The Gazette 1996

GAZETTE

Trustee (Authorised Investments Act) 1958. Section 1 of the 1958 Act specifies what are the "authorised investments". Presently the list of authorised investments is somewhat limited. This Act is being redrafted at present and a draft version of same has been sent to various bodies for comments. A trustee is obliged to keep clear and accurate accounts of the trust property. These accounts need not be audited (unless the trust instrument specifically provides for this) but in very complex trusts it would be advisable to have the accounts audited. On the face of it this duty does not appear inordinately onerous until one considers this duty in the context of the life of a trust, its management and administration and the duty to provide records to the beneficiaries. Many trusts can exist for over 50 years. During that time they may be administered in different locations depending on the administration centre of the trustees. There will, over 50 years, probably be various manual bookeeping procedures and possibly different computer systems as well. The challenge of retrieving financial information accurately throughout all of this period can be daunting at times. The trustee must invest substantial resources in this area to provide the appropriate information or expose himself to serious risk. The rights of beneficiaries to information, (even beneficiaries under discretionary trusts) is well established in Ireland and was dealt with in Chaine-Nickson v Bank of Ireland [1976] IR153. It was argued in this case that none of the potential beneficiaries of a discretionary trust were entitled as of DU TY TO A C C O U NT A ND P ROV I DE R E COR DS

right to any information relating to the management of the trust. Kenny J pointed out the logical result of this argument was that the trustees were not under an obligation to account to anyone in relation to their actions, a proposition he could not accept. (It should be noted, however, that beneficiaries are not entitled to information surrounding the exercise by the trustee of its power of appointment under a discretionary trust - re. Londonderry Settlement [1965] Ch918].) The standard of care and prudence which must be employed by a trustee in exercising his powers of investment has been considered by the courts on numerous occasions. The question of what could be considered investments with a speculative nature and those which are absolutely hazardous has frequently been debated. "businessmen of ordinary prudence may and frequently do select investments which are more or less speculative in character but it is the duty of the trustee to confine himself to the class of investment which are permitted by the trust and likewise to avoid all investments of that class which are attended with hazard." undertake speculative investment? It should be noted that this dictum is over a 100 years old and in the light of some of the statements in Nestle v National Westminster Bank Pic [1933] 1AER. it could certainly be argued that some speculative investment e.g. hedging and support of an overall portfolio policy would be perfectly acceptable today. Do these passages mean that it is never possible for a trustee to 4. S HO U LD TRU S T E ES A LWA YS BE R I SK AVER S E? S P E CUL AT I VE V HA Z A R DOUS I NV E S TME NT D E B A TE In Learoid v Whitley 1886 33 CHD 347 Lord Watson in the House of Lords stated that

Dillon LJ said at Page 126 in the Nestlé case:

"Trustees should not be reckless with trust money but what a prudent man should do at any time depends on the economic and financial conditions at that time - not on what judges of the past, however eminent, held to be prudent in the conditions of 50 or 100 years before." The distinction between a prudent degree of risk on the one hand and a hazard on the other was also considered in Bartlett v Barclays Bank Trust Company [1980] 1AER 139 and Brightman J put the boundary between the prudence and hazardous speculation thus: "the distinction is between a prudent degree of risk on the one hand and the hazard on the other. Nor must court be astute to fix liability on a trustee who has committed no more than an error of judgment from which no business man however prudent can expect to be immune... The facts in Bartlett involved a settlement with a holding of 98.8% shares in a private company that was a family business. The trustee was not represented on the board of directors. The company entered into two property developments which were hazardous speculations. There was a large loss on one of these. The board of directors did not provide information to the trustee and the trustee did not ask for any information, the trustee said that it had relied on the standing board of directors and accordingly it should be excused. The court in the Bartlett case drew a distinction between the standard of care owed by professional trustees and that owed by lay trustees. Brightman J also said in relation to the standard of care due from a professional trustee In the Nestle case the responsibility of a professional trustee was again considered.

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