“Equity has lost sight of the need to uphold the performance of the trust by the trustees, it
being too easy to avoid liability for breach of trust. By contrast, in relation to breach of
fiduciary duty, equity’s lack of flexibility is baffling.”
To what extent, if at all, do you agree with the statement? Discuss with reference to personal
claims against a breaching trustee and a breaching fiduciary
Introduction
The statement contrasts two areas of equitable liability: breach of trust and breach of fiduciary duty
In relation to Ts, particularly investment decisions, equity has moved towards a more
commercially realistic and fault-based model which prioritises prudent decision-making over
strict restoration of losses
Ts are subject to extensive statutory duties under the TA 2000, including duties of care, suitability
and diversification, designed to protect Bs from imprudent investment decisions
However, in practice, Bs are often inadequately protected in practice because liability
depends on proving breach, causation and recoverable loss, while Ts benefit from
exemption clauses and judicial relief
By contrast, F duties remain characterised by strict prophylactic rules focused on loyalty rather
than compensation, with liability often imposed irrespective of loss, causation or good faith
Ultimately, it can be said that equity has become comparatively lenient regarding breach of trust,
while fiduciary law remains rigid and inflexible, although this divergence reflects the different policy
objectives underlying each regime
Paragraph 1- T investment duties provide procedural rather than substantive protection
Ts’ duty of investment is central to B protection as it determines how effectively the trust fund is
preserved and grown
Prior to TA 2000, T investment powers were restricted to a ‘legal list’ considered by
Parliament to be ‘safe’ and ‘secure’ but offering reasonable return (TA 1961) and in order to
make investments outside this list, they had to be expressly contained in trust instrument, T
had to obtain consent of all Bs or apply to court to vary their investment powers
TA 2000 modernised this area by introducing a broad general power of investment under s3,
allowing Ts to invest as if absolutely entitled to trust assets
This reflects a deliberate shift towards flexibility, diversification and commercially realistic
investment strategies
Notwithstanding, this wide discretion is constrained by the duty of care in s1, which requires Ts to
act with reasonable care and skill, with a higher standard imposed on professional Ts who hold
themselves out as having specific expertise
Statutory duty reinforced by Re Whiteley, which establish that Ts must act as prudent
individuals investing for others, rather than themselves (should be less willing to take risks
in this instance)
, Similarly, must have regard to the standard investment criteria under s4, meaning that Ts
are expected to actively assess the suitability of investments and the need for diversification
in light of the trust’s purpose
Furthermore, s5 imposes a duty to obtain proper advice before making investment
decisions, ensuring that Ts incorporate external expertise into their decision-making, which
is intended to reduce the likelihood of uninformed or imprudent investments (high burden to
disregard evidence once sought following Cowan v Scargill)
However, despite these provisions, these frameworks only regulate the process of decision-making,
rather than the outcome, meaning that Ts will not be liable simply because an investment performs
poorly
In the exercise of care and skill, Ts will not be liable for mere ‘errors in judgment’ provided
he acted honestly and with ordinary prudence (Re Chapman)
When Ts are acting on advice of reasonably chosen investment advisers, they will not be
liable for any unreasonable investments (Daniel v Tee), although see third-party liability
(nonetheless shifts practical responsibility away from T)
In Nestle v National Westminster Bank, significant underperformance did not amount to a
breach as Ts’ decisions were not unreasonable at the time they were made (despite B’s
proclamation that this had caused a loss of £37,000)
While this approach is commercially sensible and practical, it nonetheless does not provide
adequate recourse to Bs
Bs are only protected against irrational and careless decision-making and remain exposes to
losses arising from decisions that are technically reasonable but ultimately unsuccessful
This ultimately supports the view that equity has retreated from robust protection of trust
performance in favour of T discretion and commercial practicality
Paragraph 2- causation and evidential burdens make recovery difficult for Bs, although the law appears
comparatively forgiving towards Ts while remaining rigid in relation to F obligations
Even where Ts arguably breach their investment duties, Bs similarly face substantial evidential
barriers in obtaining compensation (burden of proof falls on B to establish breach, loss and
causation (eg Nestle))
This imposes a substantial practical obstacle to recovery, particularly in investment cases as
it requires B to demonstrate what a hypothetical prudent T would have done and how that
alternative investment strategy would have performed
Moreover, the courts generally reluctant to engage in speculative reconstruction of
investment decisions, which makes it especially difficult for Bs to prove that different
decisions would have produced a better outcome
The modern approach following Target Holdings v Redferns (as affirmed in AIG Group (UK) v Mark
Redler) for unauthorised action now also applies a ‘but-for’ test to causation, requiring Bs to show
that the loss would not have occurred but for the breach
This approach followed proof of loss by omission following Nestle
being too easy to avoid liability for breach of trust. By contrast, in relation to breach of
fiduciary duty, equity’s lack of flexibility is baffling.”
To what extent, if at all, do you agree with the statement? Discuss with reference to personal
claims against a breaching trustee and a breaching fiduciary
Introduction
The statement contrasts two areas of equitable liability: breach of trust and breach of fiduciary duty
In relation to Ts, particularly investment decisions, equity has moved towards a more
commercially realistic and fault-based model which prioritises prudent decision-making over
strict restoration of losses
Ts are subject to extensive statutory duties under the TA 2000, including duties of care, suitability
and diversification, designed to protect Bs from imprudent investment decisions
However, in practice, Bs are often inadequately protected in practice because liability
depends on proving breach, causation and recoverable loss, while Ts benefit from
exemption clauses and judicial relief
By contrast, F duties remain characterised by strict prophylactic rules focused on loyalty rather
than compensation, with liability often imposed irrespective of loss, causation or good faith
Ultimately, it can be said that equity has become comparatively lenient regarding breach of trust,
while fiduciary law remains rigid and inflexible, although this divergence reflects the different policy
objectives underlying each regime
Paragraph 1- T investment duties provide procedural rather than substantive protection
Ts’ duty of investment is central to B protection as it determines how effectively the trust fund is
preserved and grown
Prior to TA 2000, T investment powers were restricted to a ‘legal list’ considered by
Parliament to be ‘safe’ and ‘secure’ but offering reasonable return (TA 1961) and in order to
make investments outside this list, they had to be expressly contained in trust instrument, T
had to obtain consent of all Bs or apply to court to vary their investment powers
TA 2000 modernised this area by introducing a broad general power of investment under s3,
allowing Ts to invest as if absolutely entitled to trust assets
This reflects a deliberate shift towards flexibility, diversification and commercially realistic
investment strategies
Notwithstanding, this wide discretion is constrained by the duty of care in s1, which requires Ts to
act with reasonable care and skill, with a higher standard imposed on professional Ts who hold
themselves out as having specific expertise
Statutory duty reinforced by Re Whiteley, which establish that Ts must act as prudent
individuals investing for others, rather than themselves (should be less willing to take risks
in this instance)
, Similarly, must have regard to the standard investment criteria under s4, meaning that Ts
are expected to actively assess the suitability of investments and the need for diversification
in light of the trust’s purpose
Furthermore, s5 imposes a duty to obtain proper advice before making investment
decisions, ensuring that Ts incorporate external expertise into their decision-making, which
is intended to reduce the likelihood of uninformed or imprudent investments (high burden to
disregard evidence once sought following Cowan v Scargill)
However, despite these provisions, these frameworks only regulate the process of decision-making,
rather than the outcome, meaning that Ts will not be liable simply because an investment performs
poorly
In the exercise of care and skill, Ts will not be liable for mere ‘errors in judgment’ provided
he acted honestly and with ordinary prudence (Re Chapman)
When Ts are acting on advice of reasonably chosen investment advisers, they will not be
liable for any unreasonable investments (Daniel v Tee), although see third-party liability
(nonetheless shifts practical responsibility away from T)
In Nestle v National Westminster Bank, significant underperformance did not amount to a
breach as Ts’ decisions were not unreasonable at the time they were made (despite B’s
proclamation that this had caused a loss of £37,000)
While this approach is commercially sensible and practical, it nonetheless does not provide
adequate recourse to Bs
Bs are only protected against irrational and careless decision-making and remain exposes to
losses arising from decisions that are technically reasonable but ultimately unsuccessful
This ultimately supports the view that equity has retreated from robust protection of trust
performance in favour of T discretion and commercial practicality
Paragraph 2- causation and evidential burdens make recovery difficult for Bs, although the law appears
comparatively forgiving towards Ts while remaining rigid in relation to F obligations
Even where Ts arguably breach their investment duties, Bs similarly face substantial evidential
barriers in obtaining compensation (burden of proof falls on B to establish breach, loss and
causation (eg Nestle))
This imposes a substantial practical obstacle to recovery, particularly in investment cases as
it requires B to demonstrate what a hypothetical prudent T would have done and how that
alternative investment strategy would have performed
Moreover, the courts generally reluctant to engage in speculative reconstruction of
investment decisions, which makes it especially difficult for Bs to prove that different
decisions would have produced a better outcome
The modern approach following Target Holdings v Redferns (as affirmed in AIG Group (UK) v Mark
Redler) for unauthorised action now also applies a ‘but-for’ test to causation, requiring Bs to show
that the loss would not have occurred but for the breach
This approach followed proof of loss by omission following Nestle
