of section 6, trustees, in
retaining investments, were required to determine the intervals for advice.
Track/Slide 31
The Trustee Investment Act was considered restrictive on trustees. Only investments authorised by
the Act could be made so the trustees may have been missing out on legitimate investment
activities, for example land and private company shares were not contained within the list of
authorised investments. The requirement to split the fund was considered to be a crude attempt to
regulate the degree of risk. At least 25% of the fund had to go into narrower range safe investments
and accordingly any rate of return would be reflective of this type of investment. And the so-called
risky wider range investments, if anything the criteria which the companies had to meet before the
trustees could legitimately invest in the equities showed that if anything they were not risky at all.
The necessity to seek advices ran throughout the Act, even in the so-called safe narrow range part 2
investments and was considered burdensome on the trustees. Accordingly the Act was usually
excluded by means of an express clause and trustees having investment powers under the TIA
became the exception rather than the rule.
Track/Slide 32
Thus the general idea was to put an express clause into the trust instrument at the outset, giving the
trustees wide powers of investment, in effect excluding the TIA 1961. Originally such clauses were
strictly construed by the courts because of their fear of trustees investing in shares in the 19th
century. But the courts' views changed with the times and the case of Re Harari established that
such express clauses were to be given their plain and literal meaning. An example of an express
clause would be for my trustees "To invest as freely as if they were absolutely beneficially entitled".
Its effect would be to oust the TIA and to allow trustees to invest as if they were the absolute
owners of the trust fund.
Track/Slide 33
The Trustee Act 2000 now governs trustees' powers of investments when no express provision has
been made, i.e. they are default powers. The Act applies to all trusts whether created before or after
it comes into force. Existing trusts which previously operated under the TIA 1961 powers now have
the new investment powers. As the new powers are so wide, it seems likely that most new trusts will
simply adopt them rather than include an express investment clause.
Track/Slide 34
Section 3 of the Act provides that a trustee may make any kind of investment that he could make if
he were absolutely entitled to the assets of the trust. This is called a general power of investment.
Not e that the general power of investment does not authorise the purchase of land. That is
governed by section 8 of the Act.
Track/Slide 35
Trustees are under a duty to invest but what does this mean? According to Re Wragge, to invest
means "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 it will yield", i.e.
investment means income-producing rather than a capital gain.
Track/Slide 36
So in considering the trustees' power of investment and where the power derives from, whether it's
an express clause or under the Trustee Act 2000 section 3 power, we must also ask ourselves is it an
investment. For example in Re Power's Will Trust the purchase of a house for occupation by a
beneficiary and which produced no income was not an investment. In modern times judicial
attitudes have changed so that investing in things which accrue capital value have been considered
legitimate. For example in the case of Cowan v Scargill Vice-Chancellor Megarry said that the
prospects of the yield of income and of capital appreciation both have to be considered in judging
the return from the investment.
Track/Slide 37
In Harris v Church Commissioners it was said that trustees should seek the maximum return whether
by way of income or capital growth. This is known as the concept of the maximum or total return.
The Trustee Act 2000 contains no definition of investment. However the explanatory notes to the
Act explain that the power of investment permits trustees to invest in a way which is expected to
produce an income or capital return which seems to reflect the modern view of investment as
embracing capital appreciation as well as income. However the notes are not part of the Act so the
correct interpretation of investment is questionable. Is it income producing, the traditional
approach, or can investment include income or capital appreciation in accordance with modern
judicial interpretation?
Track/Slide 38
Under section 8 trustees are authorised to invest in land. Under the TIA 1961 land was not
authorised as an investment. Also if the trust had an express clause which ousted the TIA then land
was allowed as an investment. However trustees were caught out by Re Wragge and Re Power. An
express power did not authorise the purchase of a house for a beneficiary to live in because it was
not income-producing which meant that the clause had to specifically allow for this. Section 8 now
governs the purchase of land including land by way of investment, occupation or for any other
reason.
Track/Slide 39
We must not lose sight however of the fact that the trustees are not the absolute owners of the
assets. An absolute beneficial owner may feel inclined to invest heavily in some wildly speculative
venture - not something which a trustee should do. Trustees do have general duties when investing
which we shall look at in a moment. However, as part of the proposals for modernising the trustees'
powers of investment the Law Commission considered that the beneficiaries need protection from
the risk that the trust funds will be lost in unwise investments and that the legislation giving the
wider power of investment should also set out specified duties of trustees when performing their
investment powers, specifically a duty to have regard to the need for diversification of the
investments of the trust and to the suitability to the trust of the proposed investments called by
section 4 of the Act the standard investment criteria.
Track/Slide 40
Therefore when exercising the power of investment, a trustee must firstly have regard to the
suitability to the trust of the proposed investment. Explanatory note 23 indicates that suitability
relates both to the kind of investment proposed and to the particular investment as an investment
of that kind and will include considerations such as the size and risk of the investment and the need
to produce an appropriate balance between income and capital growth to meet the need of the
trust. For example if there is a life tenant and remainder man the trustees need to strike a balance
between income for the life tenant and capital for the remainder man. Explanatory note 23 to the
Act says it also includes any relevant considerations as to the kind of investments which is
appropriate for the trust to make. This is contradictory to the common law position under the cases
of Cowan v Scargill and Harries v the Church Commissioners which both considered the legitimacy of
trustees taking ethical considerations into account when making investment decisions.
Track/Slide 41
In Cowan it was held that the duty to act in the best interest of the beneficiaries normally meant
their best financial interests. The trustees had to put aside their own personal interests or views and
in Harries the court said that the best interest of the charity required the trustees' choice of
investment to be made solely on the basis of investment criteria. Trustees were entitled to make a
financial disadvantageous investment decision for ethical reasons in extremely limited
circumstances, for example where the investments conflict with the aims of the charity. Ethical
considerations are therefore questionable despite the explanatory note and in particular
explanatory note 23 to the Act.
Track/Slide 42
Under the standard investment criteria trustees must also have regard to the need for diversification
of the investments. The standard investment criteria accords with the modern portfolio theory.
Investment policy should produce a portfolio of investments balanced overall and this can be seen
in the case of Nestlé v Natwest per Justice Hoffmann.
Track/Slide 43
Further in exercising the power of investment, trustees will be subject to the duty of care set out in
section 1 of the Act which we shall consider in a little while. Explanatory note 25 to the Act indicates
that as the power of investment is subject to the duty of care, trustees may need to have regard to
other matters in addition to the standard investment criteria but the standard investment criteria
will be of central importance in every case.
Track/Slide 44
The TIA adopted a restrictive attitude to advice. If trustees wished to invest in anything other than a
very restricted class of narrower range investments, they had to obtain and consider advice. There is
a common law duty to seek advice which we shall consider in a moment but the Law Commission
considered that the need for trustees to obtain and consider advice was so important that it should
be contained within the statute, hence section 5 of the TA 2000. Section 5 provides that before
exercising any power of investment the trustee must obtain and consider proper advice, having
regard to the standard investment criteria about how the power should be exercised. There is an
exception to this. The trustee need not obtain such advice if he reasonably concludes that in all the
circumstances it is unnecessary or inappropriate to do so. Explanatory note 26 gives the examples of
where the proposed investment is small, hence the cost of advice is disproportionate to the benefit
of doing so, or where the trustees possess the skill and knowledge so that separate advice is not
necessary. Proper advice is the advice of a person who is reasonably believed by the trustee to be
qualified to give it by his ability in and practical experience of financial and other matters relating to
the proposed investment. Thus expert advice should be obtained from the expert in the relevant
field and when reviewing the investments of the trust, a trustee must obtain and consider proper
advice about whether the investments should be varied.
Track/Slide 45
In relation to protection for the beneficiaries, note also the statutory duty of care. This is set out in
section 1 of the Act and schedule 1 paragraphs 1 and 2 apply to the power of investment, whether
under the Act or under an express power, to the specific duties under sections 4 and 5 and the
power under section 8 to purchase land, again whether under the Act or an express power.
Track/Slide 46
The power of investment is also tempered by general investment duties. In Cowan v Scargill Vice
Chancellor Megarry made the following points. Firstly it is the duty of the trustees to exercise their
powers in the best interests of the present and future beneficiaries of the trust, holding the scales
impartially between them. This duty to the beneficiaries is paramount.
Track/Slide 47
Two points can be noted from this.
1) The best interests of the beneficiaries are usually their financial interests. The power of
investment must be exercised to yield the best return judged in relation to the risks of the
investment. Income yield and capital appreciation both have to be considered in judging the
return.
2) The trustees must act fairly in making decisions which may have different consequences for
differing classes of beneficiaries, for example the life tenant and remainder man.
Track/Slide 48
Secondly, in considering what investments to make, trustees must put aside their own interests and
views. They must not refrain from making the investments by reasons of the views they hold.
Trustees may even have to act dishonourably though not illegally if the interests of their
beneficiaries require it. For example in Buttle v Saunders where the trustees' overriding duty was to
obtain the best price for their beneficiaries even though this was not the honourable course. We
considered Buttle v Saunders earlier. By way of caveat however, the benefit of the beneficiaries
which a trustee must make his paramount concern does not inevitably and solely mean their
financial benefit. Thus if the only actual or potential beneficiaries of a trust are all adults with very
strict views on moral and social matters condemning all forms of alcohol, tobacco and popular
entertainment as well as armaments, it might not be for the benefit of such beneficiaries to know
that they are obtaining larger financial returns under the trust by reason of investments in those
activities than they would have received if the trustees had invested the trust funds in other
investments. The beneficiaries might well consider that it was far better to receive less than to
receive more money from what they consider to be evil and tainted sources. There are
circumstances in which arrangements which work to the financial disadvantage of the beneficiary
may yet be for his benefit. However such cases are likely to be very rare.
Track/Slide 49
Fourthly the trustees are under a duty to meet the standard of care set out in Learoyd v Whiteley.
That duty includes the duty to seek advice on matters which the trustee does not understand such
as the making of investments and on receiving that advice to act with the same degree of prudence.
Under Learoyd v Whiteley the standard required of a trustee in exercising his powers of investment
is that he 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 bound to provide. Note that this
is now replaced by the standard of care set out in section 1 of the Trustee Act 2000. Finally trustees
have a duty to consider the need for diversification of investments as set out by section 6.1 of the
TAE 1961. Again this is replaced by the Trustee Act 2000 section 4.3 standard investment criteria
which we considered earlier.
Track/Slide 50
Cowan v Scargill involved a mineworker's pension fund with very wide investment powers. There
were 10 trustees and they were aided by experts. Five of the trustees were from the NUM. An
investment plan was submitted and the 5 union trustees refused to accept the plan unless overseas
investments were withdrawn and there were no investments in energies in competition with coal.
The court held that the trustees would be in breach of duty if they refused to adopt the investment
strategy. Their overriding duty was to do the best they could for the beneficiaries. They must
exercise their powers in the best interests of the beneficiaries. Best interests of the beneficiaries
were usually their financial interests. The trustees must put aside their own personal views.
Track/Slide 51
Note that under the TA 2000 investments must be reviewed. This is elaborated by explanatory note
24 to the Act which states that section 4 subsection 2 codifies the common law position under which
a trustee with the power of investment must undertake periodic reviews of the investments. There
are also advice requirements on trustees when carrying out their duty to review.
Track/Slide 52
As noted by section 7, the power of investment under section 3 applies to all trusts whenever
created whether before or after the Act. By section 6 the power is additional to any powers
otherwise conferred on the trustees but subject to any restriction or exclusion imposed by the trust
instrument. Sections 9 and 10 contain similar provisions in relation to the power to invest in land
under section 8. Note should also be made of the trustees power to apply to the court under the
Variation of Trust Act 1958 or section 57 of the Trustee Act 1955 to widen their investment powers.
This has rarely been allowed since the TIA 1961, the court considering that special circumstances
have to be shown to justify an extension beyond powers given by modern statute. This is known as
the Re Kolb principle but this should be compared to the approach of the court in the Trustees of the
British Museum case. In any event as the Trustee Act 2000 introduces a very wide power of
investment, applications to extend the investment powers of trustees would now be unnecessary
except in the rare cases of trusts with specific restrictions. Finally we shall consider further duties
and powers of trustees in our next lecture.