As a general rule, directions given in a trust deed must be followed by the trustee. It follows that if the unit trust deed directs the trustee to follow the decision of the manager in the making or disposal of investments, the direction is imperative. But is this always the case?

Several cases in which third parties were given powers to direct the trustees have bearing on this point. Three aspects emerged. First, in all these cases, the courts approached this as a question of construction of the particular power involved.

Secondly, if on true construction of the trust provision, a direction from a third party is mandatory, the trustee has no discretion to depart from it. Beauclerk v. Ashburnham was regarded as establishing this. In this case, the trustees were ‘authorised and required‘, ‘by and with the consent and direction‘ of the tenant for life, to lay out the trust monies on `leasehold hereditaments”in some convenient place’. Lord Langdale MR held that it was imperative on the trustees, on the requisition of the tenant for life, to invest in leasehold.

In Cadogan v. Earl of Essex, a deed of settlement provided that ‘it should be lawful for the said trustees . . . and they . . . were thereby required, at any time or times during the lives or life of the said Lord Cadogan and Lady Cadogan . . . with their . . . approbation in writing’ to invest in freehold, copyhold or leasehold. Kindersley VC purported to apply Beauclerk and held that the trustees had no discretion when they were called upon to invest in leaseholds by the tenants for life. He said:

FundsThese words evidently meant something more than a mere authority to do it, .. . the trustees being required to do a certain act, that must necessarily signify that it was imperative on them, if required by the tenants for life so to do

In Re Hurst a testator gave his sons in succession an option to purchase his mill business at a price determined by valuation and to pay the price by instalments on security of a bond and a mortgage to the full value of the price of the mill business. The trustees were directed accordingly. The eldest son exercised the option. Subsequently, there were defaults in the payment of the mortgage instalments. In an action for breach of trust by other beneficiaries, it was alleged (inter alia) that the taking of the mortgage amounted to wilful default. It was held by the Court of Appeal that the direction was mandatory and there was no breach of trust in respect of the taking of the mortgage. Lindley LJ, delivering the court’s judgment, said:

The sale of the mill for £50,000 secured by the bond and mortgage was not only justifiable, but was a transaction with reference to which the trustees had no option.

Chitty J, at first instance, also said:

A mortgage for the full value property sold would, of course, have been a breach in any ordinary case in the absence of express authority from the testator. But here there was not only an authority conferred upon the trustees, but there was an express direction of the testator to them, with which they were bound to comply.

The third aspect is that courts were reluctant to conclude that trustees had no scope to manoeuvre. Even in Beauclerk, Lord Langdale did not intend to exclude the trustee’s discretion altogether, for he said in respect of `particular houses, or as to their title, situation, description … the trustees had a most important discretion to exercise’. The reluctance was also apparent from the judgment of Kekewich J in Re Hill, where the trustee was empowered to invest, at the request of the tenant for life, in particular land. His Lordship said:

As I understand the law, where there is a direction or power to trustees to sell or purchase at the request of the tenant for life, that means that if the tenant for life makes the request the trustees must sell or purchase, and not merely that they may do so. In my opinion, under this power, if a fit occasion arose, and there was no objection on the score of price, the tenant for life could in effect insist upon the trustees purchasing the unsettled moiety or any particular part of it; and, consequently, upon the request being made, there would arise a liability’—that is to say, an obligation on the part of the trustees to make the purchase.

In Re Hotham the Court of Appeal held that upon a direction by a tenant for life under section 22 of the Settled Land Act 1882 to invest capital moneys upon a specified mortgage of real estate, the trustees werenot bound to invest upon the mortgage unless and until they were satisfied that the direction had been given upon a proper investigation as to title, a proper report as to the value of the proposed security, and proper advice as to the form of the mortgage. On being so satisfied the trustees were bound to make the investment. In Re Hart’s Will Trusts,trustees were required `to invest the capital of the . . . trust fund in such investments in their names or their control as my said son may from time to time direct whether the same be investments authorised by law for the investment of trust funds or not and shall pay the income arising from such investment to my said son during his life‘. Bennett J held that the son might direct the trustees to purchase shares from himself. His Lordship said:

Possibly related posts: (automatically generated)
Position of the United Trust Trustee part 1