358 / 448
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.
DU TY TO A C C O U NT A ND
P ROV I DE R E COR DS
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
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].)
4. S HO U LD TRU S T E ES A LWA YS
BE R I SK AVER S E?
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.
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
"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."
Do these passages mean that it is
never possible for a trustee to
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.
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.
342