- Published on
SQE – Equity and Trust – Assessing the Extent of Trustee Liability
Introduction
Once a trustee has been found liable for a breach of trust, the next question is:
How much must the trustee pay?
The courts assess liability by reference to two principal measures:
The Two Main Measures of Liability
1. Loss to the Trust Fund
The first measure focuses on:
✅ restoring the trust fund.
The court asks:
What position would the trust have been in if the breach had never occurred?
If the trustee’s actions caused loss, the trustee must compensate the trust accordingly.
2. Unauthorised Gain
The second measure focuses on:
✅ stripping profits from the trustee.
The court asks:
What benefit did the trustee obtain through the breach?
The trustee may be ordered to surrender those profits even if the trust itself suffered little or no loss.
Compensatory Liability
Where a breach causes financial loss, the trustee must restore the trust fund.
This principle was applied in:
Bartlett v Barclays Bank Trust Co Ltd (No 2).
The objective is to put the trust in the position it would have occupied had the breach not occurred.
Equity vs Common Law Damages
Although equitable compensation resembles damages, important differences exist.
Common Law
Focuses primarily on:
✅ the claimant’s loss.
Equity
Focuses on:
✅ restoring the trust fund;
✅ protecting beneficiaries;
✅ preventing trustees from benefiting from wrongdoing.
Equity therefore tends to favour beneficiaries where uncertainty exists.
Assessment Date
One of the most important differences is the timing of assessment.
Common Law
Loss is usually assessed at the:
❌ date of breach.
Equity
Loss is generally assessed at the:
✅ date of judgment,
using the full benefit of hindsight.
Target Holdings v Redferns
This principle was considered in:
Target Holdings Ltd v Redferns.
The court recognised that equitable compensation seeks to restore the trust fund rather than simply measure loss at the moment of breach.
Hulbert v Avens
The principle was subsequently applied in:
Hulbert v Avens.
Example 1 – Compensatory Liability
Facts
Daniel is trustee of a trust.
He should have sold trust shares in:
2020
when they were worth:
£500,000.
Instead, he improperly retains them.
By trial in:
2025
the shares are worth:
£150,000.
Loss
£500,000 − £150,000
= £350,000
Remedy
Daniel must compensate the trust:
£350,000.
Fry v Fry
The principle is illustrated by:
Fry v Fry.
A trustee who improperly retained investments was liable for the difference between:
Gain-Based Liability
Sometimes the trustee personally profits from the breach.
In these cases, equity may focus on:
✅ the trustee’s gain rather than the trust’s loss.
Purpose
The objective is to ensure:
fiduciaries must not profit from their position.
Example 2 – Unauthorised Profit
Facts
Daniel uses trust information to purchase land personally.
Purchase price:
£200,000.
Land later worth:
£1.5 million.
Profit
£1.3 million.
Remedy
The court may order:
Highest Value Rule
Historically, courts sometimes calculated profit liability by reference to:
✅ the highest value achieved before judgment.
This approach appeared in:
Nant-y-glo and Blaina Ironworks Co v Grave.
However, this authority has not been consistently followed.
Election Between Loss and Gain
A crucial rule is that beneficiaries cannot usually recover:
❌ both compensation for loss and the trustee’s profit.
These remedies are generally:
alternative rather than cumulative.
Tang Man Sit v Capacious Investments
The leading authority is:
Tang Man Sit v Capacious Investments Ltd.
Facts
Tang agreed to transfer certain properties to the claimant.
Instead, he rented them out and retained the rental income.
Consequences
His conduct caused:
Claim
The claimant sought:
Decision
The Privy Council refused.
The claimant had to choose.
Principle
A claimant may elect either:
✅ compensatory relief;
or
✅ gain-based relief.
But generally not both.
Example 3 – Election
Facts
Trust property should have produced:
£300,000
for beneficiaries.
Instead, Daniel generates:
£600,000
personal profit.
Choice
Option A
Compensation:
£300,000
Option B
Account of profits:
£600,000
Sensible Election
The claimant chooses:
✅ £600,000.
Ramzan v Brookwide
The election principle was reaffirmed in:
Ramzan v Brookwide Ltd.
The court described loss-based and gain-based remedies as:
alternative and inconsistent remedies.
The court may treat the claimant as having elected the larger award.
Interest on Trustee Liability
Interest is generally payable.
Honest Trustee
Usually:
✅ simple interest.
Fraudulent Trustee
Usually:
✅ compound interest.
Why?
Fraudulent trustees should not benefit from retaining trust money over time.
Example 4 – Interest
Facts
Daniel misappropriates:
£500,000
for ten years.
Result
The court may order:
Set-Off of Gains Against Losses
A further issue arises where trustees have produced:
General Rule
A trustee cannot usually say:
“I lost £500,000 here, but made £500,000 elsewhere.”
The gains and losses remain separate.
Dimes v Scott
The traditional rule appears in:
Dimes v Scott.
Facts
A trustee generated profits through one investment but losses through another.
Decision
The trustee could not offset gains against losses.
Each breach was assessed independently.
Bartlett v Barclays Bank
A more flexible approach emerged in:
Bartlett v Barclays Bank Trust Co Ltd (No 2).
Principle
Set-off may be permitted where:
✅ gain and loss arise from the same transaction;
or
✅ form part of the same wrongful course of conduct.
Example 5 – Same Transaction
Facts
Daniel improperly manages one property development project.
Part A generates:
£200,000 profit.
Part B causes:
£150,000 loss.
Result
The court may permit set-off.
Net gain:
£50,000.
Criticism
The Bartlett approach has been criticised because:
“same transaction”
is difficult to define.
The resulting uncertainty makes outcomes less predictable.
Comprehensive Case Study
Facts
Daniel is trustee of the Carter Family Trust.
He improperly uses:
£1 million
to purchase commercial property.
Outcome 1
Property rises to:
£3 million.
Outcome 2
Daniel earns:
£500,000
rental income.
Outcome 3
Trust would otherwise have earned:
£700,000
through authorised investments.
Beneficiary’s Options
Proprietary Remedy
Constructive trust over property worth:
£3 million.
Account of Profits
Claim:
£500,000 rental income.
Equitable Compensation
Claim:
£700,000 lost investment return.
Election
The beneficiary cannot usually recover all three.
They must choose the most advantageous remedy.
In practice:
✅ the £3 million proprietary claim is likely preferable.
Key SQE Principles
Trustee liability is assessed by reference to:
✅ loss to the trust;
or
✅ gain to the trustee.
Loss-based remedies include:
Gain-based remedies include:
Generally:
❌ no double recovery.
The claimant must elect between inconsistent remedies.
Conclusion
The assessment of trustee liability reflects equity’s dual objectives of restoring trust property and preventing fiduciaries from profiting from wrongdoing. Where a breach causes loss, trustees must compensate the trust so that it is restored to the position it would have occupied had the breach not occurred. Where trustees obtain unauthorised gains, equity may require those gains to be surrendered through an account of profits or proprietary remedies. Cases such as Bartlett v Barclays Bank, Target Holdings, Tang Man Sit, and Ramzan demonstrate that beneficiaries must generally choose between compensatory and gain-based remedies, with the court seeking to prevent both trustee enrichment and unjust double recovery.
Sources of Reference
Bartlett v Barclays Bank Trust Co Ltd (No 2) [1980] Ch 515.
Target Holdings Ltd v Redferns [1996] AC 421.
Hulbert v Avens [2003] EWHC 76 (Ch).
Fry v Fry (1859) 54 ER 56.
Nant-y-glo and Blaina Ironworks Co v Grave (1878) 12 Ch D 738.
Tang Man Sit v Capacious Investments Ltd [1996] AC 514.
Ramzan v Brookwide Ltd [2011] 2 P & CR 32.
Dimes v Scott (1828) 38 ER 778.
Introduction
Once a trustee has been found liable for a breach of trust, the next question is:
How much must the trustee pay?
The courts assess liability by reference to two principal measures:
- Loss caused to the trust fund (compensatory liability); and
- Unauthorised gain made by the trustee (gain-based liability).
The Two Main Measures of Liability
1. Loss to the Trust Fund
The first measure focuses on:
✅ restoring the trust fund.
The court asks:
What position would the trust have been in if the breach had never occurred?
If the trustee’s actions caused loss, the trustee must compensate the trust accordingly.
2. Unauthorised Gain
The second measure focuses on:
✅ stripping profits from the trustee.
The court asks:
What benefit did the trustee obtain through the breach?
The trustee may be ordered to surrender those profits even if the trust itself suffered little or no loss.
Compensatory Liability
Where a breach causes financial loss, the trustee must restore the trust fund.
This principle was applied in:
Bartlett v Barclays Bank Trust Co Ltd (No 2).
The objective is to put the trust in the position it would have occupied had the breach not occurred.
Equity vs Common Law Damages
Although equitable compensation resembles damages, important differences exist.
Common Law
Focuses primarily on:
✅ the claimant’s loss.
Equity
Focuses on:
✅ restoring the trust fund;
✅ protecting beneficiaries;
✅ preventing trustees from benefiting from wrongdoing.
Equity therefore tends to favour beneficiaries where uncertainty exists.
Assessment Date
One of the most important differences is the timing of assessment.
Common Law
Loss is usually assessed at the:
❌ date of breach.
Equity
Loss is generally assessed at the:
✅ date of judgment,
using the full benefit of hindsight.
Target Holdings v Redferns
This principle was considered in:
Target Holdings Ltd v Redferns.
The court recognised that equitable compensation seeks to restore the trust fund rather than simply measure loss at the moment of breach.
Hulbert v Avens
The principle was subsequently applied in:
Hulbert v Avens.
Example 1 – Compensatory Liability
Facts
Daniel is trustee of a trust.
He should have sold trust shares in:
2020
when they were worth:
£500,000.
Instead, he improperly retains them.
By trial in:
2025
the shares are worth:
£150,000.
Loss
£500,000 − £150,000
= £350,000
Remedy
Daniel must compensate the trust:
£350,000.
Fry v Fry
The principle is illustrated by:
Fry v Fry.
A trustee who improperly retained investments was liable for the difference between:
- the value when they should have been sold;
and - their value at judgment.
Gain-Based Liability
Sometimes the trustee personally profits from the breach.
In these cases, equity may focus on:
✅ the trustee’s gain rather than the trust’s loss.
Purpose
The objective is to ensure:
fiduciaries must not profit from their position.
Example 2 – Unauthorised Profit
Facts
Daniel uses trust information to purchase land personally.
Purchase price:
£200,000.
Land later worth:
£1.5 million.
Profit
£1.3 million.
Remedy
The court may order:
- an account of profits;
or - a constructive trust over the land.
Highest Value Rule
Historically, courts sometimes calculated profit liability by reference to:
✅ the highest value achieved before judgment.
This approach appeared in:
Nant-y-glo and Blaina Ironworks Co v Grave.
However, this authority has not been consistently followed.
Election Between Loss and Gain
A crucial rule is that beneficiaries cannot usually recover:
❌ both compensation for loss and the trustee’s profit.
These remedies are generally:
alternative rather than cumulative.
Tang Man Sit v Capacious Investments
The leading authority is:
Tang Man Sit v Capacious Investments Ltd.
Facts
Tang agreed to transfer certain properties to the claimant.
Instead, he rented them out and retained the rental income.
Consequences
His conduct caused:
- loss to the claimant;
and - profit to Tang.
Claim
The claimant sought:
- compensation for loss;
and - surrender of profits.
Decision
The Privy Council refused.
The claimant had to choose.
Principle
A claimant may elect either:
✅ compensatory relief;
or
✅ gain-based relief.
But generally not both.
Example 3 – Election
Facts
Trust property should have produced:
£300,000
for beneficiaries.
Instead, Daniel generates:
£600,000
personal profit.
Choice
Option A
Compensation:
£300,000
Option B
Account of profits:
£600,000
Sensible Election
The claimant chooses:
✅ £600,000.
Ramzan v Brookwide
The election principle was reaffirmed in:
Ramzan v Brookwide Ltd.
The court described loss-based and gain-based remedies as:
alternative and inconsistent remedies.
The court may treat the claimant as having elected the larger award.
Interest on Trustee Liability
Interest is generally payable.
Honest Trustee
Usually:
✅ simple interest.
Fraudulent Trustee
Usually:
✅ compound interest.
Why?
Fraudulent trustees should not benefit from retaining trust money over time.
Example 4 – Interest
Facts
Daniel misappropriates:
£500,000
for ten years.
Result
The court may order:
- repayment of £500,000;
plus - compound interest.
Set-Off of Gains Against Losses
A further issue arises where trustees have produced:
- gains in some transactions;
and - losses in others.
General Rule
A trustee cannot usually say:
“I lost £500,000 here, but made £500,000 elsewhere.”
The gains and losses remain separate.
Dimes v Scott
The traditional rule appears in:
Dimes v Scott.
Facts
A trustee generated profits through one investment but losses through another.
Decision
The trustee could not offset gains against losses.
Each breach was assessed independently.
Bartlett v Barclays Bank
A more flexible approach emerged in:
Bartlett v Barclays Bank Trust Co Ltd (No 2).
Principle
Set-off may be permitted where:
✅ gain and loss arise from the same transaction;
or
✅ form part of the same wrongful course of conduct.
Example 5 – Same Transaction
Facts
Daniel improperly manages one property development project.
Part A generates:
£200,000 profit.
Part B causes:
£150,000 loss.
Result
The court may permit set-off.
Net gain:
£50,000.
Criticism
The Bartlett approach has been criticised because:
“same transaction”
is difficult to define.
The resulting uncertainty makes outcomes less predictable.
Comprehensive Case Study
Facts
Daniel is trustee of the Carter Family Trust.
He improperly uses:
£1 million
to purchase commercial property.
Outcome 1
Property rises to:
£3 million.
Outcome 2
Daniel earns:
£500,000
rental income.
Outcome 3
Trust would otherwise have earned:
£700,000
through authorised investments.
Beneficiary’s Options
Proprietary Remedy
Constructive trust over property worth:
£3 million.
Account of Profits
Claim:
£500,000 rental income.
Equitable Compensation
Claim:
£700,000 lost investment return.
Election
The beneficiary cannot usually recover all three.
They must choose the most advantageous remedy.
In practice:
✅ the £3 million proprietary claim is likely preferable.
Key SQE Principles
Trustee liability is assessed by reference to:
✅ loss to the trust;
or
✅ gain to the trustee.
Loss-based remedies include:
- equitable compensation;
- restoration of trust property;
- interest.
Gain-based remedies include:
- account of profits;
- constructive trusts;
- proprietary claims.
Generally:
❌ no double recovery.
The claimant must elect between inconsistent remedies.
Conclusion
The assessment of trustee liability reflects equity’s dual objectives of restoring trust property and preventing fiduciaries from profiting from wrongdoing. Where a breach causes loss, trustees must compensate the trust so that it is restored to the position it would have occupied had the breach not occurred. Where trustees obtain unauthorised gains, equity may require those gains to be surrendered through an account of profits or proprietary remedies. Cases such as Bartlett v Barclays Bank, Target Holdings, Tang Man Sit, and Ramzan demonstrate that beneficiaries must generally choose between compensatory and gain-based remedies, with the court seeking to prevent both trustee enrichment and unjust double recovery.
Sources of Reference
Bartlett v Barclays Bank Trust Co Ltd (No 2) [1980] Ch 515.
Target Holdings Ltd v Redferns [1996] AC 421.
Hulbert v Avens [2003] EWHC 76 (Ch).
Fry v Fry (1859) 54 ER 56.
Nant-y-glo and Blaina Ironworks Co v Grave (1878) 12 Ch D 738.
Tang Man Sit v Capacious Investments Ltd [1996] AC 514.
Ramzan v Brookwide Ltd [2011] 2 P & CR 32.
Dimes v Scott (1828) 38 ER 778.
- Published on
SQE – Equity and Trust – Limitation Periods and the Doctrine of Laches
Introduction
Even where a beneficiary has a strong claim for breach of trust, tracing, equitable compensation, or recovery of trust property, the claim may fail if it is brought too late. The law therefore imposes time limits within which legal proceedings must be commenced.
In trust law, limitation rules are primarily governed by the Limitation Act 1980, particularly section 21. Alongside the statutory rules, equity has developed the separate doctrine of laches, which prevents claimants from enforcing rights after unreasonable delay where it would be unfair or unconscionable to allow the claim to proceed.
The combined effect of statutory limitation and laches seeks to balance:
⸻
General Limitation Rule
The principal provision is section 21(3) of the Limitation Act 1980.
The general rule is that:
actions by beneficiaries for breach of trust must normally be brought within six years from the date on which the cause of action accrued.
The cause of action accrues when the breach occurs and the beneficiary first acquires the right to sue.
⸻
Example
Daniel, a trustee, improperly transfers:
£500,000
from the trust on:
1 January 2020.
The beneficiaries discover the breach immediately.
⸻
Limitation Period
The beneficiaries generally have until:
1 January 2026
to commence proceedings.
⸻
Disability Exception – Section 28
The law recognises that some beneficiaries may be unable to protect their rights.
Section 28 therefore postpones limitation periods where the claimant is under a legal disability.
⸻
Disability Includes
⸻
Effect
Time does not begin running until the disability ends.
⸻
Example
Lucy is a beneficiary aged:
12 years old.
A trustee commits breach of trust in:
Lucy reaches 18 in:
⸻
Result
The six-year limitation period begins in:
2031,
not 2025.
Lucy therefore generally has until:
2037
to bring proceedings.
⸻
Deliberate Concealment – Section 32
A trustee should not benefit from hiding wrongdoing.
Section 32(1) therefore postpones limitation periods where relevant facts have been deliberately concealed.
⸻
Rule
Time begins running only when:
✅ the beneficiary discovers the concealment;
or
✅ could reasonably have discovered it.
⸻
Example
Daniel secretly transfers:
£800,000
from a trust in 2015.
He falsifies accounts to conceal the transaction.
The beneficiaries discover the fraud in 2028.
⸻
Result
The limitation period begins in:
2028,
not 2015.
⸻
No Limitation Period for Fraud
Section 21(1) creates important exceptions.
No limitation period applies where:
⸻
Why?
Equity refuses to allow fraudulent trustees to escape liability merely because time has passed.
⸻
Example
Daniel fraudulently transfers:
£1 million
to his personal investment account in 2010.
The money remains under his control in 2040.
⸻
Result
The beneficiaries may still sue.
There is:
✅ no limitation period.
⸻
Trust Property Still in Trustee’s Possession
The same principle applies where the trustee continues to possess trust property.
⸻
Example
A trustee improperly transfers trust land into his own name.
The property remains registered in the trustee’s ownership for decades.
⸻
Result
The beneficiaries may seek recovery regardless of the passage of time.
⸻
Wassell v Leggatt
The principle that fraud and retained trust property fall outside ordinary limitation periods was recognised in:
Wassell v Leggatt.
⸻
First Subsea v Balltec
The Court of Appeal considered section 21(1)(a) in:
First Subsea Ltd v Balltec Ltd.
The case examined fraudulent transactions and confirmed the continuing importance of the statutory fraud exception.
⸻
Burnden Holdings v Fielding
The Supreme Court clarified section 21(1)(b) in:
Burnden Holdings (UK) Ltd v Fielding.
The Court confirmed that actions involving trust property retained by trustees fall outside ordinary limitation rules.
⸻
The Equitable Doctrine of Laches
Separate from statutory limitation periods is the equitable doctrine of:
laches.
The word derives from old French and refers to:
unreasonable delay combined with neglect.
⸻
Purpose of Laches
The doctrine prevents claimants from:
⸻
Re Sharpe
The classic formulation appears in:
Re Sharpe.
The court held that a claimant may be barred where delay renders the claim unconscionable.
⸻
Requirements for Laches
The defendant must generally show:
1. Significant Delay
The claimant delayed bringing proceedings.
⸻
2. Unfairness
The delay has caused prejudice or hardship.
⸻
3. Unconscionability
It would be unjust to permit the claim to proceed.
⸻
Case Scenario 1 – Laches Applies
Facts
Daniel commits fraud in:
The beneficiary discovers the fraud in:
The beneficiary waits until:
2022
to commence proceedings.
During that period:
⸻
Solution
The court may apply:
✅ laches.
The delay combined with prejudice to the defendant may make the claim unconscionable.
⸻
Whatley v Lougher
A modern example is:
Whatley v Lougher.
⸻
Facts
The claimant knew about fraudulent conduct but waited:
12 years
before issuing proceedings.
⸻
Decision
The court applied:
✅ laches
and struck out the claim.
⸻
Importance
The case illustrates that knowledge combined with lengthy inaction can be fatal.
⸻
Case Scenario 2 – Laches Does Not Apply
Facts
A beneficiary discovers a breach of trust in:
Proceedings are issued in:
⸻
Solution
There is no substantial delay.
Laches would almost certainly fail.
⸻
Patel v Shah
The modern approach was explained in:
Patel v Shah.
The court adopted a broad unconscionability analysis rather than applying rigid rules.
⸻
Relationship Between Limitation and Laches
This distinction is extremely important.
⸻
Statutory Limitation
Created by legislation.
Applies fixed periods.
⸻
Laches
Created by equity.
Depends upon fairness and unconscionability.
⸻
Can Both Apply?
Usually:
❌ No.
Where Parliament has prescribed a limitation period, the doctrine of laches generally does not apply.
⸻
Re Pauling’s Settlement Trusts (No 1)
In:
Re Pauling’s Settlement Trusts (No 1),
the court confirmed that laches does not override statutory limitation provisions.
⸻
Green v Gaul
The same principle was reinforced in:
Green v Gaul.
⸻
Comprehensive Case Study
Facts
Daniel is trustee of a family trust.
In 2015 he secretly transfers:
£2 million
into a company he controls.
The beneficiaries are:
Daniel falsifies trust accounts.
The fraud is discovered in:
⸻
Analysis
Emma
Because Daniel deliberately concealed the breach:
✅ section 32 applies.
Time begins running in:
⸻
Lucy
Lucy was under a disability.
Section 28 postpones limitation until she reaches:
18 years old.
⸻
Fraud
Daniel acted fraudulently.
Under section 21(1):
✅ no limitation period applies.
⸻
Result
Both beneficiaries may still sue successfully.
⸻
Key SQE Principles
Six-Year Rule
Section 21(3) normally imposes:
✅ six years.
⸻
Disability
Section 28 postpones time where claimants:
✅ are minors or lack capacity.
⸻
Concealment
Section 32 postpones time where facts are:
✅ deliberately concealed.
⸻
Fraud
Section 21(1) removes limitation periods for:
✅ fraudulent trustees.
⸻
Trust Property Retained
No limitation period where:
✅ trust property remains in the trustee’s possession.
⸻
Laches
Requires:
✅ substantial delay;
✅ prejudice;
✅ unconscionability.
⸻
Conclusion
Limitation periods and the doctrine of laches play an important role in balancing the rights of beneficiaries against the need for certainty and fairness in trust administration. While section 21 of the Limitation Act 1980 generally imposes a six-year limitation period for breach of trust claims, important exceptions exist for fraud, retained trust property, concealment, and beneficiaries under disability. Alongside these statutory protections, the equitable doctrine of laches prevents stale claims where delay has rendered proceedings unfair or unconscionable. Together, these rules ensure that trustees remain accountable while protecting defendants from prejudice caused by excessive delay.
Sources of Reference
Limitation Act 1980, ss 21, 28 and 32.
Wassell v Leggatt [1896] 1 Ch 554.
First Subsea Ltd v Balltec Ltd [2017] EWCA Civ 186.
Burnden Holdings (UK) Ltd v Fielding [2018] UKSC 14.
Re Sharpe [1892] 1 Ch 154.
Whatley v Lougher [2020] 4 WLUK 87.
Patel v Shah [2005] EWCA Civ 157.
Re Pauling’s Settlement Trusts (No 1) [1964] Ch 303.
Green v Gaul [2005] 1 WLR 1890.
Introduction
Even where a beneficiary has a strong claim for breach of trust, tracing, equitable compensation, or recovery of trust property, the claim may fail if it is brought too late. The law therefore imposes time limits within which legal proceedings must be commenced.
In trust law, limitation rules are primarily governed by the Limitation Act 1980, particularly section 21. Alongside the statutory rules, equity has developed the separate doctrine of laches, which prevents claimants from enforcing rights after unreasonable delay where it would be unfair or unconscionable to allow the claim to proceed.
The combined effect of statutory limitation and laches seeks to balance:
- the interests of beneficiaries;
- fairness to trustees and defendants;
- legal certainty;
- and the proper administration of justice.
⸻
General Limitation Rule
The principal provision is section 21(3) of the Limitation Act 1980.
The general rule is that:
actions by beneficiaries for breach of trust must normally be brought within six years from the date on which the cause of action accrued.
The cause of action accrues when the breach occurs and the beneficiary first acquires the right to sue.
⸻
Example
Daniel, a trustee, improperly transfers:
£500,000
from the trust on:
1 January 2020.
The beneficiaries discover the breach immediately.
⸻
Limitation Period
The beneficiaries generally have until:
1 January 2026
to commence proceedings.
⸻
Disability Exception – Section 28
The law recognises that some beneficiaries may be unable to protect their rights.
Section 28 therefore postpones limitation periods where the claimant is under a legal disability.
⸻
Disability Includes
- being under the age of 18;
- lacking mental capacity;
- being of unsound mind.
⸻
Effect
Time does not begin running until the disability ends.
⸻
Example
Lucy is a beneficiary aged:
12 years old.
A trustee commits breach of trust in:
Lucy reaches 18 in:
⸻
Result
The six-year limitation period begins in:
2031,
not 2025.
Lucy therefore generally has until:
2037
to bring proceedings.
⸻
Deliberate Concealment – Section 32
A trustee should not benefit from hiding wrongdoing.
Section 32(1) therefore postpones limitation periods where relevant facts have been deliberately concealed.
⸻
Rule
Time begins running only when:
✅ the beneficiary discovers the concealment;
or
✅ could reasonably have discovered it.
⸻
Example
Daniel secretly transfers:
£800,000
from a trust in 2015.
He falsifies accounts to conceal the transaction.
The beneficiaries discover the fraud in 2028.
⸻
Result
The limitation period begins in:
2028,
not 2015.
⸻
No Limitation Period for Fraud
Section 21(1) creates important exceptions.
No limitation period applies where:
- the trustee acted fraudulently;
- or trust property remains in the trustee’s possession.
⸻
Why?
Equity refuses to allow fraudulent trustees to escape liability merely because time has passed.
⸻
Example
Daniel fraudulently transfers:
£1 million
to his personal investment account in 2010.
The money remains under his control in 2040.
⸻
Result
The beneficiaries may still sue.
There is:
✅ no limitation period.
⸻
Trust Property Still in Trustee’s Possession
The same principle applies where the trustee continues to possess trust property.
⸻
Example
A trustee improperly transfers trust land into his own name.
The property remains registered in the trustee’s ownership for decades.
⸻
Result
The beneficiaries may seek recovery regardless of the passage of time.
⸻
Wassell v Leggatt
The principle that fraud and retained trust property fall outside ordinary limitation periods was recognised in:
Wassell v Leggatt.
⸻
First Subsea v Balltec
The Court of Appeal considered section 21(1)(a) in:
First Subsea Ltd v Balltec Ltd.
The case examined fraudulent transactions and confirmed the continuing importance of the statutory fraud exception.
⸻
Burnden Holdings v Fielding
The Supreme Court clarified section 21(1)(b) in:
Burnden Holdings (UK) Ltd v Fielding.
The Court confirmed that actions involving trust property retained by trustees fall outside ordinary limitation rules.
⸻
The Equitable Doctrine of Laches
Separate from statutory limitation periods is the equitable doctrine of:
laches.
The word derives from old French and refers to:
unreasonable delay combined with neglect.
⸻
Purpose of Laches
The doctrine prevents claimants from:
- sleeping on their rights;
- delaying unnecessarily;
- and then seeking equitable relief when circumstances have significantly changed.
⸻
Re Sharpe
The classic formulation appears in:
Re Sharpe.
The court held that a claimant may be barred where delay renders the claim unconscionable.
⸻
Requirements for Laches
The defendant must generally show:
1. Significant Delay
The claimant delayed bringing proceedings.
⸻
2. Unfairness
The delay has caused prejudice or hardship.
⸻
3. Unconscionability
It would be unjust to permit the claim to proceed.
⸻
Case Scenario 1 – Laches Applies
Facts
Daniel commits fraud in:
The beneficiary discovers the fraud in:
The beneficiary waits until:
2022
to commence proceedings.
During that period:
- witnesses die;
- documents disappear;
- records are lost.
⸻
Solution
The court may apply:
✅ laches.
The delay combined with prejudice to the defendant may make the claim unconscionable.
⸻
Whatley v Lougher
A modern example is:
Whatley v Lougher.
⸻
Facts
The claimant knew about fraudulent conduct but waited:
12 years
before issuing proceedings.
⸻
Decision
The court applied:
✅ laches
and struck out the claim.
⸻
Importance
The case illustrates that knowledge combined with lengthy inaction can be fatal.
⸻
Case Scenario 2 – Laches Does Not Apply
Facts
A beneficiary discovers a breach of trust in:
Proceedings are issued in:
⸻
Solution
There is no substantial delay.
Laches would almost certainly fail.
⸻
Patel v Shah
The modern approach was explained in:
Patel v Shah.
The court adopted a broad unconscionability analysis rather than applying rigid rules.
⸻
Relationship Between Limitation and Laches
This distinction is extremely important.
⸻
Statutory Limitation
Created by legislation.
Applies fixed periods.
⸻
Laches
Created by equity.
Depends upon fairness and unconscionability.
⸻
Can Both Apply?
Usually:
❌ No.
Where Parliament has prescribed a limitation period, the doctrine of laches generally does not apply.
⸻
Re Pauling’s Settlement Trusts (No 1)
In:
Re Pauling’s Settlement Trusts (No 1),
the court confirmed that laches does not override statutory limitation provisions.
⸻
Green v Gaul
The same principle was reinforced in:
Green v Gaul.
⸻
Comprehensive Case Study
Facts
Daniel is trustee of a family trust.
In 2015 he secretly transfers:
£2 million
into a company he controls.
The beneficiaries are:
- Emma (age 35);
- Lucy (age 14).
Daniel falsifies trust accounts.
The fraud is discovered in:
⸻
Analysis
Emma
Because Daniel deliberately concealed the breach:
✅ section 32 applies.
Time begins running in:
⸻
Lucy
Lucy was under a disability.
Section 28 postpones limitation until she reaches:
18 years old.
⸻
Fraud
Daniel acted fraudulently.
Under section 21(1):
✅ no limitation period applies.
⸻
Result
Both beneficiaries may still sue successfully.
⸻
Key SQE Principles
Six-Year Rule
Section 21(3) normally imposes:
✅ six years.
⸻
Disability
Section 28 postpones time where claimants:
✅ are minors or lack capacity.
⸻
Concealment
Section 32 postpones time where facts are:
✅ deliberately concealed.
⸻
Fraud
Section 21(1) removes limitation periods for:
✅ fraudulent trustees.
⸻
Trust Property Retained
No limitation period where:
✅ trust property remains in the trustee’s possession.
⸻
Laches
Requires:
✅ substantial delay;
✅ prejudice;
✅ unconscionability.
⸻
Conclusion
Limitation periods and the doctrine of laches play an important role in balancing the rights of beneficiaries against the need for certainty and fairness in trust administration. While section 21 of the Limitation Act 1980 generally imposes a six-year limitation period for breach of trust claims, important exceptions exist for fraud, retained trust property, concealment, and beneficiaries under disability. Alongside these statutory protections, the equitable doctrine of laches prevents stale claims where delay has rendered proceedings unfair or unconscionable. Together, these rules ensure that trustees remain accountable while protecting defendants from prejudice caused by excessive delay.
Sources of Reference
Limitation Act 1980, ss 21, 28 and 32.
Wassell v Leggatt [1896] 1 Ch 554.
First Subsea Ltd v Balltec Ltd [2017] EWCA Civ 186.
Burnden Holdings (UK) Ltd v Fielding [2018] UKSC 14.
Re Sharpe [1892] 1 Ch 154.
Whatley v Lougher [2020] 4 WLUK 87.
Patel v Shah [2005] EWCA Civ 157.
Re Pauling’s Settlement Trusts (No 1) [1964] Ch 303.
Green v Gaul [2005] 1 WLR 1890.
- Published on
SQE – Equity and Trust – Consent of the Beneficiaries as a Defence to Breach of Trust
Introduction
A trustee who commits a breach of trust will normally be personally liable to compensate the beneficiaries for any loss caused to the trust. However, one important defence available to trustees is the consent, acquiescence, or release of the beneficiaries.
The principle is based on fairness. If beneficiaries, knowing all the relevant facts, freely agree to a trustee’s conduct, it would generally be unjust to allow them later to complain about that same conduct and sue the trustee for breach of trust.
This defence may arise:
The General Rule
Where beneficiaries:
✅ have full legal capacity;
✅ possess full knowledge of the material facts;
✅ act freely and voluntarily;
then they may:
consent to, approve, release, or ratify a breach of trust.
If these requirements are satisfied, the trustee may be relieved from liability.
Re Pauling’s Settlement Trusts (No 1)
The leading authority is Re Pauling’s Settlement Trusts (No 1).
The case confirms that beneficiaries may consent to or release trustees from liability for breaches of trust.
Importantly, no special formalities are generally required.
Formal Requirements
Unlike some legal transactions, consent does not necessarily have to be:
❌ in writing;
❌ executed by deed;
❌ formally documented.
The court examines:
Requirement 1 – Full Legal Capacity
A beneficiary must have full legal capacity.
This means the beneficiary must:
✅ be an adult;
✅ possess sufficient mental capacity.
Overton v Banister
In Overton v Banister, the court confirmed that valid consent requires beneficiaries to possess legal capacity.
Example
Suppose a trustee proposes selling trust land below market value.
Two beneficiaries agree.
However:
Result
Their consent is ineffective.
The trustee remains exposed to liability for breach of trust.
Requirement 2 – Full Knowledge
The beneficiaries must possess:
✅ full knowledge of all material facts.
Consent obtained through incomplete disclosure will not protect the trustee.
Example
Daniel is trustee of a family trust.
He asks beneficiaries to approve the sale of trust shares.
Daniel tells them the shares are worth:
£100,000.
In reality they are worth:
£500,000.
The beneficiaries approve the sale.
Result
The consent is invalid.
The beneficiaries were not fully informed.
Daniel remains liable.
Requirement 3 – Free and Voluntary Consent
Consent must be given:
✅ freely;
✅ voluntarily;
✅ without coercion;
✅ without undue influence.
Boardman v Phipps
The importance of informed and voluntary consent was emphasised in:
Boardman v Phipps.
The court stressed that beneficiaries must act independently and with full understanding of the relevant circumstances.
Example
Suppose a trustee tells beneficiaries:
“If you do not approve this transaction, I will stop making distributions from the trust.”
The beneficiaries reluctantly agree.
Result
The consent may be invalid because it was not freely given.
Forms of Beneficiary Approval
Beneficiary approval may take several forms.
Prior Consent
Approval given before the trustee acts.
Example
The beneficiaries approve a risky investment strategy before the investment occurs.
If losses later arise, the trustee may rely upon that consent.
Acquiescence
The beneficiaries know about the breach but do nothing.
Over time, their conduct may amount to acceptance.
Example
The beneficiaries know for several years that trust property has been leased improperly but take no action.
Their prolonged silence may support a defence of acquiescence.
Release
A release occurs after the breach.
The beneficiaries expressly agree not to pursue the trustee.
Example
Daniel improperly distributes:
£100,000
from a trust.
After receiving full disclosure, the beneficiaries sign an agreement releasing him from liability.
Result
The trustee may rely on the release as a complete defence.
Case Scenario 1 – Valid Consent
Facts
Sarah is trustee of the Carter Family Trust.
The trust owns shares worth:
£500,000.
Sarah believes the shares are risky and recommends selling them.
She provides:
The shares are sold.
Six months later, the shares double in value.
The beneficiaries regret their decision and sue Sarah.
Solution
Sarah is likely protected.
The beneficiaries:
✅ had capacity;
✅ had full knowledge;
✅ acted voluntarily.
Their informed consent prevents them from complaining later.
Case Scenario 2 – Lack of Full Disclosure
Facts
Daniel wishes to sell trust land.
Actual value:
£1.2 million.
Daniel tells beneficiaries it is worth:
£700,000.
They approve the sale.
Solution
The consent is ineffective.
The beneficiaries lacked full knowledge of the facts.
Daniel may be liable for:
Case Scenario 3 – Undue Influence
Facts
Emma is trustee and sole source of financial support for beneficiaries.
She pressures beneficiaries into approving a transaction benefiting her personally.
The beneficiaries reluctantly agree.
Solution
The consent is unlikely to be valid.
The approval was not freely given.
Emma remains liable.
Case Scenario 4 – Beneficiary Release After Breach
Facts
A trustee mistakenly distributes:
£300,000
to the wrong beneficiary.
The trustee later explains the error fully and offers corrective measures.
The beneficiaries agree to release the trustee from liability.
Solution
The court will likely uphold the release.
The trustee may be fully protected.
Case Scenario 5 – Minor Beneficiary
Facts
A trust has three beneficiaries:
The investment loses:
£500,000.
Solution
Lucy lacks legal capacity.
Her consent is ineffective.
The trustee may still face liability in respect of Lucy’s beneficial interest.
Relationship With Section 61 Trustee Act 1925
Consent differs from statutory relief under section 61.
Consent Defence
Focuses on:
✅ the conduct of beneficiaries.
Section 61 Relief
Focuses on:
✅ the conduct of the trustee.
A trustee may rely on either defence depending on the circumstances.
Relationship With Exclusion Clauses
Consent also differs from exclusion clauses.
Exclusion Clause
Protection comes from:
✅ the trust instrument.
Consent Defence
Protection comes from:
✅ beneficiary approval.
Practical Importance
Consent is particularly useful where trustees must make:
Key SQE Principles
For valid beneficiary consent, the trustee must show:
✅ full legal capacity;
✅ full knowledge of material facts;
✅ voluntary agreement;
✅ absence of undue influence.
Consent may occur:
Conclusion
Consent of the beneficiaries is an important defence to breach of trust because it reflects the equitable principle that informed beneficiaries should be bound by decisions they freely approve. For consent to be effective, beneficiaries must possess legal capacity, full knowledge of the relevant facts, and act voluntarily without undue influence. Cases such as Re Pauling’s Settlement Trusts, Overton v Banister, and Boardman v Phipps demonstrate that courts carefully scrutinise whether consent was truly informed and freely given. Where these requirements are satisfied, trustees may be relieved from liability even though a technical breach of trust has occurred.
Sources of Reference
Re Pauling’s Settlement Trusts (No 1) [1962] 1 WLR 86.
Overton v Banister (1844) 67 ER 479.
Boardman v Phipps [1967] 2 AC 46.
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, OUP 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, OUP 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).
Introduction
A trustee who commits a breach of trust will normally be personally liable to compensate the beneficiaries for any loss caused to the trust. However, one important defence available to trustees is the consent, acquiescence, or release of the beneficiaries.
The principle is based on fairness. If beneficiaries, knowing all the relevant facts, freely agree to a trustee’s conduct, it would generally be unjust to allow them later to complain about that same conduct and sue the trustee for breach of trust.
This defence may arise:
- before the breach occurs (prior consent);
- during the transaction;
- or after the breach through a release or ratification.
The General Rule
Where beneficiaries:
✅ have full legal capacity;
✅ possess full knowledge of the material facts;
✅ act freely and voluntarily;
then they may:
consent to, approve, release, or ratify a breach of trust.
If these requirements are satisfied, the trustee may be relieved from liability.
Re Pauling’s Settlement Trusts (No 1)
The leading authority is Re Pauling’s Settlement Trusts (No 1).
The case confirms that beneficiaries may consent to or release trustees from liability for breaches of trust.
Importantly, no special formalities are generally required.
Formal Requirements
Unlike some legal transactions, consent does not necessarily have to be:
❌ in writing;
❌ executed by deed;
❌ formally documented.
The court examines:
- the conduct of the beneficiaries;
- surrounding circumstances;
- and available evidence.
Requirement 1 – Full Legal Capacity
A beneficiary must have full legal capacity.
This means the beneficiary must:
✅ be an adult;
✅ possess sufficient mental capacity.
Overton v Banister
In Overton v Banister, the court confirmed that valid consent requires beneficiaries to possess legal capacity.
Example
Suppose a trustee proposes selling trust land below market value.
Two beneficiaries agree.
However:
- one beneficiary is 14 years old;
- another lacks mental capacity.
Result
Their consent is ineffective.
The trustee remains exposed to liability for breach of trust.
Requirement 2 – Full Knowledge
The beneficiaries must possess:
✅ full knowledge of all material facts.
Consent obtained through incomplete disclosure will not protect the trustee.
Example
Daniel is trustee of a family trust.
He asks beneficiaries to approve the sale of trust shares.
Daniel tells them the shares are worth:
£100,000.
In reality they are worth:
£500,000.
The beneficiaries approve the sale.
Result
The consent is invalid.
The beneficiaries were not fully informed.
Daniel remains liable.
Requirement 3 – Free and Voluntary Consent
Consent must be given:
✅ freely;
✅ voluntarily;
✅ without coercion;
✅ without undue influence.
Boardman v Phipps
The importance of informed and voluntary consent was emphasised in:
Boardman v Phipps.
The court stressed that beneficiaries must act independently and with full understanding of the relevant circumstances.
Example
Suppose a trustee tells beneficiaries:
“If you do not approve this transaction, I will stop making distributions from the trust.”
The beneficiaries reluctantly agree.
Result
The consent may be invalid because it was not freely given.
Forms of Beneficiary Approval
Beneficiary approval may take several forms.
Prior Consent
Approval given before the trustee acts.
Example
The beneficiaries approve a risky investment strategy before the investment occurs.
If losses later arise, the trustee may rely upon that consent.
Acquiescence
The beneficiaries know about the breach but do nothing.
Over time, their conduct may amount to acceptance.
Example
The beneficiaries know for several years that trust property has been leased improperly but take no action.
Their prolonged silence may support a defence of acquiescence.
Release
A release occurs after the breach.
The beneficiaries expressly agree not to pursue the trustee.
Example
Daniel improperly distributes:
£100,000
from a trust.
After receiving full disclosure, the beneficiaries sign an agreement releasing him from liability.
Result
The trustee may rely on the release as a complete defence.
Case Scenario 1 – Valid Consent
Facts
Sarah is trustee of the Carter Family Trust.
The trust owns shares worth:
£500,000.
Sarah believes the shares are risky and recommends selling them.
She provides:
- valuation reports;
- financial advice;
- market analysis.
The shares are sold.
Six months later, the shares double in value.
The beneficiaries regret their decision and sue Sarah.
Solution
Sarah is likely protected.
The beneficiaries:
✅ had capacity;
✅ had full knowledge;
✅ acted voluntarily.
Their informed consent prevents them from complaining later.
Case Scenario 2 – Lack of Full Disclosure
Facts
Daniel wishes to sell trust land.
Actual value:
£1.2 million.
Daniel tells beneficiaries it is worth:
£700,000.
They approve the sale.
Solution
The consent is ineffective.
The beneficiaries lacked full knowledge of the facts.
Daniel may be liable for:
- breach of trust;
- equitable compensation;
- or proprietary remedies.
Case Scenario 3 – Undue Influence
Facts
Emma is trustee and sole source of financial support for beneficiaries.
She pressures beneficiaries into approving a transaction benefiting her personally.
The beneficiaries reluctantly agree.
Solution
The consent is unlikely to be valid.
The approval was not freely given.
Emma remains liable.
Case Scenario 4 – Beneficiary Release After Breach
Facts
A trustee mistakenly distributes:
£300,000
to the wrong beneficiary.
The trustee later explains the error fully and offers corrective measures.
The beneficiaries agree to release the trustee from liability.
Solution
The court will likely uphold the release.
The trustee may be fully protected.
Case Scenario 5 – Minor Beneficiary
Facts
A trust has three beneficiaries:
- Anna (35);
- Michael (40);
- Lucy (16).
The investment loses:
£500,000.
Solution
Lucy lacks legal capacity.
Her consent is ineffective.
The trustee may still face liability in respect of Lucy’s beneficial interest.
Relationship With Section 61 Trustee Act 1925
Consent differs from statutory relief under section 61.
Consent Defence
Focuses on:
✅ the conduct of beneficiaries.
Section 61 Relief
Focuses on:
✅ the conduct of the trustee.
A trustee may rely on either defence depending on the circumstances.
Relationship With Exclusion Clauses
Consent also differs from exclusion clauses.
Exclusion Clause
Protection comes from:
✅ the trust instrument.
Consent Defence
Protection comes from:
✅ beneficiary approval.
Practical Importance
Consent is particularly useful where trustees must make:
- difficult investment decisions;
- commercial decisions;
- compromises;
- or distributions involving uncertainty.
Key SQE Principles
For valid beneficiary consent, the trustee must show:
✅ full legal capacity;
✅ full knowledge of material facts;
✅ voluntary agreement;
✅ absence of undue influence.
Consent may occur:
- before the breach;
- during the transaction;
- or after the breach through release or ratification.
Conclusion
Consent of the beneficiaries is an important defence to breach of trust because it reflects the equitable principle that informed beneficiaries should be bound by decisions they freely approve. For consent to be effective, beneficiaries must possess legal capacity, full knowledge of the relevant facts, and act voluntarily without undue influence. Cases such as Re Pauling’s Settlement Trusts, Overton v Banister, and Boardman v Phipps demonstrate that courts carefully scrutinise whether consent was truly informed and freely given. Where these requirements are satisfied, trustees may be relieved from liability even though a technical breach of trust has occurred.
Sources of Reference
Re Pauling’s Settlement Trusts (No 1) [1962] 1 WLR 86.
Overton v Banister (1844) 67 ER 479.
Boardman v Phipps [1967] 2 AC 46.
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, OUP 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, OUP 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).
- Published on
SQE – Equity and Trust – Relief Granted by the Court Under Section 61 Trustee Act 1925
Introduction
Trustees who commit a breach of trust are normally personally liable for any loss caused to the trust. However, equity recognises that not every breach results from dishonesty, fraud, or deliberate misconduct. Trustees are often laypersons acting in good faith, faced with difficult decisions in complex circumstances.
To address this, Parliament enacted section 61 of the Trustee Act 1925, which gives courts a discretionary power to relieve trustees from personal liability where fairness requires it.
Section 61 provides an important safeguard for trustees who have acted honestly and reasonably but nevertheless find themselves technically in breach of trust.
Statutory Provision
Section 61 of the Trustee Act 1925 provides that:
the court may relieve a trustee from personal liability wholly or partly if the trustee has acted honestly and reasonably and ought fairly to be excused.
This means that even where a breach of trust has occurred, the court may decide that it would be unjust to impose full liability.
Requirements for Relief
The court generally considers three questions:
1. Did the Trustee Act Honestly?
The trustee must have acted in good faith.
Relief will not be available where the trustee acted:
2. Did the Trustee Act Reasonably?
The trustee’s conduct must be objectively reasonable.
The court considers:
3. Is It Fair to Excuse the Trustee?
Even where honesty and reasonableness are established, the court retains discretion.
The court asks whether:
it would be fair and equitable to excuse the trustee from liability.
Nature of the Relief
The court may grant:
Complete Relief
The trustee bears no personal liability.
Partial Relief
The trustee remains liable for part of the loss only.
No Relief
The trustee remains fully liable.
Re Evans (Deceased), Evans v Westcombe
The leading illustration is Re Evans (Deceased), Evans v Westcombe.
Facts
A woman acted as executor of her father’s estate.
The will directed that the estate should be divided equally between:
30 years.
Most people believed him to be dead.
Actions Taken by the Executor
Before distributing the estate, she:
The Problem
Several years later:
✅ the brother reappeared.
He demanded his half share of the estate.
Unfortunately, the insurance policy did not cover the entire amount owed.
Court Decision
The court held that the executor had technically breached her duties.
However, she had:
✅ acted honestly;
✅ sought professional legal advice;
✅ attempted to protect her brother’s interests through insurance;
✅ acted reasonably throughout.
Result
The court granted:
✅ partial relief under section 61.
She was required to pay only some interest rather than the full amount claimed.
Importance of Re Evans
The case demonstrates that:
a trustee may make a mistake and still obtain relief.
The crucial issue is whether the trustee acted responsibly and conscientiously.
Daniel v Tee
A more recent example is Daniel v Tee.
Facts
The case involved trustees who made poor investment decisions.
The investments performed badly and losses occurred.
Issue
Should trustees be personally liable for the losses?
Court Decision
The court accepted that:
Result
The court held that:
✅ section 61 relief could apply.
Importance
Daniel v Tee demonstrates that poor investment outcomes do not automatically create trustee liability.
A distinction exists between:
Relationship with Trustee Act 2000
Section 61 often operates alongside:
Trustee Act 2000.
The Trustee Act 2000 encourages trustees to seek professional advice under section 5 when dealing with investments.
If trustees:
Example 1 – Full Relief
Sarah is trustee of a trust worth:
£2 million.
Before investing, she obtains advice from a qualified investment manager.
The investment unexpectedly collapses due to a global financial crisis.
Loss:
£500,000.
Outcome
Sarah:
✅ full relief under section 61.
Example 2 – Partial Relief
Thomas distributes trust funds based on legal advice.
Later it emerges that the advice was incomplete.
Loss:
£100,000.
The court concludes Thomas should have made further enquiries.
Outcome
The court may grant:
✅ partial relief,
requiring Thomas to contribute only part of the loss.
Example 3 – No Relief
Daniel transfers trust money into his personal account because he believes he will repay it later.
Loss:
£300,000.
Outcome
Although Daniel claims he intended no harm:
❌ he acted improperly;
❌ he acted in conflict with beneficiaries’ interests.
Section 61 relief would almost certainly be refused.
Relationship with Exclusion Clauses
Section 61 differs from exclusion clauses.
Exclusion Clause
Protects trustees because the trust instrument says so.
Section 61 Relief
Protects trustees because the:
✅ court exercises discretion.
The court independently assesses fairness.
Policy Considerations
Section 61 reflects an important policy balance.
Without protection:
Key SQE Principles
To obtain relief under section 61 Trustee Act 1925, trustees must show:
✅ honesty;
✅ reasonableness;
✅ and that they ought fairly to be excused.
Relief may be:
Conclusion
Section 61 of the Trustee Act 1925 provides an important equitable safeguard for trustees who commit breaches of trust despite acting honestly and reasonably. The provision reflects the courts’ recognition that trustees often face difficult decisions and should not automatically be punished for every mistake. Cases such as Re Evans and Daniel v Tee demonstrate that trustees who seek professional advice, act conscientiously, and genuinely attempt to fulfil their duties may receive complete or partial relief from liability. The provision therefore balances accountability to beneficiaries with fairness toward trustees who act in good faith.
Sources of Reference
Trustee Act 1925, s 61.
Re Evans (Deceased), Evans v Westcombe [1999] 2 All ER 777.
Daniel v Tee [2016] EWHC 1538 (Ch).
Trustee Act 2000.
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, OUP 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, OUP 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).
Introduction
Trustees who commit a breach of trust are normally personally liable for any loss caused to the trust. However, equity recognises that not every breach results from dishonesty, fraud, or deliberate misconduct. Trustees are often laypersons acting in good faith, faced with difficult decisions in complex circumstances.
To address this, Parliament enacted section 61 of the Trustee Act 1925, which gives courts a discretionary power to relieve trustees from personal liability where fairness requires it.
Section 61 provides an important safeguard for trustees who have acted honestly and reasonably but nevertheless find themselves technically in breach of trust.
Statutory Provision
Section 61 of the Trustee Act 1925 provides that:
the court may relieve a trustee from personal liability wholly or partly if the trustee has acted honestly and reasonably and ought fairly to be excused.
This means that even where a breach of trust has occurred, the court may decide that it would be unjust to impose full liability.
Requirements for Relief
The court generally considers three questions:
1. Did the Trustee Act Honestly?
The trustee must have acted in good faith.
Relief will not be available where the trustee acted:
- fraudulently;
- dishonestly;
- recklessly;
- or for personal gain.
2. Did the Trustee Act Reasonably?
The trustee’s conduct must be objectively reasonable.
The court considers:
- the information available at the time;
- professional advice obtained;
- steps taken to protect beneficiaries;
- and the trustee’s level of experience.
3. Is It Fair to Excuse the Trustee?
Even where honesty and reasonableness are established, the court retains discretion.
The court asks whether:
it would be fair and equitable to excuse the trustee from liability.
Nature of the Relief
The court may grant:
Complete Relief
The trustee bears no personal liability.
Partial Relief
The trustee remains liable for part of the loss only.
No Relief
The trustee remains fully liable.
Re Evans (Deceased), Evans v Westcombe
The leading illustration is Re Evans (Deceased), Evans v Westcombe.
Facts
A woman acted as executor of her father’s estate.
The will directed that the estate should be divided equally between:
- herself;
- and her brother.
30 years.
Most people believed him to be dead.
Actions Taken by the Executor
Before distributing the estate, she:
- obtained legal advice;
- purchased an insurance policy;
- ensured the policy covered half of the estate value.
The Problem
Several years later:
✅ the brother reappeared.
He demanded his half share of the estate.
Unfortunately, the insurance policy did not cover the entire amount owed.
Court Decision
The court held that the executor had technically breached her duties.
However, she had:
✅ acted honestly;
✅ sought professional legal advice;
✅ attempted to protect her brother’s interests through insurance;
✅ acted reasonably throughout.
Result
The court granted:
✅ partial relief under section 61.
She was required to pay only some interest rather than the full amount claimed.
Importance of Re Evans
The case demonstrates that:
a trustee may make a mistake and still obtain relief.
The crucial issue is whether the trustee acted responsibly and conscientiously.
Daniel v Tee
A more recent example is Daniel v Tee.
Facts
The case involved trustees who made poor investment decisions.
The investments performed badly and losses occurred.
Issue
Should trustees be personally liable for the losses?
Court Decision
The court accepted that:
- the trustees acted honestly;
- they relied on professional advice;
- they believed the adviser was competent.
Result
The court held that:
✅ section 61 relief could apply.
Importance
Daniel v Tee demonstrates that poor investment outcomes do not automatically create trustee liability.
A distinction exists between:
- negligent conduct;
and - reasonable decisions that later prove unsuccessful.
Relationship with Trustee Act 2000
Section 61 often operates alongside:
Trustee Act 2000.
The Trustee Act 2000 encourages trustees to seek professional advice under section 5 when dealing with investments.
If trustees:
- obtain proper advice;
- act in accordance with it;
- and honestly believe it to be competent,
Example 1 – Full Relief
Sarah is trustee of a trust worth:
£2 million.
Before investing, she obtains advice from a qualified investment manager.
The investment unexpectedly collapses due to a global financial crisis.
Loss:
£500,000.
Outcome
Sarah:
- acted honestly;
- sought expert advice;
- acted reasonably.
✅ full relief under section 61.
Example 2 – Partial Relief
Thomas distributes trust funds based on legal advice.
Later it emerges that the advice was incomplete.
Loss:
£100,000.
The court concludes Thomas should have made further enquiries.
Outcome
The court may grant:
✅ partial relief,
requiring Thomas to contribute only part of the loss.
Example 3 – No Relief
Daniel transfers trust money into his personal account because he believes he will repay it later.
Loss:
£300,000.
Outcome
Although Daniel claims he intended no harm:
❌ he acted improperly;
❌ he acted in conflict with beneficiaries’ interests.
Section 61 relief would almost certainly be refused.
Relationship with Exclusion Clauses
Section 61 differs from exclusion clauses.
Exclusion Clause
Protects trustees because the trust instrument says so.
Section 61 Relief
Protects trustees because the:
✅ court exercises discretion.
The court independently assesses fairness.
Policy Considerations
Section 61 reflects an important policy balance.
Without protection:
- many individuals would refuse to act as trustees;
- trustees might become excessively cautious.
- incompetence;
- negligence;
- and mismanagement.
Key SQE Principles
To obtain relief under section 61 Trustee Act 1925, trustees must show:
✅ honesty;
✅ reasonableness;
✅ and that they ought fairly to be excused.
Relief may be:
- complete;
- partial;
- or refused entirely.
Conclusion
Section 61 of the Trustee Act 1925 provides an important equitable safeguard for trustees who commit breaches of trust despite acting honestly and reasonably. The provision reflects the courts’ recognition that trustees often face difficult decisions and should not automatically be punished for every mistake. Cases such as Re Evans and Daniel v Tee demonstrate that trustees who seek professional advice, act conscientiously, and genuinely attempt to fulfil their duties may receive complete or partial relief from liability. The provision therefore balances accountability to beneficiaries with fairness toward trustees who act in good faith.
Sources of Reference
Trustee Act 1925, s 61.
Re Evans (Deceased), Evans v Westcombe [1999] 2 All ER 777.
Daniel v Tee [2016] EWHC 1538 (Ch).
Trustee Act 2000.
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, OUP 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, OUP 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).
- Published on
SQE – Equity and Trust – Exclusion Clauses
Introduction
An exclusion clause in a trust instrument is a clause designed to protect trustees from personal liability when carrying out their duties. These clauses are extremely common in modern trust deeds, especially where professional trustees such as solicitors, accountants, or trust corporations are involved.
The purpose of exclusion clauses is to reduce the risk faced by trustees when administering trusts, particularly given the increasingly complex nature of investment management and fiduciary obligations. However, exclusion clauses remain highly controversial because they may leave beneficiaries without effective remedies even where trustees have acted incompetently or negligently.
The law therefore attempts to balance:
Meaning of an Exclusion Clause
An exclusion clause is a provision in a trust deed that:
excludes or limits a trustee’s liability for certain breaches of trust.
The clause may protect trustees from liability arising from:
❌ fraud;
❌ dishonesty;
❌ or deliberate wrongdoing.
Armitage v Nurse
The leading authority is Armitage v Nurse.
Facts
The claimant alleged that trustees failed properly to supervise trust investments, resulting in significant financial losses.
The trust deed contained an exclusion clause protecting trustees from liability except for:
fraud.
Decision
The Court of Appeal upheld the exclusion clause.
The trustees were protected because the claim involved:
✅ negligence,
not fraud.
Millett LJ’s Principle
Millett LJ stated that trustees cannot exclude liability for:
❌ fraud or dishonesty.
However, liability for:
✅ negligence,
including possibly gross negligence,
may be excluded.
Importance of Armitage
The case confirmed that exclusion clauses may validly protect trustees from many forms of breach of trust, provided the trustees have not acted fraudulently or dishonestly.
Trustee’s Core Obligations
Despite exclusion clauses, trustees must still perform the:
✅ irreducible core obligations
of trusteeship.
A trust cannot exist if trustees are completely free from all accountability.
Example
Suppose Daniel is trustee of a family trust.
The trust deed states:
“The trustee shall not be liable for any loss unless caused by fraud.”
Daniel negligently invests:
£2 million
in extremely risky shares without obtaining professional advice.
The investment collapses and only:
£200,000
remains.
Result
Under Armitage v Nurse:
✅ the exclusion clause may protect Daniel,
because the conduct amounts to negligence rather than fraud.
Taylor v Midland Bank Trust Co Ltd (No 2)
The limitation upon exclusion clauses was reinforced in:
Taylor v Midland Bank Trust Co Ltd (No 2).
The court confirmed that exclusion clauses cannot exclude liability for:
❌ fraud;
❌ dishonesty;
❌ or breaches of core fiduciary obligations.
Bogg v Raper
The controversial nature of exclusion clauses appeared clearly in:
Bogg v Raper.
Facts
Trustees mismanaged trust assets so severely that losses reached nearly:
£8 million
within only two years.
The trust deed contained an exemption clause.
Issue
Did the solicitor drafting the trust deed owe duties regarding explanation of the exclusion clause?
Decision
The court held that the solicitor owed a duty to:
✅ explain the effect of the exclusion clause to the settlor.
However:
❌ independent legal advice was not required.
The trustees remained protected by the clause.
Importance of Bogg
The case demonstrates how exclusion clauses may shield trustees even after catastrophic financial losses.
It also confirms that trustees may insist upon exclusion clauses before agreeing to act.
Walker v Stones
A more claimant-friendly approach appeared in:
Walker v Stones.
Principle
The court interpreted dishonesty broadly and objectively.
For solicitor-trustees, it was insufficient merely to claim:
“I honestly believed I acted properly.”
The court considered whether no reasonable solicitor-trustee could honestly have believed the conduct benefited beneficiaries.
Result
The trustee could not rely upon the exclusion clause.
Importance
Walker v Stones reduced the ability of professional trustees to escape liability by claiming subjective honesty.
Barnsley v Noble
In Barnsley v Noble, the court adopted a more lenient approach toward:
✅ non-professional trustees.
Facts
The dispute concerned interpretation of a standard exemption clause in a will trust.
Decision
The Court of Appeal upheld the protection afforded by the clause.
Importance
The decision reflects judicial sympathy toward:
Trustee Act 2000
The Trustee Act 2000 did not abolish exclusion clauses.
In fact, Schedule 1 paragraph 7 confirms that the statutory duty of care under section 1 may be excluded where the trust instrument clearly indicates this intention.
Law Commission Debate
The Law Commission considered whether professional trustees should be prohibited from relying upon exclusion clauses.
However, concerns arose that:
Final Recommendation
The Law Commission ultimately recommended only that professional trustees should:
✅ take reasonable steps to ensure the settlor understands the exclusion clause.
This recommendation appeared in:
Law Commission Report No 301 (2006).
Policy Debate
Exclusion clauses remain controversial because they create tension between:
Protection of Trustees
Trust administration is complex and risky.
Trustees need protection to encourage people to act.
Protection of Beneficiaries
Beneficiaries may suffer severe losses without meaningful remedies if exclusion clauses are interpreted too broadly.
Professional v Lay Trustees
Courts often distinguish between:
Professional Trustees
Expected to possess:
Lay Trustees
Usually treated more sympathetically where they acted honestly and conscientiously.
Practical Protection for Trustees
Prudent trustees commonly seek:
Relationship With Remedies
Where exclusion clauses operate successfully:
❌ beneficiaries may lose personal remedies against trustees.
However, beneficiaries may still pursue:
Key SQE Principles
Exclusion clauses may validly exclude liability for:
✅ negligence;
✅ breaches of duty of care;
and possibly
✅ gross negligence.
However, they cannot exclude liability for:
❌ fraud;
❌ dishonesty;
❌ or core fiduciary obligations.
Courts apply stricter scrutiny to:
✅ professional trustees.
Conclusion
Exclusion clauses play a central role in modern trust administration by protecting trustees from personal liability arising from negligence and mistakes. While the courts generally permit broad exclusion clauses, they continue to prohibit protection against fraud, dishonesty, and breaches of core fiduciary obligations. The law seeks to balance fairness to beneficiaries with the practical need to encourage competent individuals and professionals to act as trustees. Modern cases demonstrate increasing judicial sensitivity toward the distinction between professional and lay trustees, while continuing debate reflects ongoing tension between trustee protection and beneficiary accountability.
Sources of Reference
Armitage v Nurse [1998] Ch 241 (CA).
Taylor v Midland Bank Trust Co Ltd (No 2) [2002] WTLR 95.
Walker v Stones [2001] QB 902 (CA).
Barnsley v Noble [2016] EWCA Civ 799.
Bogg v Raper (1998) The Times, 22 April.
Trustee Act 2000.
Law Commission, Trustee Exemption Clauses (Law Com No 301, 2006).
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, OUP 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, OUP 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).
Introduction
An exclusion clause in a trust instrument is a clause designed to protect trustees from personal liability when carrying out their duties. These clauses are extremely common in modern trust deeds, especially where professional trustees such as solicitors, accountants, or trust corporations are involved.
The purpose of exclusion clauses is to reduce the risk faced by trustees when administering trusts, particularly given the increasingly complex nature of investment management and fiduciary obligations. However, exclusion clauses remain highly controversial because they may leave beneficiaries without effective remedies even where trustees have acted incompetently or negligently.
The law therefore attempts to balance:
- protection of trustees;
- commercial practicality;
- and protection of beneficiaries.
Meaning of an Exclusion Clause
An exclusion clause is a provision in a trust deed that:
excludes or limits a trustee’s liability for certain breaches of trust.
The clause may protect trustees from liability arising from:
- negligence;
- mistakes;
- poor investment decisions;
- or breaches of duty of care.
❌ fraud;
❌ dishonesty;
❌ or deliberate wrongdoing.
Armitage v Nurse
The leading authority is Armitage v Nurse.
Facts
The claimant alleged that trustees failed properly to supervise trust investments, resulting in significant financial losses.
The trust deed contained an exclusion clause protecting trustees from liability except for:
fraud.
Decision
The Court of Appeal upheld the exclusion clause.
The trustees were protected because the claim involved:
✅ negligence,
not fraud.
Millett LJ’s Principle
Millett LJ stated that trustees cannot exclude liability for:
❌ fraud or dishonesty.
However, liability for:
✅ negligence,
including possibly gross negligence,
may be excluded.
Importance of Armitage
The case confirmed that exclusion clauses may validly protect trustees from many forms of breach of trust, provided the trustees have not acted fraudulently or dishonestly.
Trustee’s Core Obligations
Despite exclusion clauses, trustees must still perform the:
✅ irreducible core obligations
of trusteeship.
A trust cannot exist if trustees are completely free from all accountability.
Example
Suppose Daniel is trustee of a family trust.
The trust deed states:
“The trustee shall not be liable for any loss unless caused by fraud.”
Daniel negligently invests:
£2 million
in extremely risky shares without obtaining professional advice.
The investment collapses and only:
£200,000
remains.
Result
Under Armitage v Nurse:
✅ the exclusion clause may protect Daniel,
because the conduct amounts to negligence rather than fraud.
Taylor v Midland Bank Trust Co Ltd (No 2)
The limitation upon exclusion clauses was reinforced in:
Taylor v Midland Bank Trust Co Ltd (No 2).
The court confirmed that exclusion clauses cannot exclude liability for:
❌ fraud;
❌ dishonesty;
❌ or breaches of core fiduciary obligations.
Bogg v Raper
The controversial nature of exclusion clauses appeared clearly in:
Bogg v Raper.
Facts
Trustees mismanaged trust assets so severely that losses reached nearly:
£8 million
within only two years.
The trust deed contained an exemption clause.
Issue
Did the solicitor drafting the trust deed owe duties regarding explanation of the exclusion clause?
Decision
The court held that the solicitor owed a duty to:
✅ explain the effect of the exclusion clause to the settlor.
However:
❌ independent legal advice was not required.
The trustees remained protected by the clause.
Importance of Bogg
The case demonstrates how exclusion clauses may shield trustees even after catastrophic financial losses.
It also confirms that trustees may insist upon exclusion clauses before agreeing to act.
Walker v Stones
A more claimant-friendly approach appeared in:
Walker v Stones.
Principle
The court interpreted dishonesty broadly and objectively.
For solicitor-trustees, it was insufficient merely to claim:
“I honestly believed I acted properly.”
The court considered whether no reasonable solicitor-trustee could honestly have believed the conduct benefited beneficiaries.
Result
The trustee could not rely upon the exclusion clause.
Importance
Walker v Stones reduced the ability of professional trustees to escape liability by claiming subjective honesty.
Barnsley v Noble
In Barnsley v Noble, the court adopted a more lenient approach toward:
✅ non-professional trustees.
Facts
The dispute concerned interpretation of a standard exemption clause in a will trust.
Decision
The Court of Appeal upheld the protection afforded by the clause.
Importance
The decision reflects judicial sympathy toward:
- lay trustees;
- honest trustees;
- and non-professional fiduciaries.
Trustee Act 2000
The Trustee Act 2000 did not abolish exclusion clauses.
In fact, Schedule 1 paragraph 7 confirms that the statutory duty of care under section 1 may be excluded where the trust instrument clearly indicates this intention.
Law Commission Debate
The Law Commission considered whether professional trustees should be prohibited from relying upon exclusion clauses.
However, concerns arose that:
- professionals would refuse to act as trustees;
- or trustee services would become prohibitively expensive.
Final Recommendation
The Law Commission ultimately recommended only that professional trustees should:
✅ take reasonable steps to ensure the settlor understands the exclusion clause.
This recommendation appeared in:
Law Commission Report No 301 (2006).
Policy Debate
Exclusion clauses remain controversial because they create tension between:
Protection of Trustees
Trust administration is complex and risky.
Trustees need protection to encourage people to act.
Protection of Beneficiaries
Beneficiaries may suffer severe losses without meaningful remedies if exclusion clauses are interpreted too broadly.
Professional v Lay Trustees
Courts often distinguish between:
- professional trustees;
and - ordinary lay trustees.
Professional Trustees
Expected to possess:
- expertise;
- experience;
- and higher standards of care.
Lay Trustees
Usually treated more sympathetically where they acted honestly and conscientiously.
Practical Protection for Trustees
Prudent trustees commonly seek:
- exclusion clauses;
- indemnity clauses;
- professional advice;
- insurance;
- and retirement before disputes arise.
Relationship With Remedies
Where exclusion clauses operate successfully:
❌ beneficiaries may lose personal remedies against trustees.
However, beneficiaries may still pursue:
- tracing;
- proprietary remedies;
- knowing recipients;
- dishonest assistants;
- or substitute assets,
Key SQE Principles
Exclusion clauses may validly exclude liability for:
✅ negligence;
✅ breaches of duty of care;
and possibly
✅ gross negligence.
However, they cannot exclude liability for:
❌ fraud;
❌ dishonesty;
❌ or core fiduciary obligations.
Courts apply stricter scrutiny to:
✅ professional trustees.
Conclusion
Exclusion clauses play a central role in modern trust administration by protecting trustees from personal liability arising from negligence and mistakes. While the courts generally permit broad exclusion clauses, they continue to prohibit protection against fraud, dishonesty, and breaches of core fiduciary obligations. The law seeks to balance fairness to beneficiaries with the practical need to encourage competent individuals and professionals to act as trustees. Modern cases demonstrate increasing judicial sensitivity toward the distinction between professional and lay trustees, while continuing debate reflects ongoing tension between trustee protection and beneficiary accountability.
Sources of Reference
Armitage v Nurse [1998] Ch 241 (CA).
Taylor v Midland Bank Trust Co Ltd (No 2) [2002] WTLR 95.
Walker v Stones [2001] QB 902 (CA).
Barnsley v Noble [2016] EWCA Civ 799.
Bogg v Raper (1998) The Times, 22 April.
Trustee Act 2000.
Law Commission, Trustee Exemption Clauses (Law Com No 301, 2006).
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, OUP 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, OUP 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).
- Published on
SQE – Equity and Trust – Ethical Investments and Trustees’ Investment Duties
Introduction
One of the most challenging issues in modern trust law concerns the extent to which trustees may take ethical, moral, social, religious, or environmental considerations into account when making investment decisions. The question arises because trustees owe fiduciary duties to beneficiaries and must manage trust assets in their best interests. However, settlors, beneficiaries, and trustees themselves may hold strong ethical views regarding particular industries or investment activities.
Examples include investments involving:
Although the Trustee Act 2000 modernised many aspects of trustee investment powers, it did not provide a definitive answer to this issue. Consequently, the principles governing ethical investments continue to be derived primarily from case law.
The General Duty to Act in Beneficiaries’ Best Interests
The starting point is the fundamental fiduciary duty requiring trustees to act in the best interests of the beneficiaries.
Traditionally, the courts have interpreted this duty as requiring trustees to act in the beneficiaries’ best financial interests.
Trustees are therefore expected to maximise returns and preserve trust assets, subject to the standard investment criteria and the statutory duty of care.
This principle reflects the idea that trust property belongs beneficially to the beneficiaries rather than to the trustees or settlor.
Consequently, trustees cannot ordinarily pursue personal objectives at the expense of beneficiaries’ financial interests.
Financial Interests as the Primary Consideration
The traditional approach emphasises that trustees must focus on financial outcomes rather than personal beliefs.
Trustees are not free to use trust assets to advance political, moral, religious, or social causes merely because they personally support them.
Their primary obligation remains the proper management of trust assets for the benefit of beneficiaries.
This principle was clearly demonstrated in the early authorities concerning trustee investment decisions.
Buttle v Saunders
The leading authority illustrating the duty to prioritise beneficiaries’ financial interests is Buttle v Saunders [1950] 2 All ER 193.
In this case, trustees agreed orally to sell trust land to a purchaser. Before formal contracts were signed, a higher offer was received from another buyer.
The trustees believed they were morally obliged to honour the original agreement and proceeded with the sale to the first purchaser despite the lower price.
The court held that the trustees had acted improperly.
Although their conduct may have been honourable, their overriding duty was to obtain the best financial outcome for the beneficiaries.
By accepting a lower offer, they had failed to maximise the value of the trust property and were therefore in breach of trust.
Significance of Buttle v Saunders
The decision demonstrates that trustees cannot allow personal moral considerations to override their fiduciary obligations.
The beneficiaries’ financial interests must take precedence over the trustees’ personal views of fairness, honour, or morality.
The case remains an important illustration of the principle that trustees must act objectively when managing trust assets.
Cowan v Scargill
The most significant authority concerning ethical investments is Cowan v Scargill [1985] Ch 270.
The case involved the trustees of the National Coal Board pension fund.
Certain trustees, representing the National Union of Mineworkers, objected to investments in overseas energy companies and competing fuel industries. Their objections were based largely upon political and industrial considerations.
The dispute concerned whether trustees could restrict investment opportunities because of their own beliefs about the desirability of particular investments.
Decision in Cowan v Scargill
Megarry VC held that the trustees could not pursue their personal views or political preferences at the expense of the beneficiaries’ financial interests.
The court stated that trustees must put aside their own opinions and concentrate upon securing the best financial return for beneficiaries.
According to Megarry VC, the duty of trustees is generally:
“to provide the greatest financial benefits for the present and future beneficiaries.”
The trustees were therefore not entitled to exclude potentially profitable investments merely because they personally disagreed with them.
Importance of Cowan v Scargill
Cowan v Scargill established what is often regarded as the orthodox position in trust law.
The decision suggests that trustees must maximise financial returns and cannot subordinate beneficiaries’ interests to political, ethical, religious, or social objectives.
For many years, the case was viewed as imposing a strict limitation upon ethical investment policies.
Criticism of the Traditional Approach
The strict approach adopted in Cowan v Scargill attracted criticism.
Many commentators argued that the decision failed to recognise modern investment realities.
Ethical investing increasingly became accepted as a legitimate investment strategy, and many ethical funds demonstrated competitive financial performance.
The growth of environmental, social, and governance (ESG) investing further challenged the assumption that ethical considerations necessarily conflict with financial returns.
These developments prompted the courts to adopt a more flexible approach.
Harries v Church Commissioners for England
A more nuanced approach emerged in Harries v Church Commissioners for England [1992] 1 WLR 1241.
The case concerned investments held by the Church Commissioners.
The Commissioners sought to avoid investments that conflicted with the ethical teachings and mission of the Church.
The court considered whether such restrictions were compatible with trustees’ fiduciary duties.
Decision in Harries
The court recognised that ethical considerations could legitimately influence investment decisions in certain circumstances.
Nicholls V-C accepted that trustees could pursue an ethical investment policy provided that doing so did not significantly prejudice the financial interests of beneficiaries.
The court observed that trustees often have numerous investment options available and that ethical investments may be equally profitable.
Where an ethical investment strategy produces returns comparable to alternative investments, trustees are not necessarily acting in breach of duty.
The Harries Principle
The key principle emerging from Harries is that trustees may take ethical considerations into account where:
Ethical Investments and the Trustee Act 2000
The Trustee Act 2000 does not expressly regulate ethical investments.
However, paragraph 23 of the Explanatory Notes acknowledges that ethical considerations may be relevant when trustees exercise investment powers.
The legislation therefore leaves the issue to be resolved through the general principles governing trustee investment decisions.
Trustees must continue to comply with:
Role of the Settlor’s Wishes
The safest way to incorporate ethical considerations into trust investment policy is through express provisions in the trust instrument.
A settlor may direct trustees to:
Letters of Wishes
In practice, settlors frequently express ethical preferences through a letter of wishes.
Although not legally binding, a letter of wishes provides guidance to trustees regarding the settlor’s intentions.
Professional trustees will often take such guidance into account, particularly where it can be followed without compromising beneficiaries’ financial interests.
Modern ESG Investing
Modern investment practice increasingly incorporates environmental, social, and governance (ESG) considerations.
Many investors now regard ESG factors as financially relevant rather than purely ethical concerns.
Issues such as:
Consequently, consideration of ESG factors may sometimes be required as part of prudent investment management rather than being viewed as a departure from trustees’ financial duties.
Case Study
Facts
A trust fund worth £15 million is administered for several beneficiaries.
The trustees wish to avoid investments in tobacco companies because the settlor strongly opposed smoking and expressed this preference in a detailed letter of wishes.
Professional investment advice confirms that a diversified portfolio excluding tobacco investments is likely to achieve returns comparable to the broader market.
Analysis
The trustees are not sacrificing financial performance.
The investment strategy remains prudent and financially sound.
The exclusion reflects the settlor’s wishes while maintaining the beneficiaries’ financial interests.
Applying Harries, the trustees would likely be entitled to adopt the proposed ethical investment policy.
Outcome
The ethical investment strategy would probably be lawful because the beneficiaries suffer no material financial disadvantage and the investments remain suitable and diversified.
Practical Guidance for Trustees
Before adopting an ethical investment strategy, trustees should:
Conclusion
The law governing ethical investments seeks to balance trustees’ fiduciary duties with modern ethical and social concerns. The traditional position established in Buttle v Saunders and Cowan v Scargill emphasised that trustees must prioritise beneficiaries’ financial interests and cannot pursue personal moral or political objectives at the expense of investment returns. However, Harries v Church Commissioners introduced a more flexible approach, recognising that ethical investment policies may be legitimate where they remain financially sound and do not significantly disadvantage beneficiaries. While the Trustee Act 2000 does not expressly resolve the issue, modern trust practice increasingly accepts ethical and ESG considerations as part of prudent investment management. Nevertheless, trustees must always ensure that their primary duty to act in the best interests of beneficiaries remains paramount.
References
Buttle v Saunders [1950] 2 All ER 193.
Cowan v Scargill [1985] Ch 270.
Harries v Church Commissioners for England [1992] 1 WLR 1241.
Trustee Act 2000, ss 1, 4 and 5.
Trustee Act 2000, Explanatory Notes, para 23.
Law Commission, Trustee Powers and Duties (Law Com No 260, 1999).
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, Oxford University Press 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, Oxford University Press 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).
Introduction
One of the most challenging issues in modern trust law concerns the extent to which trustees may take ethical, moral, social, religious, or environmental considerations into account when making investment decisions. The question arises because trustees owe fiduciary duties to beneficiaries and must manage trust assets in their best interests. However, settlors, beneficiaries, and trustees themselves may hold strong ethical views regarding particular industries or investment activities.
Examples include investments involving:
- tobacco companies;
- arms manufacturers;
- gambling businesses;
- fossil fuel industries;
- alcohol production;
- environmentally harmful activities.
Although the Trustee Act 2000 modernised many aspects of trustee investment powers, it did not provide a definitive answer to this issue. Consequently, the principles governing ethical investments continue to be derived primarily from case law.
The General Duty to Act in Beneficiaries’ Best Interests
The starting point is the fundamental fiduciary duty requiring trustees to act in the best interests of the beneficiaries.
Traditionally, the courts have interpreted this duty as requiring trustees to act in the beneficiaries’ best financial interests.
Trustees are therefore expected to maximise returns and preserve trust assets, subject to the standard investment criteria and the statutory duty of care.
This principle reflects the idea that trust property belongs beneficially to the beneficiaries rather than to the trustees or settlor.
Consequently, trustees cannot ordinarily pursue personal objectives at the expense of beneficiaries’ financial interests.
Financial Interests as the Primary Consideration
The traditional approach emphasises that trustees must focus on financial outcomes rather than personal beliefs.
Trustees are not free to use trust assets to advance political, moral, religious, or social causes merely because they personally support them.
Their primary obligation remains the proper management of trust assets for the benefit of beneficiaries.
This principle was clearly demonstrated in the early authorities concerning trustee investment decisions.
Buttle v Saunders
The leading authority illustrating the duty to prioritise beneficiaries’ financial interests is Buttle v Saunders [1950] 2 All ER 193.
In this case, trustees agreed orally to sell trust land to a purchaser. Before formal contracts were signed, a higher offer was received from another buyer.
The trustees believed they were morally obliged to honour the original agreement and proceeded with the sale to the first purchaser despite the lower price.
The court held that the trustees had acted improperly.
Although their conduct may have been honourable, their overriding duty was to obtain the best financial outcome for the beneficiaries.
By accepting a lower offer, they had failed to maximise the value of the trust property and were therefore in breach of trust.
Significance of Buttle v Saunders
The decision demonstrates that trustees cannot allow personal moral considerations to override their fiduciary obligations.
The beneficiaries’ financial interests must take precedence over the trustees’ personal views of fairness, honour, or morality.
The case remains an important illustration of the principle that trustees must act objectively when managing trust assets.
Cowan v Scargill
The most significant authority concerning ethical investments is Cowan v Scargill [1985] Ch 270.
The case involved the trustees of the National Coal Board pension fund.
Certain trustees, representing the National Union of Mineworkers, objected to investments in overseas energy companies and competing fuel industries. Their objections were based largely upon political and industrial considerations.
The dispute concerned whether trustees could restrict investment opportunities because of their own beliefs about the desirability of particular investments.
Decision in Cowan v Scargill
Megarry VC held that the trustees could not pursue their personal views or political preferences at the expense of the beneficiaries’ financial interests.
The court stated that trustees must put aside their own opinions and concentrate upon securing the best financial return for beneficiaries.
According to Megarry VC, the duty of trustees is generally:
“to provide the greatest financial benefits for the present and future beneficiaries.”
The trustees were therefore not entitled to exclude potentially profitable investments merely because they personally disagreed with them.
Importance of Cowan v Scargill
Cowan v Scargill established what is often regarded as the orthodox position in trust law.
The decision suggests that trustees must maximise financial returns and cannot subordinate beneficiaries’ interests to political, ethical, religious, or social objectives.
For many years, the case was viewed as imposing a strict limitation upon ethical investment policies.
Criticism of the Traditional Approach
The strict approach adopted in Cowan v Scargill attracted criticism.
Many commentators argued that the decision failed to recognise modern investment realities.
Ethical investing increasingly became accepted as a legitimate investment strategy, and many ethical funds demonstrated competitive financial performance.
The growth of environmental, social, and governance (ESG) investing further challenged the assumption that ethical considerations necessarily conflict with financial returns.
These developments prompted the courts to adopt a more flexible approach.
Harries v Church Commissioners for England
A more nuanced approach emerged in Harries v Church Commissioners for England [1992] 1 WLR 1241.
The case concerned investments held by the Church Commissioners.
The Commissioners sought to avoid investments that conflicted with the ethical teachings and mission of the Church.
The court considered whether such restrictions were compatible with trustees’ fiduciary duties.
Decision in Harries
The court recognised that ethical considerations could legitimately influence investment decisions in certain circumstances.
Nicholls V-C accepted that trustees could pursue an ethical investment policy provided that doing so did not significantly prejudice the financial interests of beneficiaries.
The court observed that trustees often have numerous investment options available and that ethical investments may be equally profitable.
Where an ethical investment strategy produces returns comparable to alternative investments, trustees are not necessarily acting in breach of duty.
The Harries Principle
The key principle emerging from Harries is that trustees may take ethical considerations into account where:
- The investment remains financially sound.
- Beneficiaries do not suffer significant financial disadvantage.
- The ethical policy is consistent with the purposes of the trust.
Ethical Investments and the Trustee Act 2000
The Trustee Act 2000 does not expressly regulate ethical investments.
However, paragraph 23 of the Explanatory Notes acknowledges that ethical considerations may be relevant when trustees exercise investment powers.
The legislation therefore leaves the issue to be resolved through the general principles governing trustee investment decisions.
Trustees must continue to comply with:
- the statutory duty of care (s 1);
- the standard investment criteria (s 4);
- the duty to obtain proper advice (s 5);
- their fiduciary duty to act in beneficiaries’ best interests.
Role of the Settlor’s Wishes
The safest way to incorporate ethical considerations into trust investment policy is through express provisions in the trust instrument.
A settlor may direct trustees to:
- avoid particular industries;
- retain certain investments;
- pursue socially responsible investments;
- follow religious investment principles.
Letters of Wishes
In practice, settlors frequently express ethical preferences through a letter of wishes.
Although not legally binding, a letter of wishes provides guidance to trustees regarding the settlor’s intentions.
Professional trustees will often take such guidance into account, particularly where it can be followed without compromising beneficiaries’ financial interests.
Modern ESG Investing
Modern investment practice increasingly incorporates environmental, social, and governance (ESG) considerations.
Many investors now regard ESG factors as financially relevant rather than purely ethical concerns.
Issues such as:
- climate change risks;
- corporate governance failures;
- labour practices;
- sustainability concerns;
Consequently, consideration of ESG factors may sometimes be required as part of prudent investment management rather than being viewed as a departure from trustees’ financial duties.
Case Study
Facts
A trust fund worth £15 million is administered for several beneficiaries.
The trustees wish to avoid investments in tobacco companies because the settlor strongly opposed smoking and expressed this preference in a detailed letter of wishes.
Professional investment advice confirms that a diversified portfolio excluding tobacco investments is likely to achieve returns comparable to the broader market.
Analysis
The trustees are not sacrificing financial performance.
The investment strategy remains prudent and financially sound.
The exclusion reflects the settlor’s wishes while maintaining the beneficiaries’ financial interests.
Applying Harries, the trustees would likely be entitled to adopt the proposed ethical investment policy.
Outcome
The ethical investment strategy would probably be lawful because the beneficiaries suffer no material financial disadvantage and the investments remain suitable and diversified.
Practical Guidance for Trustees
Before adopting an ethical investment strategy, trustees should:
- obtain professional investment advice;
- consider the standard investment criteria;
- assess potential financial consequences;
- review the trust deed;
- consider any letter of wishes;
- document their decision-making process carefully.
Conclusion
The law governing ethical investments seeks to balance trustees’ fiduciary duties with modern ethical and social concerns. The traditional position established in Buttle v Saunders and Cowan v Scargill emphasised that trustees must prioritise beneficiaries’ financial interests and cannot pursue personal moral or political objectives at the expense of investment returns. However, Harries v Church Commissioners introduced a more flexible approach, recognising that ethical investment policies may be legitimate where they remain financially sound and do not significantly disadvantage beneficiaries. While the Trustee Act 2000 does not expressly resolve the issue, modern trust practice increasingly accepts ethical and ESG considerations as part of prudent investment management. Nevertheless, trustees must always ensure that their primary duty to act in the best interests of beneficiaries remains paramount.
References
Buttle v Saunders [1950] 2 All ER 193.
Cowan v Scargill [1985] Ch 270.
Harries v Church Commissioners for England [1992] 1 WLR 1241.
Trustee Act 2000, ss 1, 4 and 5.
Trustee Act 2000, Explanatory Notes, para 23.
Law Commission, Trustee Powers and Duties (Law Com No 260, 1999).
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, Oxford University Press 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, Oxford University Press 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).
- Published on
SQE – Equity and Trust – The Trustee’s Duty to Take Advice Before Investing
Introduction
One of the most important responsibilities of trustees is the management and investment of trust assets. Modern trust funds frequently contain substantial investments, and poor investment decisions can significantly prejudice the interests of beneficiaries. Recognising the complexity of modern financial markets, the Trustee Act 2000 imposes a specific obligation on trustees to obtain and consider proper advice before exercising investment powers.
The duty to take advice forms part of the wider framework governing trustee investment decisions and complements the statutory duty of care under section 1 of the Trustee Act 2000 and the standard investment criteria contained in section 4. Together, these provisions seek to ensure that trustees make informed and prudent investment decisions in the best interests of beneficiaries.
The primary statutory authority governing this duty is section 5 of the Trustee Act 2000.
Statutory Basis
Section 5 of the Trustee Act 2000 provides that trustees must obtain and consider proper advice before exercising any power of investment.
The duty applies whenever trustees are making decisions regarding:
Relationship with the Standard Investment Criteria
The duty to obtain advice is closely linked to the standard investment criteria contained in section 4 of the Trustee Act 2000.
Before making investment decisions, trustees must consider:
Daniel v Tee
The importance of obtaining appropriate advice was reinforced in Daniel v Tee [2016] EWHC 1538 (Ch).
The court emphasised that trustees must have a coherent investment strategy and should obtain advice from suitably qualified individuals before making significant investment decisions.
The case also highlighted the importance of conducting regular reviews of investment performance and ensuring continued compliance with the statutory investment framework.
The decision demonstrates that obtaining advice is not a one-off exercise but forms part of an ongoing process of prudent trust management.
Exceptions to the Duty
The duty to obtain advice is not absolute.
Section 5(3) provides that trustees need not obtain advice where they reasonably conclude that, in all the circumstances, it is unnecessary or inappropriate to do so.
The key requirement is that the trustees’ conclusion must itself be reasonable.
Trustees who decide not to obtain advice must therefore be able to justify that decision objectively.
Situations Where Advice May Be Unnecessary
The Explanatory Notes to the Trustee Act 2000 provide examples of situations where obtaining advice may be unnecessary.
One example is where the trustees themselves possess sufficient expertise to make the decision without external assistance.
For instance, a trustee who is an experienced investment professional may already possess the necessary knowledge and practical experience.
However, trustees should be cautious before relying on their own expertise and should ensure that they genuinely possess the relevant specialist knowledge.
Example – Trustee with Investment Expertise
Suppose one trustee is a chartered financial analyst with twenty years of experience managing investment portfolios.
The trust wishes to invest a modest sum in a diversified portfolio of government bonds.
The trustees may reasonably conclude that external advice is unnecessary because the trustee already possesses sufficient expertise.
Provided this conclusion is reasonable, section 5(3) permits the trustees to proceed without obtaining independent advice.
Situations Where Advice May Be Inappropriate
The Explanatory Notes also recognise situations where obtaining advice may be inappropriate.
For example, where the value of the investment is very small, the cost of obtaining professional advice may be disproportionate to the value of the transaction itself.
In such circumstances, requiring formal advice could unnecessarily deplete the trust fund.
Trustees must nevertheless act prudently and document their reasons for proceeding without external advice.
Example – Small Investment Decision
A trust contains £5,000 of surplus cash that trustees wish to place in a low-risk savings account.
The cost of obtaining professional financial advice would exceed any likely benefit.
The trustees may reasonably conclude that obtaining advice would be disproportionate and unnecessary.
Their decision would likely fall within the exception provided by section 5(3).
Meaning of “Proper Advice”
Section 5(4) defines proper advice as:
“The advice of a person who is reasonably believed by the trustees to be qualified to give it by virtue of his ability in and practical experience of financial matters relating to the proposed investment.”
This definition focuses on practical expertise rather than formal qualifications alone.
The emphasis is on whether the adviser is reasonably believed to possess the necessary knowledge and experience.
No Requirement for Professional Qualifications
Interestingly, section 5(4) does not expressly require advisers to:
However, trustees must still act reasonably when selecting advisers, and professional qualifications may provide important evidence of competence.
Selecting the Appropriate Adviser
The nature of the proposed investment will often determine the type of adviser that should be consulted.
Different investments require different forms of expertise.
For example:
Example – Heritage Assets
A trust owns a valuable collection of rare paintings and is considering selling part of the collection.
The trustees seek advice from an internationally recognised art valuation specialist.
This would likely constitute proper advice because the adviser possesses practical experience and specialist knowledge relating to the assets in question.
Financial Services and Markets Act 2000
Although section 5 does not expressly require professional qualifications, trustees should also consider section 19 of the Financial Services and Markets Act 2000.
Section 19 generally provides that persons carrying on regulated investment activities must be authorised or exempt.
This requirement applies primarily to the adviser rather than to the trustees.
Nevertheless, prudent trustees would normally seek advice from an appropriately authorised individual where investment business is involved.
Doing so helps demonstrate compliance with both the statutory duty of care and the duty to act in beneficiaries’ best interests.
Relationship with the Duty of Care
The duty to obtain advice operates alongside the statutory duty of care contained in section 1 of the Trustee Act 2000.
Trustees must exercise reasonable care when:
Trustees must still exercise independent judgment.
Ongoing Investment Reviews
The obligation to act prudently does not end once an investment has been made.
Section 4 requires trustees to review investments periodically.
As emphasised in Daniel v Tee, trustees should regularly reassess:
Case Study
Facts
A trust worth £8 million holds a diversified investment portfolio.
The trustees wish to invest £2 million in a private technology company.
None of the trustees possesses specialist knowledge of venture capital investments.
The trustees seek advice from an experienced corporate finance adviser with extensive expertise in technology investments.
The adviser provides a detailed report assessing the risks and opportunities.
The trustees carefully consider the report before making their decision.
Analysis
The trustees have complied with section 5 by obtaining and considering proper advice.
The adviser possesses relevant practical experience and expertise.
The trustees have also fulfilled their duty of care by carefully evaluating the advice before proceeding.
Outcome
The trustees are likely to satisfy their statutory obligations even if the investment subsequently performs poorly, provided their decision-making process was reasonable and prudent.
Conclusion
The duty to obtain proper advice under section 5 of the Trustee Act 2000 is a fundamental component of modern trust investment law. It reflects Parliament’s recognition that investment decisions often require specialist expertise beyond the knowledge of many trustees. While trustees may dispense with advice where it is reasonably unnecessary or inappropriate, they must be able to justify that decision. Proper advice must come from a person reasonably believed to possess relevant expertise and practical experience, and trustees must continue to exercise independent judgment after receiving it. Together with the statutory duty of care and the standard investment criteria, the duty to take advice promotes prudent investment management and helps ensure that trust assets are administered in the best interests of beneficiaries.
References
Daniel v Tee [2016] EWHC 1538 (Ch).
Trustee Act 2000, ss 1, 4 and 5.
Financial Services and Markets Act 2000, s 19.
Law Commission, Trustee Powers and Duties (Law Com No 260, 1999).
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, Oxford University Press 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, Oxford University Press 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).
Introduction
One of the most important responsibilities of trustees is the management and investment of trust assets. Modern trust funds frequently contain substantial investments, and poor investment decisions can significantly prejudice the interests of beneficiaries. Recognising the complexity of modern financial markets, the Trustee Act 2000 imposes a specific obligation on trustees to obtain and consider proper advice before exercising investment powers.
The duty to take advice forms part of the wider framework governing trustee investment decisions and complements the statutory duty of care under section 1 of the Trustee Act 2000 and the standard investment criteria contained in section 4. Together, these provisions seek to ensure that trustees make informed and prudent investment decisions in the best interests of beneficiaries.
The primary statutory authority governing this duty is section 5 of the Trustee Act 2000.
Statutory Basis
Section 5 of the Trustee Act 2000 provides that trustees must obtain and consider proper advice before exercising any power of investment.
The duty applies whenever trustees are making decisions regarding:
- the acquisition of investments;
- the disposal of investments;
- investment strategy;
- portfolio restructuring;
- significant changes to trust assets.
Relationship with the Standard Investment Criteria
The duty to obtain advice is closely linked to the standard investment criteria contained in section 4 of the Trustee Act 2000.
Before making investment decisions, trustees must consider:
- The suitability of the proposed investment.
- The need for diversification of trust investments.
Daniel v Tee
The importance of obtaining appropriate advice was reinforced in Daniel v Tee [2016] EWHC 1538 (Ch).
The court emphasised that trustees must have a coherent investment strategy and should obtain advice from suitably qualified individuals before making significant investment decisions.
The case also highlighted the importance of conducting regular reviews of investment performance and ensuring continued compliance with the statutory investment framework.
The decision demonstrates that obtaining advice is not a one-off exercise but forms part of an ongoing process of prudent trust management.
Exceptions to the Duty
The duty to obtain advice is not absolute.
Section 5(3) provides that trustees need not obtain advice where they reasonably conclude that, in all the circumstances, it is unnecessary or inappropriate to do so.
The key requirement is that the trustees’ conclusion must itself be reasonable.
Trustees who decide not to obtain advice must therefore be able to justify that decision objectively.
Situations Where Advice May Be Unnecessary
The Explanatory Notes to the Trustee Act 2000 provide examples of situations where obtaining advice may be unnecessary.
One example is where the trustees themselves possess sufficient expertise to make the decision without external assistance.
For instance, a trustee who is an experienced investment professional may already possess the necessary knowledge and practical experience.
However, trustees should be cautious before relying on their own expertise and should ensure that they genuinely possess the relevant specialist knowledge.
Example – Trustee with Investment Expertise
Suppose one trustee is a chartered financial analyst with twenty years of experience managing investment portfolios.
The trust wishes to invest a modest sum in a diversified portfolio of government bonds.
The trustees may reasonably conclude that external advice is unnecessary because the trustee already possesses sufficient expertise.
Provided this conclusion is reasonable, section 5(3) permits the trustees to proceed without obtaining independent advice.
Situations Where Advice May Be Inappropriate
The Explanatory Notes also recognise situations where obtaining advice may be inappropriate.
For example, where the value of the investment is very small, the cost of obtaining professional advice may be disproportionate to the value of the transaction itself.
In such circumstances, requiring formal advice could unnecessarily deplete the trust fund.
Trustees must nevertheless act prudently and document their reasons for proceeding without external advice.
Example – Small Investment Decision
A trust contains £5,000 of surplus cash that trustees wish to place in a low-risk savings account.
The cost of obtaining professional financial advice would exceed any likely benefit.
The trustees may reasonably conclude that obtaining advice would be disproportionate and unnecessary.
Their decision would likely fall within the exception provided by section 5(3).
Meaning of “Proper Advice”
Section 5(4) defines proper advice as:
“The advice of a person who is reasonably believed by the trustees to be qualified to give it by virtue of his ability in and practical experience of financial matters relating to the proposed investment.”
This definition focuses on practical expertise rather than formal qualifications alone.
The emphasis is on whether the adviser is reasonably believed to possess the necessary knowledge and experience.
No Requirement for Professional Qualifications
Interestingly, section 5(4) does not expressly require advisers to:
- hold professional qualifications;
- belong to a professional body;
- act in the course of a business.
However, trustees must still act reasonably when selecting advisers, and professional qualifications may provide important evidence of competence.
Selecting the Appropriate Adviser
The nature of the proposed investment will often determine the type of adviser that should be consulted.
Different investments require different forms of expertise.
For example:
- land investments may require advice from a land agent or surveyor;
- works of art may require advice from auction houses or specialist valuers;
- heritage assets may require specialist conservation advice;
- stocks and shares may require advice from an investment manager or stockbroker.
Example – Heritage Assets
A trust owns a valuable collection of rare paintings and is considering selling part of the collection.
The trustees seek advice from an internationally recognised art valuation specialist.
This would likely constitute proper advice because the adviser possesses practical experience and specialist knowledge relating to the assets in question.
Financial Services and Markets Act 2000
Although section 5 does not expressly require professional qualifications, trustees should also consider section 19 of the Financial Services and Markets Act 2000.
Section 19 generally provides that persons carrying on regulated investment activities must be authorised or exempt.
This requirement applies primarily to the adviser rather than to the trustees.
Nevertheless, prudent trustees would normally seek advice from an appropriately authorised individual where investment business is involved.
Doing so helps demonstrate compliance with both the statutory duty of care and the duty to act in beneficiaries’ best interests.
Relationship with the Duty of Care
The duty to obtain advice operates alongside the statutory duty of care contained in section 1 of the Trustee Act 2000.
Trustees must exercise reasonable care when:
- deciding whether advice is required;
- selecting advisers;
- evaluating advice received;
- implementing recommendations.
Trustees must still exercise independent judgment.
Ongoing Investment Reviews
The obligation to act prudently does not end once an investment has been made.
Section 4 requires trustees to review investments periodically.
As emphasised in Daniel v Tee, trustees should regularly reassess:
- investment performance;
- changing market conditions;
- suitability of investments;
- diversification of the portfolio.
Case Study
Facts
A trust worth £8 million holds a diversified investment portfolio.
The trustees wish to invest £2 million in a private technology company.
None of the trustees possesses specialist knowledge of venture capital investments.
The trustees seek advice from an experienced corporate finance adviser with extensive expertise in technology investments.
The adviser provides a detailed report assessing the risks and opportunities.
The trustees carefully consider the report before making their decision.
Analysis
The trustees have complied with section 5 by obtaining and considering proper advice.
The adviser possesses relevant practical experience and expertise.
The trustees have also fulfilled their duty of care by carefully evaluating the advice before proceeding.
Outcome
The trustees are likely to satisfy their statutory obligations even if the investment subsequently performs poorly, provided their decision-making process was reasonable and prudent.
Conclusion
The duty to obtain proper advice under section 5 of the Trustee Act 2000 is a fundamental component of modern trust investment law. It reflects Parliament’s recognition that investment decisions often require specialist expertise beyond the knowledge of many trustees. While trustees may dispense with advice where it is reasonably unnecessary or inappropriate, they must be able to justify that decision. Proper advice must come from a person reasonably believed to possess relevant expertise and practical experience, and trustees must continue to exercise independent judgment after receiving it. Together with the statutory duty of care and the standard investment criteria, the duty to take advice promotes prudent investment management and helps ensure that trust assets are administered in the best interests of beneficiaries.
References
Daniel v Tee [2016] EWHC 1538 (Ch).
Trustee Act 2000, ss 1, 4 and 5.
Financial Services and Markets Act 2000, s 19.
Law Commission, Trustee Powers and Duties (Law Com No 260, 1999).
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, Oxford University Press 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, Oxford University Press 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).
- Published on
SQE – Equity and Trust – Individual Delegation by Trustees
Introduction
While the Trustee Act 2000 introduced extensive powers of collective delegation, trustees may also delegate their functions individually under a separate statutory mechanism. Individual delegation is governed by section 25 of the Trustee Act 1925, as amended by the Trustee Delegation Act 1999. Unlike collective delegation, which involves all trustees acting together to appoint an agent, individual delegation allows a single trustee to appoint another person to act on their behalf through a power of attorney.
This form of delegation is intended to address temporary situations where a trustee is unable to perform their duties personally. However, despite its practical utility, individual delegation carries a significant disadvantage because the trustee remains strictly liable for the acts and defaults of the appointed attorney. Consequently, it is generally used only where absolutely necessary.
Statutory Basis
Section 25 of the Trustee Act 1925 permits an individual trustee to delegate all of their trustee functions to another person by executing a power of attorney.
The provision was substantially modernised by the Trustee Delegation Act 1999, although it was not amended by the Trustee Act 2000.
The delegation operates by granting legal authority to another person, known as the attorney, to perform trustee functions on behalf of the delegating trustee.
The arrangement allows trust administration to continue uninterrupted during periods when the trustee is temporarily unavailable.
Duration of Delegation
A delegation under section 25 is temporary.
The maximum period for which the power of attorney may operate is 12 months.
After this period expires, the delegation automatically ceases unless a new power of attorney is executed in accordance with the statutory requirements.
The temporary nature of the power reflects Parliament’s intention that trustees should ordinarily perform their duties personally rather than permanently transferring responsibility to others.
Purpose of Individual Delegation
Individual delegation is designed to accommodate situations where a trustee is temporarily unable to participate in trust administration.
Common examples include:
Example – Trustee Hospitalisation
Suppose a trust is engaged in the sale of a valuable property requiring the signatures of all trustees.
One trustee is unexpectedly admitted to hospital and is unable to participate in the transaction for several months.
The trustee may execute a power of attorney under section 25 appointing another individual to act on their behalf.
The attorney can then sign documents and carry out trustee functions during the trustee’s absence.
This enables the transaction to proceed without delay.
Example – Temporary Overseas Travel
A trustee plans to spend six months abroad undertaking a work assignment.
During this period, the trust is expected to make several investment decisions and complete a property transaction.
Rather than disrupting trust administration, the trustee may delegate their functions through a power of attorney.
The attorney can then participate in trustee decision-making while the trustee remains overseas.
The Major Disadvantage – Strict Liability
The principal disadvantage of individual delegation is that the delegating trustee remains strictly liable for the acts and defaults of the attorney.
This is a much harsher rule than the position under collective delegation in the Trustee Act 2000.
Under section 25, liability arises regardless of whether the trustee acted reasonably when selecting the attorney.
The trustee cannot avoid responsibility simply by demonstrating that they exercised care in making the appointment.
Consequently, the trustee effectively bears the risk of any mistakes, negligence, or misconduct committed by the attorney.
Comparison with Collective Delegation
The distinction between individual and collective delegation is significant.
Under collective delegation governed by sections 11–23 of the Trustee Act 2000, trustees are not automatically liable for the acts of agents.
Instead, liability generally arises only if trustees fail to:
This makes individual delegation considerably less attractive.
Why Strict Liability Exists
The rationale for strict liability is that the delegation is made solely for the personal convenience or circumstances of the individual trustee.
Since the trustee voluntarily chooses to appoint an attorney to act in their place, it is considered appropriate that they bear the consequences of the attorney’s actions.
The beneficiaries should not suffer losses because a trustee chose to delegate responsibilities due to personal circumstances.
This approach reinforces the fundamental principle that trustees remain personally responsible for the administration of the trust.
Practical Consequences
Because of the strict liability imposed by section 25, trustees are generally reluctant to rely upon individual delegation.
A prudent trustee will carefully consider:
Long-Term Absence and Retirement
Where a trustee intends to be absent for an extended period, the use of a power of attorney may be inappropriate.
For example, if a trustee intends to:
This ensures that the trust is administered by individuals who are available to fulfil their responsibilities directly.
Continued reliance upon a temporary power of attorney in such circumstances may expose both the trust and the trustee to unnecessary risks.
Trustee Retirement as an Alternative
Retirement is often the preferred option where a trustee’s absence is likely to be prolonged.
Retirement allows a replacement trustee to be appointed and ensures that the trust benefits from active supervision and participation.
It also eliminates the strict liability risks associated with section 25 delegation.
For this reason, professional advisers frequently recommend retirement rather than long-term delegation where a trustee is unlikely to return to active administration.
Case Study
Facts
A trust owns several investment properties and is in the process of purchasing additional commercial premises.
One of the trustees is required to undergo major surgery and is expected to spend nine months recovering.
The trustee executes a power of attorney under section 25 appointing a trusted solicitor to act on their behalf.
During the recovery period, the solicitor negligently fails to complete essential due diligence, causing the trust to suffer substantial financial losses.
Analysis
The solicitor acted as the trustee’s attorney under section 25.
Although the trustee selected the solicitor carefully and acted reasonably, section 25 imposes strict liability for the attorney’s defaults.
The trustee remains responsible for the losses caused by the attorney.
Outcome
The beneficiaries may pursue the trustee for compensation arising from the attorney’s negligence. The trustee may then seek recovery from the attorney separately, but liability to the beneficiaries remains.
Practical Guidance for Trustees
Before using a section 25 power of attorney, trustees should:
Conclusion
Individual delegation under section 25 of the Trustee Act 1925 provides a useful mechanism for trustees who are temporarily unable to perform their duties. Through a power of attorney, a trustee may delegate all trustee functions for a period of up to 12 months. However, unlike collective delegation under the Trustee Act 2000, individual delegation carries the significant disadvantage of strict liability. The delegating trustee remains responsible for the acts and defaults of the attorney regardless of the care exercised in making the appointment. As a result, section 25 is generally regarded as a measure of last resort, appropriate only for temporary absences or emergencies. Where a trustee’s absence is likely to be long-term or permanent, retirement from the trusteeship is usually the preferable course of action.
References
Trustee Act 1925, s 25.
Trustee Delegation Act 1999.
Trustee Act 2000, ss 11–23.
Law Commission, Trustee Powers and Duties (Law Com No 260, 1999).
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, Oxford University Press 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, Oxford University Press 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).
Introduction
While the Trustee Act 2000 introduced extensive powers of collective delegation, trustees may also delegate their functions individually under a separate statutory mechanism. Individual delegation is governed by section 25 of the Trustee Act 1925, as amended by the Trustee Delegation Act 1999. Unlike collective delegation, which involves all trustees acting together to appoint an agent, individual delegation allows a single trustee to appoint another person to act on their behalf through a power of attorney.
This form of delegation is intended to address temporary situations where a trustee is unable to perform their duties personally. However, despite its practical utility, individual delegation carries a significant disadvantage because the trustee remains strictly liable for the acts and defaults of the appointed attorney. Consequently, it is generally used only where absolutely necessary.
Statutory Basis
Section 25 of the Trustee Act 1925 permits an individual trustee to delegate all of their trustee functions to another person by executing a power of attorney.
The provision was substantially modernised by the Trustee Delegation Act 1999, although it was not amended by the Trustee Act 2000.
The delegation operates by granting legal authority to another person, known as the attorney, to perform trustee functions on behalf of the delegating trustee.
The arrangement allows trust administration to continue uninterrupted during periods when the trustee is temporarily unavailable.
Duration of Delegation
A delegation under section 25 is temporary.
The maximum period for which the power of attorney may operate is 12 months.
After this period expires, the delegation automatically ceases unless a new power of attorney is executed in accordance with the statutory requirements.
The temporary nature of the power reflects Parliament’s intention that trustees should ordinarily perform their duties personally rather than permanently transferring responsibility to others.
Purpose of Individual Delegation
Individual delegation is designed to accommodate situations where a trustee is temporarily unable to participate in trust administration.
Common examples include:
- serious illness;
- hospitalisation;
- temporary incapacity;
- extended holidays;
- short-term overseas travel;
- family emergencies.
Example – Trustee Hospitalisation
Suppose a trust is engaged in the sale of a valuable property requiring the signatures of all trustees.
One trustee is unexpectedly admitted to hospital and is unable to participate in the transaction for several months.
The trustee may execute a power of attorney under section 25 appointing another individual to act on their behalf.
The attorney can then sign documents and carry out trustee functions during the trustee’s absence.
This enables the transaction to proceed without delay.
Example – Temporary Overseas Travel
A trustee plans to spend six months abroad undertaking a work assignment.
During this period, the trust is expected to make several investment decisions and complete a property transaction.
Rather than disrupting trust administration, the trustee may delegate their functions through a power of attorney.
The attorney can then participate in trustee decision-making while the trustee remains overseas.
The Major Disadvantage – Strict Liability
The principal disadvantage of individual delegation is that the delegating trustee remains strictly liable for the acts and defaults of the attorney.
This is a much harsher rule than the position under collective delegation in the Trustee Act 2000.
Under section 25, liability arises regardless of whether the trustee acted reasonably when selecting the attorney.
The trustee cannot avoid responsibility simply by demonstrating that they exercised care in making the appointment.
Consequently, the trustee effectively bears the risk of any mistakes, negligence, or misconduct committed by the attorney.
Comparison with Collective Delegation
The distinction between individual and collective delegation is significant.
Under collective delegation governed by sections 11–23 of the Trustee Act 2000, trustees are not automatically liable for the acts of agents.
Instead, liability generally arises only if trustees fail to:
- exercise reasonable care in selecting the agent;
- prepare appropriate policy statements;
- monitor the agent adequately.
This makes individual delegation considerably less attractive.
Why Strict Liability Exists
The rationale for strict liability is that the delegation is made solely for the personal convenience or circumstances of the individual trustee.
Since the trustee voluntarily chooses to appoint an attorney to act in their place, it is considered appropriate that they bear the consequences of the attorney’s actions.
The beneficiaries should not suffer losses because a trustee chose to delegate responsibilities due to personal circumstances.
This approach reinforces the fundamental principle that trustees remain personally responsible for the administration of the trust.
Practical Consequences
Because of the strict liability imposed by section 25, trustees are generally reluctant to rely upon individual delegation.
A prudent trustee will carefully consider:
- the reliability of the proposed attorney;
- the complexity of the trust administration;
- the duration of the delegation;
- alternative options available.
Long-Term Absence and Retirement
Where a trustee intends to be absent for an extended period, the use of a power of attorney may be inappropriate.
For example, if a trustee intends to:
- emigrate permanently;
- work abroad indefinitely;
- cease active involvement in trust administration;
This ensures that the trust is administered by individuals who are available to fulfil their responsibilities directly.
Continued reliance upon a temporary power of attorney in such circumstances may expose both the trust and the trustee to unnecessary risks.
Trustee Retirement as an Alternative
Retirement is often the preferred option where a trustee’s absence is likely to be prolonged.
Retirement allows a replacement trustee to be appointed and ensures that the trust benefits from active supervision and participation.
It also eliminates the strict liability risks associated with section 25 delegation.
For this reason, professional advisers frequently recommend retirement rather than long-term delegation where a trustee is unlikely to return to active administration.
Case Study
Facts
A trust owns several investment properties and is in the process of purchasing additional commercial premises.
One of the trustees is required to undergo major surgery and is expected to spend nine months recovering.
The trustee executes a power of attorney under section 25 appointing a trusted solicitor to act on their behalf.
During the recovery period, the solicitor negligently fails to complete essential due diligence, causing the trust to suffer substantial financial losses.
Analysis
The solicitor acted as the trustee’s attorney under section 25.
Although the trustee selected the solicitor carefully and acted reasonably, section 25 imposes strict liability for the attorney’s defaults.
The trustee remains responsible for the losses caused by the attorney.
Outcome
The beneficiaries may pursue the trustee for compensation arising from the attorney’s negligence. The trustee may then seek recovery from the attorney separately, but liability to the beneficiaries remains.
Practical Guidance for Trustees
Before using a section 25 power of attorney, trustees should:
- consider whether delegation is genuinely necessary;
- appoint a trustworthy and competent attorney;
- limit the duration of the delegation where possible;
- monitor the attorney’s activities;
- obtain professional advice regarding the risks involved.
Conclusion
Individual delegation under section 25 of the Trustee Act 1925 provides a useful mechanism for trustees who are temporarily unable to perform their duties. Through a power of attorney, a trustee may delegate all trustee functions for a period of up to 12 months. However, unlike collective delegation under the Trustee Act 2000, individual delegation carries the significant disadvantage of strict liability. The delegating trustee remains responsible for the acts and defaults of the attorney regardless of the care exercised in making the appointment. As a result, section 25 is generally regarded as a measure of last resort, appropriate only for temporary absences or emergencies. Where a trustee’s absence is likely to be long-term or permanent, retirement from the trusteeship is usually the preferable course of action.
References
Trustee Act 1925, s 25.
Trustee Delegation Act 1999.
Trustee Act 2000, ss 11–23.
Law Commission, Trustee Powers and Duties (Law Com No 260, 1999).
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, Oxford University Press 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, Oxford University Press 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).
- Published on
SQE – Equity and Trust – Collective Delegation by Trustees
Introduction
Modern trust administration often involves managing complex investments, businesses, real estate portfolios, and other specialised assets. Trustees may not always possess the expertise necessary to carry out every aspect of trust administration personally. Consequently, the law permits trustees to delegate certain functions to agents who possess the required knowledge, skills, or professional qualifications.
The power of collective delegation is one of the most significant reforms introduced by the Trustee Act 2000. Prior to the Act, trustees faced considerable restrictions on delegation, particularly in relation to discretionary and investment functions. The modern statutory framework now provides trustees with greater flexibility while simultaneously imposing duties designed to ensure that delegation is carried out responsibly.
The principal provisions governing collective delegation are found in sections 11–23 of the Trustee Act 2000.
⸻
Historical Position Before the Trustee Act 2000
Before the Trustee Act 2000, the delegation powers of trustees were extremely limited.
Section 23 of the Trustee Act 1925 permitted delegation of administrative functions only. Trustees were generally prohibited from delegating discretionary powers, including the crucial power to make investment decisions.
This restrictive approach was illustrated in Rowland v Witherden (1851) 3 Mac & G 568, where the courts emphasised that trustees were expected personally to exercise their fiduciary responsibilities.
As investment management became increasingly specialised during the twentieth century, these restrictions created practical difficulties for trustees.
The Law Commission criticised the old rules in its Report No 260, describing them as:
“A serious impediment to the administration of trusts.”
The Commission recognised that modern trusteeship frequently requires expertise that lay trustees may not possess.
⸻
Reform Under the Trustee Act 2000
The Trustee Act 2000 fundamentally reformed the law of delegation.
Section 11 now permits trustees of non-charitable trusts to delegate many of their functions to agents.
This reform acknowledges the reality that professional expertise is often necessary for the effective administration of trust assets.
Most importantly, trustees may now delegate investment functions to suitably qualified agents, a power that was previously unavailable under the default statutory rules.
⸻
Functions That May Be Delegated
Section 11(1) allows trustees to delegate a wide range of administrative and management functions.
Examples include:
The ability to delegate these functions enables trustees to obtain professional assistance where specialist knowledge is required.
⸻
Functions That Cannot Be Delegated
Despite the broad power granted by section 11, certain core trustee functions remain non-delegable.
Section 11(2) identifies functions that must continue to be exercised personally by the trustees.
These include:
These restrictions preserve the fundamental fiduciary responsibilities of trustees.
⸻
Delegation of Investment Functions
One of the most significant reforms introduced by the Trustee Act 2000 is the ability to delegate investment management.
Trustees are no longer expected to possess specialist investment expertise.
Instead, they may appoint professional investment managers to make investment decisions on behalf of the trust.
This reflects modern commercial reality and enables trust funds to be managed more effectively.
⸻
Who May Be Appointed as an Agent?
Section 12 of the Trustee Act 2000 specifies who may be appointed as an agent.
Trustees may appoint:
Consequently, if one trustee possesses specialist expertise, that trustee may act as the agent for the others.
However, a beneficiary may not be appointed as an agent.
This restriction helps prevent conflicts of interest and protects the integrity of trust administration.
⸻
Absence of Professional Qualification Requirements
Unlike the provisions relating to nominees and custodians, section 12 does not require agents to possess professional qualifications.
The statute does not state that an agent must:
However, trustees remain subject to the statutory duty of care when selecting agents.
Consequently, appointing an unsuitable individual could expose trustees to liability.
⸻
The Earlier Common Law Approach – Re Vickery
Before the Trustee Act 2000, guidance regarding the selection of agents came largely from Re Vickery [1931] 1 Ch 572.
The case established three key principles:
Under Re Vickery, trustees would only be liable for an agent’s actions where they were guilty of wilful default.
The Trustee Act 2000 replaced this relatively lenient approach with a more demanding statutory framework based upon reasonable care.
⸻
The Statutory Duty of Care
The general duty of care contained in section 1 of the Trustee Act 2000 applies to delegation decisions.
Trustees must exercise such care and skill as is reasonable in the circumstances when:
Professional trustees are expected to satisfy a higher standard because of their specialist expertise.
⸻
Asset Management Functions and Section 15
Special requirements apply when trustees delegate asset management functions.
Section 15 requires trustees to prepare a written policy statement for the agent.
The policy statement must provide guidance concerning:
The purpose of the statement is to ensure that the agent understands how trust assets should be managed.
⸻
Example of a Policy Statement
A trust may contain elderly beneficiaries who depend upon income distributions.
The trustees could prepare a policy statement instructing the investment manager to:
The agent must then manage the investments consistently with those instructions.
⸻
Duty to Review the Policy Statement
Section 22(2) requires trustees to review the policy statement regularly.
Trustees must:
The trustees cannot simply prepare the statement and then ignore the delegation arrangement.
Active supervision remains essential.
⸻
Monitoring the Agent
Trustees must also ensure that the agent complies with the policy statement.
Delegation does not permit trustees to abandon responsibility for trust administration.
They must monitor:
Failure to supervise adequately may constitute a breach of trust.
⸻
Liability for the Acts of Agents
One of the most important issues concerns trustee liability when an agent makes mistakes.
Unlike individual delegation under section 25 of the Trustee Act 1925, collective delegation under the Trustee Act 2000 does not impose strict liability.
Section 23 provides that trustees are not automatically liable for the acts or defaults of their agents.
This represents a significant protection for trustees.
⸻
When Trustees May Be Liable
Trustees may nevertheless incur liability where they fail to comply with their statutory duties.
Liability may arise where trustees:
The focus is therefore on the conduct of the trustees rather than the conduct of the agent.
⸻
Practical Importance of Policy Agreements
In practice, written policy agreements are essential.
For example, if trustees appoint an estate manager to administer a large rural estate, they should provide written guidance regarding:
Performance should then be reviewed regularly.
The same principle applies to investment management arrangements.
⸻
STEP Guidance
The Society of Trust and Estate Practitioners (STEP) provides guidance and model documents for trustees using delegation arrangements.
These materials assist trustees in preparing suitable policy statements and monitoring performance effectively.
The availability of such guidance reflects the increasing professionalism of modern trust administration.
⸻
Case Study
Facts
A trust worth £20 million contains a diversified investment portfolio.
The trustees lack investment expertise and appoint a professional investment management firm under section 11 of the Trustee Act 2000.
They prepare a detailed policy statement requiring moderate-risk investments and regular income generation for beneficiaries.
The trustees review investment reports quarterly.
Several years later, market conditions result in losses.
Analysis
The trustees exercised reasonable care when selecting the investment manager.
They complied with section 15 by preparing a policy statement and fulfilled their monitoring duties under section 22.
The losses resulted from market fluctuations rather than trustee misconduct.
Outcome
Under section 23, the trustees would not normally be liable because they complied with their statutory duties and exercised reasonable care throughout the delegation process.
⸻
Conclusion
The Trustee Act 2000 transformed the law governing delegation by trustees. Sections 11–23 now permit trustees to delegate a wide range of functions, including investment management, while preserving certain core fiduciary responsibilities that must remain with the trustees themselves. The reforms recognise the increasingly specialised nature of trust administration and enable trustees to obtain professional assistance where necessary. However, delegation does not eliminate trustee responsibility. Trustees remain subject to the statutory duty of care and must carefully select, instruct, and supervise their agents. Through the use of policy statements, ongoing monitoring, and regular review, trustees can delegate effectively while continuing to fulfil their fiduciary obligations.
⸻
References
Rowland v Witherden (1851) 3 Mac & G 568.
Re Vickery [1931] 1 Ch 572.
Trustee Act 1925, s 23.
Trustee Act 2000, ss 1, 11–23.
Law Commission, Trustee Powers and Duties (Law Com No 260, 1999).
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, Oxford University Press 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, Oxford University Press 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).
Introduction
Modern trust administration often involves managing complex investments, businesses, real estate portfolios, and other specialised assets. Trustees may not always possess the expertise necessary to carry out every aspect of trust administration personally. Consequently, the law permits trustees to delegate certain functions to agents who possess the required knowledge, skills, or professional qualifications.
The power of collective delegation is one of the most significant reforms introduced by the Trustee Act 2000. Prior to the Act, trustees faced considerable restrictions on delegation, particularly in relation to discretionary and investment functions. The modern statutory framework now provides trustees with greater flexibility while simultaneously imposing duties designed to ensure that delegation is carried out responsibly.
The principal provisions governing collective delegation are found in sections 11–23 of the Trustee Act 2000.
⸻
Historical Position Before the Trustee Act 2000
Before the Trustee Act 2000, the delegation powers of trustees were extremely limited.
Section 23 of the Trustee Act 1925 permitted delegation of administrative functions only. Trustees were generally prohibited from delegating discretionary powers, including the crucial power to make investment decisions.
This restrictive approach was illustrated in Rowland v Witherden (1851) 3 Mac & G 568, where the courts emphasised that trustees were expected personally to exercise their fiduciary responsibilities.
As investment management became increasingly specialised during the twentieth century, these restrictions created practical difficulties for trustees.
The Law Commission criticised the old rules in its Report No 260, describing them as:
“A serious impediment to the administration of trusts.”
The Commission recognised that modern trusteeship frequently requires expertise that lay trustees may not possess.
⸻
Reform Under the Trustee Act 2000
The Trustee Act 2000 fundamentally reformed the law of delegation.
Section 11 now permits trustees of non-charitable trusts to delegate many of their functions to agents.
This reform acknowledges the reality that professional expertise is often necessary for the effective administration of trust assets.
Most importantly, trustees may now delegate investment functions to suitably qualified agents, a power that was previously unavailable under the default statutory rules.
⸻
Functions That May Be Delegated
Section 11(1) allows trustees to delegate a wide range of administrative and management functions.
Examples include:
- investment management;
- management of trust property;
- acquisition of investments;
- disposal of trust assets;
- administrative functions;
- management of business interests held by the trust.
The ability to delegate these functions enables trustees to obtain professional assistance where specialist knowledge is required.
⸻
Functions That Cannot Be Delegated
Despite the broad power granted by section 11, certain core trustee functions remain non-delegable.
Section 11(2) identifies functions that must continue to be exercised personally by the trustees.
These include:
- decisions concerning the distribution of trust assets to beneficiaries;
- decisions regarding the appointment of new trustees;
- decisions relating to the delegation itself;
- certain powers specifically excluded by statute.
These restrictions preserve the fundamental fiduciary responsibilities of trustees.
⸻
Delegation of Investment Functions
One of the most significant reforms introduced by the Trustee Act 2000 is the ability to delegate investment management.
Trustees are no longer expected to possess specialist investment expertise.
Instead, they may appoint professional investment managers to make investment decisions on behalf of the trust.
This reflects modern commercial reality and enables trust funds to be managed more effectively.
⸻
Who May Be Appointed as an Agent?
Section 12 of the Trustee Act 2000 specifies who may be appointed as an agent.
Trustees may appoint:
- one or more third parties;
- one or more of their own number.
Consequently, if one trustee possesses specialist expertise, that trustee may act as the agent for the others.
However, a beneficiary may not be appointed as an agent.
This restriction helps prevent conflicts of interest and protects the integrity of trust administration.
⸻
Absence of Professional Qualification Requirements
Unlike the provisions relating to nominees and custodians, section 12 does not require agents to possess professional qualifications.
The statute does not state that an agent must:
- act in the course of a business;
- hold professional accreditation;
- possess specific expertise.
However, trustees remain subject to the statutory duty of care when selecting agents.
Consequently, appointing an unsuitable individual could expose trustees to liability.
⸻
The Earlier Common Law Approach – Re Vickery
Before the Trustee Act 2000, guidance regarding the selection of agents came largely from Re Vickery [1931] 1 Ch 572.
The case established three key principles:
- Trustees must act in good faith.
- Trustees must exercise their own discretion when selecting an agent.
- Agents should only be appointed to perform functions within the ordinary course of their business.
Under Re Vickery, trustees would only be liable for an agent’s actions where they were guilty of wilful default.
The Trustee Act 2000 replaced this relatively lenient approach with a more demanding statutory framework based upon reasonable care.
⸻
The Statutory Duty of Care
The general duty of care contained in section 1 of the Trustee Act 2000 applies to delegation decisions.
Trustees must exercise such care and skill as is reasonable in the circumstances when:
- selecting agents;
- negotiating delegation arrangements;
- supervising agents;
- reviewing delegated functions.
Professional trustees are expected to satisfy a higher standard because of their specialist expertise.
⸻
Asset Management Functions and Section 15
Special requirements apply when trustees delegate asset management functions.
Section 15 requires trustees to prepare a written policy statement for the agent.
The policy statement must provide guidance concerning:
- investment objectives;
- risk tolerance;
- income requirements;
- capital growth objectives;
- restrictions contained in the trust deed.
The purpose of the statement is to ensure that the agent understands how trust assets should be managed.
⸻
Example of a Policy Statement
A trust may contain elderly beneficiaries who depend upon income distributions.
The trustees could prepare a policy statement instructing the investment manager to:
- prioritise income generation;
- avoid highly speculative investments;
- maintain a diversified portfolio;
- preserve capital where possible.
The agent must then manage the investments consistently with those instructions.
⸻
Duty to Review the Policy Statement
Section 22(2) requires trustees to review the policy statement regularly.
Trustees must:
- monitor changing circumstances;
- revise objectives where necessary;
- replace outdated instructions.
The trustees cannot simply prepare the statement and then ignore the delegation arrangement.
Active supervision remains essential.
⸻
Monitoring the Agent
Trustees must also ensure that the agent complies with the policy statement.
Delegation does not permit trustees to abandon responsibility for trust administration.
They must monitor:
- investment performance;
- compliance with restrictions;
- adherence to trust objectives;
- the continuing suitability of the agent.
Failure to supervise adequately may constitute a breach of trust.
⸻
Liability for the Acts of Agents
One of the most important issues concerns trustee liability when an agent makes mistakes.
Unlike individual delegation under section 25 of the Trustee Act 1925, collective delegation under the Trustee Act 2000 does not impose strict liability.
Section 23 provides that trustees are not automatically liable for the acts or defaults of their agents.
This represents a significant protection for trustees.
⸻
When Trustees May Be Liable
Trustees may nevertheless incur liability where they fail to comply with their statutory duties.
Liability may arise where trustees:
- appoint an unsuitable agent;
- fail to exercise reasonable care during selection;
- fail to prepare an appropriate policy statement;
- neglect to monitor performance;
- ignore warning signs of misconduct or incompetence.
The focus is therefore on the conduct of the trustees rather than the conduct of the agent.
⸻
Practical Importance of Policy Agreements
In practice, written policy agreements are essential.
For example, if trustees appoint an estate manager to administer a large rural estate, they should provide written guidance regarding:
- maintenance responsibilities;
- expenditure limits;
- reporting requirements;
- strategic objectives.
Performance should then be reviewed regularly.
The same principle applies to investment management arrangements.
⸻
STEP Guidance
The Society of Trust and Estate Practitioners (STEP) provides guidance and model documents for trustees using delegation arrangements.
These materials assist trustees in preparing suitable policy statements and monitoring performance effectively.
The availability of such guidance reflects the increasing professionalism of modern trust administration.
⸻
Case Study
Facts
A trust worth £20 million contains a diversified investment portfolio.
The trustees lack investment expertise and appoint a professional investment management firm under section 11 of the Trustee Act 2000.
They prepare a detailed policy statement requiring moderate-risk investments and regular income generation for beneficiaries.
The trustees review investment reports quarterly.
Several years later, market conditions result in losses.
Analysis
The trustees exercised reasonable care when selecting the investment manager.
They complied with section 15 by preparing a policy statement and fulfilled their monitoring duties under section 22.
The losses resulted from market fluctuations rather than trustee misconduct.
Outcome
Under section 23, the trustees would not normally be liable because they complied with their statutory duties and exercised reasonable care throughout the delegation process.
⸻
Conclusion
The Trustee Act 2000 transformed the law governing delegation by trustees. Sections 11–23 now permit trustees to delegate a wide range of functions, including investment management, while preserving certain core fiduciary responsibilities that must remain with the trustees themselves. The reforms recognise the increasingly specialised nature of trust administration and enable trustees to obtain professional assistance where necessary. However, delegation does not eliminate trustee responsibility. Trustees remain subject to the statutory duty of care and must carefully select, instruct, and supervise their agents. Through the use of policy statements, ongoing monitoring, and regular review, trustees can delegate effectively while continuing to fulfil their fiduciary obligations.
⸻
References
Rowland v Witherden (1851) 3 Mac & G 568.
Re Vickery [1931] 1 Ch 572.
Trustee Act 1925, s 23.
Trustee Act 2000, ss 1, 11–23.
Law Commission, Trustee Powers and Duties (Law Com No 260, 1999).
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, Oxford University Press 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, Oxford University Press 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).
- Published on
SQE – Equity and Trust – Nominees and Custodians
Introduction
Modern trust administration frequently involves the management of complex investments and valuable assets. Trustees are ultimately responsible for safeguarding trust property, but practical considerations often make it necessary to involve third parties in the administration of the trust. Recognising this reality, the Trustee Act 2000 introduced specific powers enabling trustees to appoint nominees and custodians.
Sections 16 and 17 of the Trustee Act 2000 provide trustees with statutory authority to appoint nominees and custodians respectively. These provisions were introduced to facilitate the efficient management of trust assets while ensuring that trustees retain overall responsibility for the proper administration of the trust.
Although nominees and custodians perform different functions, both play an important role in modern trust management by assisting trustees in dealing with investments, documents, and valuable trust property.
The Appointment of Nominees
Statutory Authority
Section 16 of the Trustee Act 2000 permits trustees to appoint nominees.
Prior to the enactment of the Trustee Act 2000, trustees had more limited powers to allow third parties to hold legal title to trust assets. The introduction of section 16 modernised trust administration by recognising the widespread use of nominee arrangements in financial and investment markets.
Under this provision, trustees may appoint a nominee to hold legal title to trust assets on behalf of the trustees.
The beneficial ownership of the property remains unaffected and continues to belong to the trust.
What is a Nominee?
A nominee is a person or organisation that holds legal title to property on behalf of another person.
In the trust context, the nominee holds legal ownership of the asset while the trustees retain control and responsibility for its management.
The nominee has no beneficial interest in the asset and merely acts as a legal holder of title.
The arrangement allows transactions involving trust property to be carried out more efficiently.
Purpose of Using Nominees
The principal purpose of appointing a nominee is to facilitate the quick and efficient management of trust investments.
Financial markets often require rapid decision-making. If trustees were required personally to execute every transaction involving trust assets, administration could become cumbersome and inefficient.
By appointing a nominee, trustees enable transactions to occur without the need for constant formal transfers of legal title.
This is particularly important in relation to investment portfolios containing shares and securities.
Example – Nominee Shareholding
Suppose trustees manage a trust containing a large portfolio of shares.
Rather than registering every shareholding in the names of the trustees personally, the shares may be held through a nominee account operated by a stockbroker.
The nominee becomes the registered legal owner of the shares.
However, the trustees remain responsible for investment decisions and continue to hold the beneficial interest on behalf of the beneficiaries.
The arrangement enables shares to be bought and sold quickly without repeated changes to the register of ownership.
Nominee Accounts in Modern Practice
Nominee accounts are extremely common in modern investment management.
Most stockbrokers and investment platforms offer nominee services whereby investments are held electronically on behalf of clients.
The use of nominee accounts reduces administrative costs, simplifies transactions, and allows assets to be transferred efficiently.
For trustees managing substantial investment portfolios, nominee arrangements are often indispensable.
The Appointment of Custodians
Statutory Authority
Section 17 of the Trustee Act 2000 grants trustees the power to appoint custodians.
Like the nominee power, this provision was introduced as part of the broader modernisation of trustee powers under the 2000 Act.
The power recognises that trustees may require specialist assistance in safeguarding valuable trust assets.
What is a Custodian?
A custodian is a person or institution responsible for the safe keeping of trust property or documents relating to trust property.
Unlike a nominee, whose primary function is to hold legal title, a custodian’s primary role is the protection and preservation of assets.
Custodians do not usually exercise management powers over the assets entrusted to them.
Their function is essentially protective rather than administrative.
Purpose of Using Custodians
Trust property may include valuable items that require specialist storage, protection, or security arrangements.
Examples include:
The appointment of a professional custodian ensures that trust property is stored securely and preserved for the benefit of beneficiaries.
Example – Custody of Valuable Artwork
Suppose a trust owns a collection of valuable paintings worth several million pounds.
The trustees do not possess appropriate facilities for secure storage or climate-controlled preservation.
They appoint a specialist art storage company as custodian under section 17.
The custodian stores the artwork securely while the trustees retain responsibility for decisions concerning ownership, insurance, exhibition, or eventual sale.
This arrangement protects the trust property while preserving trustee control.
Solicitors as Custodians
Solicitors frequently act as custodians for clients.
Many law firms maintain secure facilities for the storage of:
Differences Between Nominees and Custodians
Although nominees and custodians are often discussed together, their functions differ significantly.
A nominee primarily holds legal title to trust assets and facilitates transactions involving those assets.
A custodian primarily safeguards assets and documents without necessarily holding legal ownership.
In practice, the same institution may perform both functions, particularly in the context of investment management.
However, the legal distinction remains important because different statutory provisions govern each role.
Restrictions Under Section 19
The powers to appoint nominees and custodians are subject to important statutory limitations.
Section 19 of the Trustee Act 2000 restricts the categories of persons who may be appointed.
Unlike agents under section 11, who may come from a wide range of backgrounds, nominees and custodians must generally be persons carrying on a business that includes acting as a nominee or custodian.
This restriction reflects the specialised nature of these functions.
The legislation seeks to ensure that individuals entrusted with holding or safeguarding trust property possess appropriate expertise and professional competence.
Contrast with Agents Under Section 11
The restrictions imposed by section 19 stand in marked contrast to the broad delegation powers available under section 11 of the Trustee Act 2000.
Under section 11, trustees may appoint a wide variety of agents to perform functions on their behalf, provided that delegation is appropriate.
By contrast, nominees and custodians perform specialised functions involving the direct holding or protection of trust assets.
Consequently, Parliament considered it necessary to impose stricter eligibility requirements.
Trustee Responsibility
The appointment of a nominee or custodian does not relieve trustees of their overall responsibilities.
Trustees must continue to exercise reasonable care when:
The appointment powers therefore provide flexibility but do not eliminate trustee accountability.
Case Study
Facts
A family trust owns a valuable collection of paintings, jewellery, and investment securities worth £15 million.
The trustees lack secure facilities for storing the artwork and do not wish to hold the securities directly.
The trustees appoint:
The appointments fall within the statutory powers provided by the Trustee Act 2000.
The custodian safeguards the artwork and jewellery, while the nominee holds legal title to the investment portfolio and facilitates transactions.
The trustees retain ultimate responsibility for overseeing both arrangements.
Outcome
The appointments are valid and represent prudent trust administration. The trust assets are protected while investment management can be conducted efficiently.
Conclusion
Sections 16 and 17 of the Trustee Act 2000 introduced important modern powers enabling trustees to appoint nominees and custodians. Nominees facilitate the efficient management of trust assets by holding legal title on behalf of trustees, while custodians provide secure storage and protection for valuable property and documents. These powers reflect the practical realities of contemporary trust administration and allow trustees to utilise specialist expertise where appropriate. However, trustees remain responsible for selecting suitable nominees and custodians and must continue to supervise their activities carefully. The restrictions imposed by section 19 further ensure that only appropriately qualified and experienced persons may undertake these important roles.
References
Trustee Act 2000, ss 16–19.
Law Commission, Trustee Powers and Duties (Law Com No 260, 1999).
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, Oxford University Press 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, Oxford University Press 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).
Introduction
Modern trust administration frequently involves the management of complex investments and valuable assets. Trustees are ultimately responsible for safeguarding trust property, but practical considerations often make it necessary to involve third parties in the administration of the trust. Recognising this reality, the Trustee Act 2000 introduced specific powers enabling trustees to appoint nominees and custodians.
Sections 16 and 17 of the Trustee Act 2000 provide trustees with statutory authority to appoint nominees and custodians respectively. These provisions were introduced to facilitate the efficient management of trust assets while ensuring that trustees retain overall responsibility for the proper administration of the trust.
Although nominees and custodians perform different functions, both play an important role in modern trust management by assisting trustees in dealing with investments, documents, and valuable trust property.
The Appointment of Nominees
Statutory Authority
Section 16 of the Trustee Act 2000 permits trustees to appoint nominees.
Prior to the enactment of the Trustee Act 2000, trustees had more limited powers to allow third parties to hold legal title to trust assets. The introduction of section 16 modernised trust administration by recognising the widespread use of nominee arrangements in financial and investment markets.
Under this provision, trustees may appoint a nominee to hold legal title to trust assets on behalf of the trustees.
The beneficial ownership of the property remains unaffected and continues to belong to the trust.
What is a Nominee?
A nominee is a person or organisation that holds legal title to property on behalf of another person.
In the trust context, the nominee holds legal ownership of the asset while the trustees retain control and responsibility for its management.
The nominee has no beneficial interest in the asset and merely acts as a legal holder of title.
The arrangement allows transactions involving trust property to be carried out more efficiently.
Purpose of Using Nominees
The principal purpose of appointing a nominee is to facilitate the quick and efficient management of trust investments.
Financial markets often require rapid decision-making. If trustees were required personally to execute every transaction involving trust assets, administration could become cumbersome and inefficient.
By appointing a nominee, trustees enable transactions to occur without the need for constant formal transfers of legal title.
This is particularly important in relation to investment portfolios containing shares and securities.
Example – Nominee Shareholding
Suppose trustees manage a trust containing a large portfolio of shares.
Rather than registering every shareholding in the names of the trustees personally, the shares may be held through a nominee account operated by a stockbroker.
The nominee becomes the registered legal owner of the shares.
However, the trustees remain responsible for investment decisions and continue to hold the beneficial interest on behalf of the beneficiaries.
The arrangement enables shares to be bought and sold quickly without repeated changes to the register of ownership.
Nominee Accounts in Modern Practice
Nominee accounts are extremely common in modern investment management.
Most stockbrokers and investment platforms offer nominee services whereby investments are held electronically on behalf of clients.
The use of nominee accounts reduces administrative costs, simplifies transactions, and allows assets to be transferred efficiently.
For trustees managing substantial investment portfolios, nominee arrangements are often indispensable.
The Appointment of Custodians
Statutory Authority
Section 17 of the Trustee Act 2000 grants trustees the power to appoint custodians.
Like the nominee power, this provision was introduced as part of the broader modernisation of trustee powers under the 2000 Act.
The power recognises that trustees may require specialist assistance in safeguarding valuable trust assets.
What is a Custodian?
A custodian is a person or institution responsible for the safe keeping of trust property or documents relating to trust property.
Unlike a nominee, whose primary function is to hold legal title, a custodian’s primary role is the protection and preservation of assets.
Custodians do not usually exercise management powers over the assets entrusted to them.
Their function is essentially protective rather than administrative.
Purpose of Using Custodians
Trust property may include valuable items that require specialist storage, protection, or security arrangements.
Examples include:
- jewellery;
- works of art;
- antiques;
- title deeds;
- share certificates;
- important legal documents;
- family heirlooms.
The appointment of a professional custodian ensures that trust property is stored securely and preserved for the benefit of beneficiaries.
Example – Custody of Valuable Artwork
Suppose a trust owns a collection of valuable paintings worth several million pounds.
The trustees do not possess appropriate facilities for secure storage or climate-controlled preservation.
They appoint a specialist art storage company as custodian under section 17.
The custodian stores the artwork securely while the trustees retain responsibility for decisions concerning ownership, insurance, exhibition, or eventual sale.
This arrangement protects the trust property while preserving trustee control.
Solicitors as Custodians
Solicitors frequently act as custodians for clients.
Many law firms maintain secure facilities for the storage of:
- wills;
- trust deeds;
- share certificates;
- title deeds;
- jewellery;
- valuable documents.
Differences Between Nominees and Custodians
Although nominees and custodians are often discussed together, their functions differ significantly.
A nominee primarily holds legal title to trust assets and facilitates transactions involving those assets.
A custodian primarily safeguards assets and documents without necessarily holding legal ownership.
In practice, the same institution may perform both functions, particularly in the context of investment management.
However, the legal distinction remains important because different statutory provisions govern each role.
Restrictions Under Section 19
The powers to appoint nominees and custodians are subject to important statutory limitations.
Section 19 of the Trustee Act 2000 restricts the categories of persons who may be appointed.
Unlike agents under section 11, who may come from a wide range of backgrounds, nominees and custodians must generally be persons carrying on a business that includes acting as a nominee or custodian.
This restriction reflects the specialised nature of these functions.
The legislation seeks to ensure that individuals entrusted with holding or safeguarding trust property possess appropriate expertise and professional competence.
Contrast with Agents Under Section 11
The restrictions imposed by section 19 stand in marked contrast to the broad delegation powers available under section 11 of the Trustee Act 2000.
Under section 11, trustees may appoint a wide variety of agents to perform functions on their behalf, provided that delegation is appropriate.
By contrast, nominees and custodians perform specialised functions involving the direct holding or protection of trust assets.
Consequently, Parliament considered it necessary to impose stricter eligibility requirements.
Trustee Responsibility
The appointment of a nominee or custodian does not relieve trustees of their overall responsibilities.
Trustees must continue to exercise reasonable care when:
- selecting nominees and custodians;
- reviewing their performance;
- monitoring the arrangements;
- protecting trust property.
The appointment powers therefore provide flexibility but do not eliminate trustee accountability.
Case Study
Facts
A family trust owns a valuable collection of paintings, jewellery, and investment securities worth £15 million.
The trustees lack secure facilities for storing the artwork and do not wish to hold the securities directly.
The trustees appoint:
- a specialist art storage company as custodian under section 17; and
- an investment platform operating nominee accounts under section 16.
The appointments fall within the statutory powers provided by the Trustee Act 2000.
The custodian safeguards the artwork and jewellery, while the nominee holds legal title to the investment portfolio and facilitates transactions.
The trustees retain ultimate responsibility for overseeing both arrangements.
Outcome
The appointments are valid and represent prudent trust administration. The trust assets are protected while investment management can be conducted efficiently.
Conclusion
Sections 16 and 17 of the Trustee Act 2000 introduced important modern powers enabling trustees to appoint nominees and custodians. Nominees facilitate the efficient management of trust assets by holding legal title on behalf of trustees, while custodians provide secure storage and protection for valuable property and documents. These powers reflect the practical realities of contemporary trust administration and allow trustees to utilise specialist expertise where appropriate. However, trustees remain responsible for selecting suitable nominees and custodians and must continue to supervise their activities carefully. The restrictions imposed by section 19 further ensure that only appropriately qualified and experienced persons may undertake these important roles.
References
Trustee Act 2000, ss 16–19.
Law Commission, Trustee Powers and Duties (Law Com No 260, 1999).
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, Oxford University Press 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, Oxford University Press 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).