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I shall dedicate this case extract to perhaps my new visitor of my blog who is also my professional colleague; Amalina.

Title

Cowan v Scargill [1984] 2 All ER 750, [1985] Ch 270. Chancery Division.

Judge

Sir Robert Megarry V-C

Facts of the case

Mr Scargill, President of the National Union of Mineworkers, was one of the trustees of a pension fund with wide powers of investment. He and five other trustees (the defendant) appointed by the union refused to approve an annual investment plan unless it was amended to prohibit any increase in overseas investment, to provide for withdrawal from existing overseas investment, and to prohibit investments in industries which were in direct competition with coal. Their action was in line with the policy of the National Union of Mineworkers (the bold is mine). The plaintiff (five trustees appointed by the National Coal Board) applied to the court for directions that the defendants were in breach of their fiduciary duties as trustees.

Ratio

1. It is the duty of trustees to exercise their powers in the best interests of the present and future beneficiaries of the trust, holding the scales impartially between different classes of beneficiaries. This duty of the trustees towards their beneficiaries is paramount.

2. Power of investment must be exercised as to yield the best return for the beneficiaries, judged in relation to the risks of the investment in question; and the prospects of the yield of income and capital appreciation both have to be considered in judging the return from the investment.

3. The trustees must aim to seek the best return for the beneficiaries, judged in relation to the risks of the investment in question. Trustees should not invest merely to accommodate the wishes of the settlor.

4. In considering what investment to make, trustees must put on one side, their own personal interest and views. (Trustees may have strongly held social or political views. They may firmly opposed to any investment in South Africa for the long-term financial soundness of its economy or other countries, or they may object to any form of investment in companies concerned with alcohol, tobacco, armaments or any other things.) In conducting their own affairs, they are free to abstain from making any such investments. However, under a trust, if investment of this type would be more beneficial to the beneficiaries than other investment, the trustees must not refrain from making the investment by reasons of the views that they hold.

5. If the only actual or potential beneficiaries of a trust are all adults with very strict views on moral and social matters, condemning all forms of alcohol, tobacco and popular entertainment, as well as armaments, the learned judge in this case of the view that it might not to be for the ‘benefit’ of such beneficiaries to know that they are obtaining rather larger financial returns under the trust by reason of investments in those activities than they would have received if the trustee had invested the trust funds in other investments. (The beneficiaries might well consider that it was far better to receive less than to receive more money from what they consider to be evil and tainted sources.)

6. Where trustees for sale had struck a bargain for the sale of trust property but had not bound themselves by legally enforceable contract, they were held to be under a duty to consider and explore a better offer that they received, and not to carry through the bargain to which they felt in honour bound. In other words, the duty of trustees to their beneficiaries may include a duty to ‘gazump’, however honourable the trustees. Trustees have an overriding duty to obtain the best price which they can for their beneficiaries.

Held

The trusts of a pension fund were governed by the ordinary law of trust, and the defendants were in breach of their fiduciary duties in refusing to approve the investment plan.

Next post in line:

i. criteria for choice of investment

ii. case extract for Barlett v Barclays Bank Trust Co. Ltd (No.1)


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