Key Point
- When considering breach of duty the courts will look to the standards of business at the time of the alleged breach.
Facts
- A trustee was instructed by the beneficiaries of the trust to invest the bulk of the trust assets in securities.
- On the advice of the beneficiaries, the trustee selected a stockbroker, not realizing that the stockbroker was nearly insolvent.
- The stockbroker showed the trustee a forged note as evidence that the securities had been purchased. The trustee transferred the trust funds to him and the stockbroker then absconded with the money. The beneficiaries sued the trustee for imprudently choosing and relying on a dishonest agent.
Held (House of Lords)
- It was held that the trustee had not breached his duty of care because he had complied with the standards of business practice at the time, namely to transfer the payment before the securities were executed.
Lord Blackburn
- “Judges and lawyers who see brought before them the cases in which losses have been incurred, and do not see the infinitely more numerous cases in which expense and trouble and inconvenience are avoided, are apt to think men of business rash. I think that the principle … is that, while the course is usual, a trustee is not to be blamed if he honestly, and without knowing anything that makes it exceptionally risky in his case, pursues that usual course. … It would be both unreasonable and inexpedient to make a trustee responsible for not being more prudent than ordinary men of business are”
- “[A]s a general rule a trustee sufficiently discharges his duty if he takes in managing trust affairs all those precautions which an ordinary prudent man of business would take in managing similar affairs of his own.”
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