Court decisions are very useful in reinforcing knowledge and
understanding, especially in the area of trust law. Recently we
have looked at some cases involving trustee mistakes and
rectification. As it happens, in 2016 there were quite a few very
interesting trust cases which deserve proper consideration. This
month we will look at two of these - the first concerning trustees'
duties when investing trust funds, and the second dealing with the
more fundamental question of whether a trust in fact existed or
Trustees' duties when investing trust
In the case of Daniel and Another v Tee and Others
 EWHC 1538 (Ch), whilst the beneficiaries failed in
their claim for compensation for losses suffered by the trust, the
Court was critical of the trustees' approach when devising an
This was a case of two beneficiaries of a Will trust suing the
trustees of the trust for losses resulting from allegedly bad
The facts of the case were as follows. Mr Daniel senior
died in 1999 and under his Will a trust was created for his two
children, then aged 13 and 16, with the trustees being Mr Daniel's
solicitors. The trustees had no personal expertise in
managing investments and during the years 2000 to 2002 relied on
the advice of an IFA. Based on that advice the trustees
decided to invest in a range of equities linked to the technology
sector with around 80% of the fund being in those equities.
Needless to say the funds performed poorly and suffered heavy
losses in 2001.
Many years later the beneficiaries claimed compensation of over
£1.4 million for breach of trust, claiming that the trustees were
at fault in failing to take appropriate care to formulate and
implement a, suitable investment strategy and to review the
investments made and in relying on the IFA's advice and
recommendations which in fact turned out to be poor advice and
costly to follow.
The trustees denied the claims and relied on section 61 of the
Trustee Act 1925 which gives the Court discretion to absolve
trustees in situations where the trustees have acted reasonably and
On the face of it the trustees, having obtained investment
advice from an IFA, clearly acted reasonably and, indeed, in
accordance with their duty under the Trustee Act 2000.
Nevertheless, the Court held that the decision to opt for an
investment portfolio comprising of 80% equities was "one which no
trustee could have reasonably made whilst complying with his duty
to act prudently".
However, the Court agreed that the trustees had acted to the
best of their abilities and in reliance of what they reasonably
believed to be competent professional advice. As such, had
they been found liable for breach of trust, then most likely the
Court would have granted relief under section 61 of the Trustee Act
1925. In the event, the Court decided that whilst certain
breaches may have occurred, the claimants had failed to prove that
those breaches had resulted in any losses which would otherwise not
have occurred. Therefore the beneficiaries' claim for
compensation was rejected.
The case illustrates the point that if the trustees can show
they have sought appropriate professional advice then they are very
unlikely to be found liable for any breach of trust. Nevertheless,
it is important to note the judge's criticism of the trustees'
approach to trust investments. Specifically, the judge stated
that the trustees "adopted an approach which was less balanced and
diversified" than, in his opinion, many trustees would have thought
This confirms that even where the trustees instruct a
professional, such as an IFA, to advise them on investments, this
does not absolve them from taking active part in making decisions,
bearing in mind the objectives and risk profile of the trust.
Whilst trustees will generally not be and are not expected to be
experts in investments, they do need to ensure that investments are
reviewed periodically bearing in mind all the relevant factors.
It may also be useful at this stage to consider fully the
above-mentioned section 61 of the Trustee Act 1925. Under
this provision, the Court has discretion as to whether or not it
grants relief. Before it can exercise its discretion, it must be
- that the trustee in question acted both reasonably and
- that it would be fair to excuse the trustee, having regard to
all the circumstances of the case.
The burden of proving these points is on the trustee seeking
In order to show reasonableness, a trustee will, in general,
need to demonstrate that they treated the trust property in a way
that a prudent man of business would deal with his own property.
Lay people, acting as unpaid trustees, are more likely to find
themselves excused under this provision than professional,
remunerated trustees. However, whether the Court exercises its
discretion ultimately depends on the facts of each case.
Proving the existence of a trust
In the case of Singha v Heer (2016) EWCA Civ 424 the
Court of Appeal decided that letters written between former
business partners did not amount to declarations of trust.
It is well known that to have a valid trust there must be
three certainties: certain beneficiaries, certain property and
certain intention. Whilst proving which property is to be
held in trust and who the beneficiaries are may be relatively
straightforward, proving the intention, i.e. a valid creation of a
trust, is not necessarily so, unless there is proper, preferably
written, evidence of the same.
The case mentioned above concerned a dispute between former
business partners who, some years earlier, formed a partnership for
the acquisition of properties. One of the properties was
registered in the sole name of Mr Singha (Mr S) and became the
matrimonial home of Mr and Mrs S. Mr Heer (Mr H) claimed that
he had provided £45,000 to Mr S towards the purchase of the
property to be repaid within 5 years and this was not
disputed. However, he also claimed that the agreement was
that, whilst the legal ownership will be in Mr S' name only, Mr H
was the beneficial owner until such time as the £45,000 loan was
repaid in full.
The loan was not repaid and Mr S and Mr H fell out in due course
and dissolved their partnership. However, nothing was done at
that time in relation to the property in question. In 2010 Mr
and Mrs S were divorcing and Mr S was ordered to transfer the
property to his wife so she could sell it and take £125,000 from
the proceeds. At this time Mr H asserted that he had a
beneficial interest in 100% of the property. Mrs S asked the
Court to determine whether Mr H had any beneficial interest in the
property. Mr H produced three letters written to him by Mr S
between 2005 and 2009 which referred to Mr S "holding the property
on trust" for Mr H. Mr H claimed that the letters
collectively amounted to an express declaration of trust in favour
of Mr H. The County Court in the first instance disagreed
with Mr H and the case went to the Court of Appeal, which in due
course ruled that indeed the letters were not sufficient to amount
to a full declaration of trust.
Interestingly, the Judge said that just because the word "trust"
had been used, this did not mean that Mr S had intended to use it
in a legal sense. It was important to look at the letters "as
a whole" and the Court found no reason why the letters should be
read in a technical sense, carrying all the legal consequences of a
valid trust. The outcome was that Mr H was entitled to a 50%
interest in the property, which is what he was offered
It should really go without saying that, especially in matters
involving the purchase of property, it is essential that the
intentions of the parties, where there are more than one, about how
the property is owned between them, should be settled in very clear
terms at the outset. This is especially important where the
owners' interests are intended to be different from the position
reflected by the legal title. Although this case related to
business partners, the same principles apply to any joint
purchasers, other than married couples, in relation to any property
acquisition. Even where the individuals concerned get on very
well (and Mr S and Mr H were in fact childhood friends), given the
importance of any property purchase it should always be recommended
that each individual takes separate independent advice and that the
terms of the ownership are clearly set out in writing and filed
with the Land Registry.
Next month we will look at some more cases, this time involving
a settlor's mistake as to the consequences of a transfer of an
asset to a trust and the beneficiaries' rights to information about