Trustees' duties — loyalty, care, and investment

This note examines the core obligations owed by trustees in the execution of their office. The law imposes on trustees a cluster of interlocking duties, some rooted in equitable doctrine and others now codified by statute. Together, these duties regulate how trustees hold and administer property on behalf of beneficiaries, ensuring fidelity and competence in management.

At the heart of trusteeship lie three distinct categories of obligation:

Loyalty. The trustee is a fiduciary and must subordinate personal interest to duty. Equity enforces this through the no-conflict and no-profit rules, sometimes described as twin 'prophylactic' principles that operate irrespective of actual harm or dishonesty.

Care. The trustee must act prudently and diligently in the administration of the trust. Originally a common law standard analogous to negligence, the duty of care is now largely statutory, codified in the Trustee Act 2000 (TA 2000), s 1.

Investment. A distinct but overlapping duty concerns the trustee's power and obligation to invest trust assets. The TA 2000 introduced a 'general power of investment' (s 3) alongside mandatory criteria for selecting investments (s 4), replacing the restrictive common law regime.

These duties are not optional: they attach by operation of law to anyone in the fiduciary position of trustee. While the trust instrument may extend, restrict, or even exclude certain duties (subject to the irreducible core identified in Armitage v Nurse [1998] Ch 241), trustees cannot evade accountability for serious breaches.

This note first situates trustees' duties in historical context, then analyses the conceptual structure of loyalty and care, the statutory framework governing investment, and the remedies for breach. It concludes with doctrinal controversies, comparative insights, and practical exam strategies.

The law of trusteeship has evolved from strict eighteenth-century equity to a modern regime blending fiduciary principle with statutory flexibility.

Early equity: strictness and the unpaid trustee. Equity traditionally expected gratuitous service from trustees, who were typically family members or friends. The Court of Chancery imposed exacting standards: trustees were forbidden from profiting, required to avoid conflicts, and expected to invest in a narrow 'legal list' of government securities or mortgages on freehold land. In Keech v Sandford (1726) 25 ER 223, Lord King LC held a trustee accountable for profit even where renewal of a lease for the beneficiary was impossible—a strict rule designed to deter even the possibility of self-dealing.

The rise of professional trustees. By the late nineteenth century, trust companies and solicitors acting as trustees sought remuneration. Courts initially refused to award payment absent express provision in the trust deed, but Cradock v Piper (1850) 1 Mac & G 664 recognised that professional trustees could charge if authorised by the instrument. Equity's reluctance to allow remuneration sat in tension with the growing complexity of estates.

Statutory liberalisation of investment powers. The Trustee Investments Act 1961 broadened the range of permissible investments beyond the stultifying 'legal list', but it remained cumbersome, dividing funds into 'narrower range' and 'wider range' investments. The inflexibility of this regime contributed to underperformance of trust funds.

The Trustee Act 2000. Following the Law Commission's Report No 260 (1999), Parliament enacted the TA 2000, which introduced:

• A general power of investment (s 3);
• A statutory duty of care (s 1 and Sch 1);
• Default powers to appoint agents, nominees, and custodians (ss 11–23); and
• A power for trustees to charge for services (s 29, for professional trustees).

The Act modernised trust law, aligning it with portfolio theory and recognising that trustees should have discretion comparable to absolute owners, subject to safeguards.

The enduring role of equity. Despite codification, equitable principles remain central. The fiduciary duties of loyalty are not exhaustively defined by statute; they continue to develop incrementally in the courts, informed by evolving conceptions of conflict and propriety.

Three foundational principles structure the law of trustees' duties.

3.1 The duty of loyalty

The trustee is a fiduciary: equity imposes on her a duty to act in the beneficiaries' interests and not her own. The duty of loyalty manifests in two well-known prophylactic rules:

The no-conflict rule. A trustee must not place herself in a position where personal interest conflicts (or may conflict) with duty. The classic formulation is Lord Herschell's in Bray v Ford [1896] AC 44, 51: a fiduciary is not 'allowed to enter into engagements in which he has, or can have, a personal interest conflicting… with the interests of those whom he is bound to protect'. The rule is strict and deterrent: actual detriment or dishonesty is irrelevant. It applies even if the trustee acts honestly and the transaction benefits the trust.

The no-profit rule. A trustee must not profit from the trust except as expressly authorised. In Boardman v Phipps [1967] 2 AC 46, solicitors acting for a trust acquired shares for themselves using information obtained in a fiduciary capacity. Though the trust lacked funds to make the purchase, and the fiduciaries acted honestly and skillfully, the House of Lords held them accountable for the profit. Lord Cohen said the rule is based on 'the principle that no one who has duties of a fiduciary nature to perform is allowed to enter into engagements in which he has or can have a personal interest conflicting with the interests of those he is bound to protect' (at 103). The principle is prophylactic: it deters temptation irrespective of harm.

Exceptions and authorisation. The no-conflict and no-profit rules may be displaced by:

• Express provision in the trust instrument;
• Fully informed consent of all beneficiaries (if sui juris and absolutely entitled);
• Statutory authorisation (e.g. TA 2000, s 29, permitting professional trustees to charge);
• Court authorisation (Re Duke of Norfolk's ST [1982] Ch 61).

Foundation

1. 'The no-conflict and no-profit rules are strict, prophylactic principles that operate irrespective of the trustee's honesty or the beneficiaries' loss.' Discuss with reference to case law.

1. What is the scope and content of the statutory duty of care imposed by the Trustee Act 2000? How does it differ from the common law position before 2000?

Standard

1. Tabitha is trustee of a family trust holding £500,000. She invests £200,000 in shares in a company in which her brother is a director, without disclosing this to the beneficiaries. The shares perform well, increasing in value by 25%. The beneficiaries seek to hold Tabitha accountable. Advise the parties.

1. To what extent may trustees take environmental, social, and governance (ESG) factors into account when making investment decisions? Consider the position under Cowan v Scargill and subsequent developments.

Challenge

1. 'The Trustee Act 2000 modernised trustees' investment powers but left fundamental tensions unresolved: between flexibility and accountability, between professional autonomy and beneficiary protection, and between short-term return and long-term sustainability.' Critically evaluate this statement.

Essential

• Conaglen, M, Fiduciary Loyalty: Protecting the Due Performance of Non-Fiduciary Duties (Hart 2010)

The leading modern analysis of fiduciary duties, arguing they are prophylactic rules protecting the performance of other duties.

• Law Commission, Trustees' Powers and Duties (Law Com No 260, 1999)

The report that led to the Trustee Act 2000; essential background on the reform of investment powers and the duty of care.

• Hayton, D, 'The Developing Law of Trusts' in Hayton (ed), The International Trust (3rd edn, Jordans 2011)

Magisterial survey of trustee duties in comparative context.

Depth

• Harding, M, 'Trusts for Religious Purposes and the Question of Public Benefit' (2008) 71 MLR 344

Explores the boundaries of fiduciary duty and beneficiary preferences in the context of ethical investment.

• Richardson, B J, 'Fiduciary Law and Environmental Sustainability' (2011) 13 Environmental Law Review 248

Argues for an expanded conception of fiduciary duty incorporating intergenerational equity and environmental stewardship.

• Penner, J E, 'Exemption Clauses' in Birks & Pretto (eds), Breach of Trust (Hart 2002)

Critical analysis of Armitage v Nurse and the policy concerns surrounding trustee exemption clauses.

• Edelman, J, 'When Do Fiduciary Duties Arise?' (2010) 126 LQR 302

Examines the criteria for identifying fiduciary relationships and the content of fiduciary duties.

Extension

• Law Commission, Fiduciary Duties of Investment Intermediaries (Law Com No 350, 2014)

Report on pension trustees and fund managers; discusses ESG factors and fiduciary duty.

• Smith, L, 'Fiduciary Relationships: Ensuring the Loyal Exercise of Judgment on Behalf of Another' (2014) 130 LQR 608

Theoretical analysis of fiduciary duties as constraints on discretion.

• Burrows, A, 'We Do This at Common Law But That in Equity' (2002) 22 OJLS 1

Examines the persistence of distinct equitable and common law principles, including in breach of trust.