Daniel & Ors v Tee & Ors

Trustees may rely on properly obtained advice from independent investment advisers, but they must exercise their own judgment, formulate a suitable strategy, diversify appropriately and review the portfolio periodically. Breach requires more than criticism of the trustees’ process. The investment decisions must have been imprudent and caused loss.

The appropriate standard is whether the decision was one which no reasonable trustee, acting prudently, could have made, assessed in the economic circumstances known at the time. Equitable compensation aims to make good loss actually caused by the breach. Where particular investments are challenged, loss ordinarily requires comparison with the prudent alternatives. A claim based on impermissible delegation also fails where the alleged delegation caused no different loss.

The claimants, beneficiaries of a will trust, claimed compensation for alleged breaches of trust by three professional solicitor trustees. Between 2000 and 2002 the trustees invested trust funds on advice from Taylor Young Investment Management Limited. The claimants alleged that the trustees adopted an unsuitable risk strategy, failed to diversify and review the portfolio, and impermissibly delegated investment decisions.

The defendants denied breach, causation and loss. They also relied on section 61 of the Trustee Act 1925. The central issues were whether the trustees’ investment decisions fell below the applicable standard, whether any breach caused recoverable loss, and whether reliance on investment advisers involved impermissible delegation.

1. Claim dismissed. Judgment was entered for the defendants.

2. Trustees must act prudently. The relevant question for an investment decision was whether it was something which no reasonable trustee, complying with the duty of prudence, could reasonably have done. The assessment had to reflect the economic and financial conditions at the time, the trust’s objectives and risk profile, and the portfolio as a whole.

3. The trustees were criticised for failing initially to devise a realistic investment strategy, for inadequate periodic reviews and for adopting an insufficiently balanced approach. However, those shortcomings did not establish liability unless they resulted in imprudent investment choices and caused loss. The court found that the individual investment decisions were not shown to be ones which no reasonable trustee could have made.

4. Trustees may seek and rely on specialist advice, but must not do so blindly. The trustees retained responsibility for exercising judgment. On the facts, reliance on Taylor Young was not blind, and the trustees’ approach was consistent with a reasonable reliance on apparently competent professional advice.

5. Equitable compensation is directed to loss actually caused by the breach. Where particular investments are challenged, the claimant ordinarily must prove the loss attributable to each decision by comparison with the prudent alternative. A proxy portfolio or index may be appropriate where a radical failure of investment policy has plainly caused loss, but that was not established here.

6. The claim based on delegation also failed. The trustees retained supervision and control over the overall strategy and did not delegate all investment decision-making to Mr Tee or Taylor Young. In any event, the alleged delegation would not have changed the investments made or the loss suffered. The court therefore rejected a substitutive-performance claim as a route to recovery where causation was absent.

7. If liability had otherwise been established, the defendants would have been wholly relieved from personal liability under section 61 of the Trustee Act 1925, having acted honestly and reasonably and in circumstances making relief fair.