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It is first Ramadhan and ‘first’ recalls me to the very first post of my blog – posted in July last year. This is the 8th post of Administration of Trust and ‘8’ symbolises ‘lucky’. I shall dedicate this new post to Faizal, another professional colleague of mine whose ears are always open to my words and, whose lessons and philosophies always redirect my short mind. Your source of help is the genesis of my career, dude!


Title

Re Lucking’s Will Trust [1967] 3 All ER 726, [1968] 1 WLR 866, Chancery Division.

Judge

Cross J (on Lucking’sliability)

Facts of the case

Nearly 70% of the shares of a private company (Stephen Lucking Ltd) were held by two trustees, Mr Lucking and Mr Block, as part of the estate of the deceased, Marry Lucking; about 20% belonged to Mr Lucking in his own right, and 1% belonged to Lucking’s wife. The directors in 1954 were Mr and Mrs Lucking and Mr Dewar, who was also the manager of the business. In 1956, Block was appointed as trustee to act jointly with Lucking. The company, which was engaged in the manufacture and sell of shoe accessories, had a small factory employing about 20 people. Dewar wrongfully drew some £15,000 from the company’s bank account in excess of his remuneration, and later became bankrupt. The money was lost, and a beneficiary sued the trustees for breach of trust.

Ratio

1) The preposition that, a trustee who is carrying on an unincorporated business is only liable for negligence in his supervision of a manager employed by him if the negligence amount to ‘wilful default’, used by counsel was relied on the decision in Re Vickery, Vickery v Stephens..

2) ‘Wilful default’ does not enter into the picture in this case at all. The conduct of the defendant trustees is to be judge by the standard applied in Re Speight; Speight v Gaunt that a trustee is only bound to conduct the business of the trust in such a way as an ordinary prudent man would conduct a business of his own.

3) What steps does a reasonably prudent man who finds himself a majority shareholder in a private company take with regard to the management of the company’s affair? He does not content himself with such information as to the management of the company’s affairs as he is entitled to as shareholder, but ensures that he is represented on the board.

4) Trustees holding a controlling interest ought to ensure so far as they can that they have such information as to the progress of the company’s affairs as directors would have. If they sit back and allow the company to be run by the minority shareholders and receive no more information than shareholders are entitled to, they do so at their risk if things go wrong.

Held

1) Lucking was in breach in failing adequately to supervise the manager, Dewar.

2) Block, on the other hand, was entitled to rely on what Lucking had told him about the company’s affairs, unless he had a positive reason to disbelieve him.

Note (Suggested hints)

1) Section 35 of our Trustee Act 1949 provides;

‘A trustee... shall be answerable and accountable only for his own acts, receipts, neglects, or default, and not for those of any order trustee, nor for any banker, broker, or other person with whom any trust money or securities may be deposited... nor for any other loss, unless the same happens through his own wilful default.’

2) This case is not covered by Section 30 of UK Trustee Act 1925 (Section 35 of our Trustee Act 1949), because Dewar was a manager of the business, rather than an agent. If a trustee validly appoints an agent, then on the authority in Re Vickery the trustee is only liable for the default of the agent in the event of his own ‘wilful default’ in lack of supervision.

3) The distinction between the present case and Vickery is that;

A higher standard ought in principle to be applied to supervision of an employee than of a professional agent (e.g. solicitor or accountant).