Valerie Lee died in a road traffic accident. Her will established a discretionary trust over all her assets. The partners in the firm of solicitors (Tanners) who advised her and drafted her will were appointed trustees.
The estate was worth in excess of £900,000.
The potential beneficiaries included Valerie's daughter, Felicity, Felicity's husband and children, and Valerie's cleaner. The trustees were also granted the power to add to the class of beneficiaries at their discretion. Valerie left a letter of wishes requesting that the trustees should consider giving 5 per cent of the estate to another daughter of the deceased (Deryn).
The trustees exercised their power of appointment and added Deryn to the discretionary class. Subsequently, distributions were made to the beneficiaries, including Deryn, following the deceased's letter of wishes.
There had been 'tensions' within the family and the trustees were aware of these and accordingly were reluctant to disclose information as to the running of the trust. Felicity was unhappy with this and instructed lawyers to try to get the desired information.
The trustees sought counsel's opinion, which supported their view, but following ongoing correspondence with Felicity's advisers took further opinion, which advised disclosure. Beneficiaries have a right to know how the trust is being administered – the trust has a duty to account to the beneficiaries as to how the fund is administered and distributed.
In the meantime, Felicity launched a High Court action to get the information she desired.
Her claim was essentially for disclosure of information from the defendants. The claim sought:
- An order that the First Defendant provide to the Claimant a full inventory of the estate of the [testatrix] (“the Estate”) and a full account of his dealings with the Estate, including a breakdown of all charges made to the Estate by him and by Tanners Solicitors LLP.
- If and to the extent that it may be necessary, an order requiring the Defendants as trustees of the trust created by the will of [the testatrix] (“the Will Trust”):
(a) to obtain from the First Defendant in his capacity as sole personal representative of the Estate the information identified at 1 above; and
(b) to disclose the same to the Claimant.
- An order that the Defendants as trustees of the Will trust provide to the Claimant full details of:
(a) the assets comprised in the Will Trust on its creation;
(b) their dealings with such assets;
(c) the assets currently comprised in the Will Trust; and
(d) a breakdown of all charges made to the Will Trust by them and by Tanners Solicitors LLP.
- Such further or other relief as the Court thinks just.
- An order that the Defendants pay the Claimant's costs of these proceedings and their own costs personally without recourse to the assets of the Estate or the Will Trust.
As the trustees had – albeit belatedly – disclosed the information, the only issue was who was to pay for the legal costs incurred by the trustees – the trustees personally or the trust fund?
Felicity suggested that the trustees were personally responsible but the trustees (not unnaturally) argued that the costs should be met from the trust fund.
The High Court concluded that the legal costs were obtained for the benefit of the trust and not for the trustees personally. They were trust documents and thus available to the beneficiaries. It followed that the costs should be charged to the trust fund.
Although the trustees had breached their duty to account to a beneficiary by refusing initially to disclose the documents, no loss had been suffered.
This case highlights some of the burdens of being a trustee. Although trustees are often given very wide discretionary powers, they must always act in the interests of all the beneficiaries and must account for their actions. Trustees can take specialist advice (as in this case) and, if such advice is for the benefit of the trust (and thus the beneficiaries), it can be properly charged to the trust fund.
Blades v Isaac & Alexander  EWHC 601 (Ch)
Glyn and Amy Daniel were left £3.4m in trust by their father, Jack Daniel. Jack's will was drafted by his solicitors and they appointed two partners as executors of the estate and trustees of the will trust.
Following Jack's death (in 1999), the trustees sold his business and invested the proceeds.
The trustees had expertise in investment management and, in determining the initial investment of the trust funds, they consulted investment advisers.
The investments were made at the height of the 'dot-com boom'. The portfolio selected by the trustees was heavily invested in equities and fell significantly in value when the stockmarket fell.
The beneficiaries sued the trustees for breach of trust. The basis of their claim was that the trustees had not invested in a properly diversified portfolio that matched the objectives and risk profile of the trust. Their claim was in the sum of £1.44m being the difference in 'end value' had a portfolio been constructed with less equity content. This claim was supported by expert evidence.
The trustees denied that any breach of trust that could have been established caused the claimed loss. Alternatively, they claimed that they acted honestly and reasonably, and ought to be excused from the breach of trust in accordance with the provisions of Trustee Act 1925 section 61.
In a very long judgment (stretching to 202 paragraphs), the High Court found for the trustees.
“I can readily understand the Claimants' disappointment and concern about the losses which were occasioned in 2000 and 2001. I also accept a number of the criticisms which have been made about… the trustees, some of which are reflected in Mr Barton's [the expert] report. Among other things, they should have devised a realistic investment strategy at the outset, they should have conducted periodic reviews which specifically considered whether their investment strategy was still appropriate for the Trust's attitude to risk, and in focusing on equities to the exclusion of other forms of investment and in holding the assets of the Trust in cash – in each case to the extent that they did and for as long as they did – they adopted an approach which was less balanced and diversified than I consider many trustees would have thought appropriate.”
The trustees were also criticised for holding too high a proportion of the fund in cash and gilts.
“On the other hand: the claim is based on assessing the performance of the investments which the trustees made over a relatively short period of time, whereas they were investing for a longer period over which they could reasonably have expected a negation of short-term volatility in share prices and a recovery from short-term falls in share prices; they were investing when, in terms of recent history, investing in shares had produced good results over time; they relied on professional advice, which was provided on apparently sensible and rational grounds, and which they did not follow unthinkingly; and, while holding so much in cash may seem unenterprising, it appears to me that funds in both of the sectors mentioned by the experts as appropriate comparators contemplate that a large percentage of assets may be held in cash, and it is unclear whether the risks and rewards of holding what was held in cash in other investments (e.g. gilts and bonds) was such that any prudent trustee would have converted cash into such investments, and, if so, with what benefits for the trust.”
“Accordingly, although for different reasons on the different facts of the present case, I have come to the same conclusion as was reached in Nestle: the claimants have established some breaches of duty, in particular in the early stages of the material period, but have failed to prove that they suffered loss as a result of those breaches.”
The judge also said that, even if he were wrong in the above ruling, he would have chosen to exercise his powers to relieve the trustees from personal liability under s61 of the Trustee Act 1925, which states:
“If it appears to the court that a trustee, whether appointed by the court or otherwise, is or may be personally liable for any breach of trust, whether the transaction alleged to be a breach of trust occurred before or after the commencement of this Act, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the court in the matter in which he committed such breach, then the court may relieve him either wholly or partly from personal liability for the same.”
The key principle that emerges from this case is that it's not sufficient to establish that trustees were in breach of their duties. In order to successfully claim redress from the trustees, it must be shown that the breach caused a loss. If the trustees have acted “honestly and reasonably” they may “escape” liability if the court exercises its powers under Trustee Act 1925 s61.
Daniel v Tee  EWHC 1538 (Ch)