Breach of trust
The judge accepted the claimants’ arguments that there had been breaches of trust in that the trustees had failed to:
- devise a realistic investment strategy for the trust at the outset;
- conduct periodic reviews which specifically considered whether the investment strategy remained appropriate to the trust's attitude to risk; and
- adopt a well-balanced and diversified approach to the trust's investments, focusing too heavily on equities and cash, to the exclusion of other forms of investment.
However, although the claimants had established some breaches of duty, they failed to prove that they suffered loss as a result of those breaches.
The judge held that although there had been some breaches of trust, the claimants had failed to prove that any such breaches resulted in them suffering any loss. Liability for losses would not be established unless the breach of duty resulted in investment choices which were imprudent, and then only to the extent to which those choices proved more disadvantageous than choices following a more appropriate investment strategy would have been.
The case had involved a series of investment decisions in relation to a “growth portfolio” made over a number of years. The judge found that the result would not have been very different if the trustees had made alternative investment decisions. Even when the stock market began to fall, it had not necessarily been an error by the trustees to continue to invest in equities to try to make good the losses, taking into account the economic and financial conditions prevailing at the time.
In determining whether there had been a breach, the judge asked himself whether each investment decision concerned was one which no trustee, complying with the duty to act prudently, could reasonably have made in the circumstances.
The decision to opt for a growth portfolio recommended by Taylor Young, and comprising 80 per cent or 85 per cent equities, had to be viewed in the context of the economic conditions and perception of the markets which were applicable at the time. While the trustees may have been at fault in believing that investment in Taylor Young’s “growth portfolio” was in keeping with the realistic risk strategy of the trust, the judge was not persuaded that “no reasonable trustee, acting with appropriate prudence”, could reasonably have decided to invest the trust assets to the same extent in IT, telecom and technology companies at the time.
The claimants alleged that the trustees acted in breach of the equitable duty of skill and care, and that any impermissible delegation which occurred was an aspect of that breach. However, the Court found that none of the trustees’ dealings with the assets of the trust had been unauthorised. On the contrary, the trustees were found to have adopted an approach which they believed to be permissible and in the best interests of the trust, both regarding the involvement of their fellow private client partner whom they considered better qualified to deal with investment decisions, and in following the advice of Taylor Young. There had been no “blanket delegation” by the trustees of their duties to the private client partner, and he in turn did not delegate all investment decision-making to Taylor Young. The judge considered there had been no contravention by the trustees of the prohibitions on delegating fiduciary discretions.
In the event that decision was incorrect, the judge considered he was able to relieve the trustees from personal liability under the provisions of section 61 of the Trustee Act 1925. Although the fact that the trustees had been paid for their services was a “weighty factor” against such relief being granted, having regard to all the circumstances of the case, the trustees had not been “cavalier, self-interested or unthinking”. On the contrary, the judge found that they had worked hard and consistently over a long period of time, to the best of their abilities and in reliance on what they reasonably believed to be the competent advice of Taylor Young, to achieve the best results for the trust. Their sincere intention was to their advantage.