Trust Law

Duties and Powers of Trustees Cases

Learoyd v Whiteley (1886) 33 Ch D 347 (CA); (1887) 12 App Cas 727 (HL)

Key Point

• Trustees tasked with investing trust money should be held to the standard of an ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide, as such they should not engage in overly speculative investments

Facts

• Learoyd and Carter were trustees for Elizabeth Whiteley and her children
• They had power to invest in mortgages and so lent £3,000 at 5% secured on a freehold brickfield, both the land and the equipment
• They employed experienced local valuers, who reported that brickfield was good security for a loan of £3500
• Unfortunately, it proved to be a poor investment, as the brickfield went out of business
• The beneficiaries sued the trustees to restore their loss

Held

• The trustees were held liable, because they should have avoided ‘hazardous and speculative’ investments. A general duty of care was laid down

Lindley LJ (in Court of Appeal)

• “Care must be taken not to lose sight of the fact that the business of the trustee, and the business which the ordinary prudent man is supposed to be conducting for himself, is the business of investing money for the benefit of persons who are to enjoy it at some future time, and not for the sole benefit of the person entitled to the present income. The duty of a trustee is not to take such care only as a prudent man would take if he had only himself to consider; the duty rather is to take such care as an ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide. That is the kind of business the ordinary prudent man is supposed to be engaged in; and unless this is borne in mind the standard of a trustee’s duty will be fixed too low.”

Lord Watson (in House of Lords)

• “Business men of ordinary prudence may, and frequently do, select investments which are more or less of a speculative character; but it is the duty of a trustee to confine himself to the class of investments which are permitted by the trust, and likewise to avoid all investments of that class which are attended with hazard (Lord Watson on appeal)”