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Standard of care

1. Speight v Gaunt (1883) 9 App Cas 1, 19

‘all those precautions which an ordinary prudent man of business would take it managing similar affairs of his own’.

The selection of investments involve additional considerations, for although ordinary business prudence may sometimes involve accepting a degree of risk or speculation, trustees must confine themselves to securities which are authorised by the trust instrument or by statute, and avoid hazardous investment.

2. Bartlett v Barclays Bank Trust Co. Ltd (o. 1) [1980] 1 All ER 139, [1980] Ch 515. Chancery Division.

A higher standard of care is required of paid trustees than of unpaid, non-professional trustees, in that the former will be held to the standards of skill and expertise which they claim to possess.

3. Re Whitely, Whitely v Learoyd (1886) 33 ChD at 355 per Lindley LJ.

‘He must 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 duty includes the duty to seek advice on matters which the trustee does not understand, such as the making of investments, and on receiving that advice to act with the same degree of prudence. This requirement is not discharged merely by showing that the trustee has acted in good faith and with sincerity. Honesty and sincerity are not the same as prudence and reasonableness. Some of the most sincere people are the most unreasonable.

Although a trustee who takes advice on investments is not bound to accept and act on that advice, he is not entitled to reject it merely because he sincerely disagrees with it, unless in addition to being sincere he is acting as an ordinary prudent man would act.

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

Trustees must not refrain from acting in the best interests of the beneficiaries on grounds of personal conscience.

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.