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Title

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

Judge

Brightman J (on the duty of the bank)

Facts of the case

The bank, as trustee under a settlement of shares in a private company, Bartlett Trust Ltd, had a controlling interest in that company. From 1960 the board of Bartlett Trust Ltd had no director representing the settlor’s family or acting for the bank. The bank made no objection at the annual general meeting of Bartlett Trust Ltd in 1961, when Bartlett Trust Ltd altered its investment policy to go into property development. The board of Bartlett Trust Ltd accordingly embarked on two hazardous development projects, without consulting the bank, and the bank did not insist on receiving a regular flow of information on the progress of these projects. Although one of these projects, at Guildford, was successful, the project at Old Bailey, London, which involved buying at a high price on the chance that planning permission for development would be granted, was unsuccessful, and Bartlett Trust Ltd sustained a large loss. The beneficiaries under the settlement sued the bank.

Ratio

1) It is the duty of a trustee to conduct the business of trust with the same care as an ordinary prudent man of business who would extent towards his own affairs.

2) 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 people for whom he felt morally bound to provide.

3) Businessman of ordinary prudence may, and frequently do, select investment 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 investment of that class which are attended with hazard. That does not mean that the trustee is bound to avoid all risk and in effect act an insurer of the trust fund.

4) Higher duty of care is plainly due from someone like a trust corporation which carries on a specialised business of trust management. A trust corporation holds itself out in its advertising literature as being above ordinary mortals. The trust corporation hold itself out as capable of providing an expertise which it would be unrealistic to expect and unjust to demand from the ordinary prudent man or woman who accepts, probably unpaid and sometimes reluctantly from a sense of family duty, the burden of trusteeship.

5) Under the law of contract, a professional person possessed of a particular skill is liable for breach of contract if he neglect to use the skill and experience which he professes, so a professional corporate trustee is liable for breach of trust if loss is caused to the trust fund because it neglects to exercise the special care and skill which it professes to have. Counsel for the bank did not dispute that the bank hold themselves out as possessing a superior ability for the conduct of trust business.

6) The prudent man of business will act in such manner as is necessary to safeguard his investment. If facts come to his knowledge which tells him that the company’s affairs are not being conducted as they should be, he will take appropriate action. What the prudent man of business will not do is to content himself with the receipt of such information on the affairs of the company as a shareholder ordinarily receives at annual general meetings. Since he has power to put him on enquiry, he will go further and see that he has sufficient information to enable him to let matters proceed as they are proceeding or to intervene if he is dissatisfied.

7) The bank wrongfully and in breach of trust neglected to ensure that it received an adequate flow of information concerning the intentions and activities of the boards of Bartlett Trust Ltd and Bartlett Trust Holdings Ltd. It was not proper for the bank to confine itself to the receipt of the annual balance sheet and profit and loss account, detailed annual financial statements and the chairman’s report and statement, and to attendance at the annual general meetings and the luncheons that followed, which were the limits of the bank’s regular sources of information.

Held

The bank failed in its duty whether it is judged by the standard of the prudent man of business or of the skilled trust corporation.