Trustees' duties — loyalty, care, and investment

Trustees owe three interlocking categories of duty that regulate their administration of trust property: loyalty, care, and investment. The duty of loyalty comprises the prophylactic no-conflict and no-profit rules, operating strictly regardless of honesty or benefit to the trust (Keech v Sandford (1726); Boardman v Phipps [1967] 2 AC 46). The duty of care, now statutory under TA 2000 s 1, requires trustees to exercise 'such care and skill as is reasonable in the circumstances', with higher standards for professionals. The investment duty, reformed by TA 2000 s 3's general power, mandates consideration of suitability and diversification (s 4) and proper advice (s 5). These duties attach by operation of law to the fiduciary position, though trust instruments may modify them subject to the irreducible core identified in Armitage v Nurse [1998] Ch 241 — trustees cannot exclude liability for their own fraud, dishonesty, or deliberate breach.

Keech v Sandford (1726) 25 ER 223: Trustee who renewed lease personally when renewal for infant beneficiary was refused held accountable for all profit. Established prophylactic no-profit rule operates regardless of impossibility or good faith.

Boardman v Phipps [1967] 2 AC 46: Solicitors who profited from shares purchased using information gained in fiduciary capacity held liable despite honesty and benefit to trust. Demonstrates strictness of no-profit rule but court allowed liberal remuneration for skill.

Cowan v Scargill [1985] Ch 270: Union trustees could not refuse investments for political reasons; trustees' paramount duty is beneficiaries' financial interests unless no detriment or unanimous consent. Remains leading authority on ethical investment constraints.

Armitage v Nurse [1998] Ch 241: Wide exemption clause excluding all liability 'unless caused by actual fraud' held valid. Defined irreducible core: trustees cannot exclude liability for fraud, dishonesty, or deliberate breach, but can exclude negligence.

AIB Group v Mark Redler [2014] UKSC 58: Introduced causation requirement for equitable compensation — claimant must prove breach caused loss. Significant shift from traditional strict liability for unauthorised dispositions.

Courts apply a two-stage analysis for conflicts: (1) identify whether trustee placed herself in position where duty and interest conflict or may conflict; (2) if yes, strict liability follows unless authorised by trust deed, informed beneficiary consent, statute (TA 2000 s 29), or court. For breach of care, examine: (a) what standard applies — lay trustee or professional (TA 2000 Sch 1); (b) whether specific act/omission fell below that standard; (c) causation of loss (AIB Group). Investment decisions require: proper advice unless reasonably unnecessary (s 5); application of suitability and diversification criteria (s 4); regular review. Common triggers include self-dealing, competing opportunities, failure to monitor investments, and inadequate diversification. Remedies vary: fiduciary breaches trigger disgorgement/rescission; care breaches sound in equitable compensation subject to causation.

Conflating no-conflict and no-profit: These are distinct — no-conflict concerns positional conflicts; no-profit prohibits unauthorised gains. Boardman primarily engaged no-profit rule despite minimal conflict. *Misreading Armitage v Nurse: Trustees CAN exclude negligence liability — only fraud/dishonesty/deliberate breach are irreducible. Ignoring TA 2000 defaults: The Act's provisions can be modified by trust instruments (s 69) — check the deed. Assuming automatic liability: Post-AIB Group, causation must be proved for equitable compensation. Oversimplifying Cowan***: Ethical investment permitted where no financial detriment or unanimous consent; ESG factors may be financially material.