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The Trustee Act 2000 Panesar, S

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The Trustee Act 2000 Panesar, S The Trustee Act 2000 Panesar, S. Published version deposited in CURVE March 2012 Original citation & hyperlink: Panesar, S. (2001) The Trustee Act 2000. International Company and Commercial Law Review, volume 12 (5): 151-157. http://www.sweetandmaxwell.co.uk/Catalogue/ProductDetails.aspx?recordid=423&product id=6944 Publisher statement: Published by Sweet & Maxwell. Copyright © and Moral Rights are retained by the author(s) and/ or other copyright owners. A copy can be downloaded for personal non-commercial research or study, without prior permission or charge. This item cannot be reproduced or quoted extensively from without first obtaining permission in writing from the copyright holder(s). The content must not be changed in any way or sold commercially in any format or medium without the formal permission of the copyright holders. CURVE is the Institutional Repository for Coventry University http://curve.coventry.ac.uk/open Page1 International Company and Commercial Law Review 2001 Legislative Comment The Trustee Act 2000 Sukhninder Panesar Subject: Trusts Keywords: Trustees powers and duties Legislation: Trustee Act 2000 *I.C.C.L.R. 151 Introduction The Trustee Act 2000, which received Royal Assent last year, came into force on February 1, 2001. The Act makes fundamental changes in the manner in which trustees can and are expected to administer property subject to a trust. The Trustee Bill 2000, which led to the enactment of the Trustee Act 2000, was introduced into the House of Lords in January 2000 and implemented the proposals and recommendations of the Law Commission set out in their 1999 Report entitled “Trustees Powers and Duties”.1 The Act is divided into six parts and consists of 43 sections and four schedules. The main thrust of the legislation focuses on five areas of trust law which were thought to be unsatisfactory for the purposes of administering modern trusts. These five areas are (1) the duty of care imposed upon trustees; (2) the power of investment conferred upon trustees; (3) the power to appoint nominees and agents; (4) the power to acquire land; and (5) the power to receive remuneration for work done as a trustee. This article explores the background to the Act, which no doubt must be the single most important statutory intervention in the administration of trusts since the Trustee Act 1925. It also examines why and how the new law has been implemented. The Trustee Act 2000 is an important piece of legislation for commercial lawyers as well as providers of financial services. The main provisions of this new legislation reflect the importance of the trust in commercial matters. The background The need for changes in the law relating to the administration of trusts was not something of a new phenomenon; indeed, the Trustee Act 2000 had a long history to it. As far back as 1982 the Law Commission had recommended reform, particularly so in the context of the rules relating to the delegation of trustee duties upon other persons.2 Nothing resulted from the 1982 Report despite continuing pressures from trust lawyers. Some specific changes were brought into force by statutory instrument, most notably in relation to investment practice. For example, in 1996 an order was passed which allowed trustees, when exercising their powers of investment under the Trustee Investment Act 1961, to invest a greater proportion of the trust funds in equities.3 This order was made in recognition of the fact that modern trusts required a greater proportion of the funds to be invested in equities so as to achieve acceptable increases in the capital of the trust fund. Furthermore, investment in equities was no longer to be seen in the same cautious way as it was some 100 years ago because of the modern portfolio theory of investment, which meant that investment in equities was not necessarily a risky thing to do.4 In June 1997 the Law Commission published a consultation paper recommending, inter alia, changes in the law relating to trustee delegation. The 1999 Law Commission Report5 was arrived at in the context of an increasing awareness that the modern trust operates in quite different circumstances from those that existed some 150 years ago.6 There is no doubt that the trust operates in a context far different from that which existed at the end of the nineteenth and beginning of the twentieth century. The ability of the trust to adapt to social and economic changes stems from the very fact that the trust is an immensely flexible concept and one capable of operating in different areas of society to achieve different social and economic objectives.7 At the end of the nineteenth century the Page2 trust operated primarily in the context of wills and family settlements. The *I.C.C.L.R. 152 primary function of trustees in such a context was to preserve the trust fund over a long period of time for the benefit of beneficiaries entitled in succession. Whilst investment of the trust funds was important, the paramount duty was to preserve the trust fund and this meant that trustees were generally not allowed to invest in risky investments. In such a context investment was not necessarily a complex matter for trustees. Today, whilst the trust does have a role to play in wills and in the context of family arrangements, the express private trust finds itself operating more and more in a commercial context requiring trustees to meet different social and economic objectives. In many modern trusts the paramount duty of the trust is not only to preserve the trust fund but also to make sure that the fund grows and meets inflationary pressures. In trusts where capital growth is of the essence, for example in trusts governing pension and investment funds, the trustees duty is to make sure that there is satisfactory growth in the capital value of the fund. It is not only the changes in the functions of the modern trust that have resulted in the new law, but also changes in investment practices. Trustees who have a duty to invest trust funds, particularly so in the context of commercial trusts such as pension fund trusts and unit trusts, will inevitably find themselves faced with complex investment practices which may require the need for experienced financial experts to not only implement investments decisions but also to make those decisions so as to satisfy the duty of the trustees to act in the best interest of their beneficiaries.8 Therefore, unlike the trustees of the nineteenth and early twentieth century, the modern trustee's duty to invest is an extremely important matter requiring knowledge of complex investment matters. The transition of trusteeship from the type that existed at the end of the nineteenth century to a more modern one is no better explained by one commentator as far back as 1951.9 Shattuck writes: “[T]o be sure, a hundred years before the time of Victoria's death trusteeship had passed, somewhat nervously, from the concept of safe conduct of a specific res into the concept of maintenance of a stated set of values. During that transition the duty of the English trustee had transformed itself from the relatively restricted obligations related to care, custody and operation of family agricultural real estate and its appurtenances to the more intricate task of trading in commercial and financial markets and to the attempted maintenance, through the life of the trust, of a value which had been stated to exist at the time of the opening of the inventory.”10 It is in this background that the Trustee Act 2000 finds itself on the statute books. The following sections of this Article explore the changes which the Act has introduced The general duty of care Part I of the Act introduces a new statutory duty of care applicable to trustees when carrying out their functions under the Act, for example investment and appointment of agents, nominees and custodians. The general duty extends to trustees carrying out similar functions under the trust instrument. The general duty is defined in section 1 and basically provides that a trustee must exercise such care and skill as is reasonable in the circumstances making allowance for his special knowledge, experience or professional status. Schedule 1 of the Act makes provision for this general duty to be excluded in the trust instrument. The general duty of care, whilst creating an objective standard of care, does have a subjective element to it. Whilst a trustee is expected to behave as a prudent businessman, section 1 specifically requires that the experience and skills of the individual trustee be considered when applying the duty of care. There are a couple of points to note about the general duty of care in section 1 of the Act. First, the general duty of care is really an enactment of the rule which had been on many occasions explained in the common law. For example, in Speight v. Gaunt Lord Blackburn explained that: “as a general rule a trustee sufficiently discharges his duty if he takes in managing trust affairs all those precautions which an ordinary prudent man of business would take in managing similar affairs of his own.”11 However, what is different is that section 1 requires a court to take into consideration the specific skills and experience of the individual trustee. The question arises as to whether this subjective element lowers the standard of care required of a lay trustee who may not have the knowledge which a Page3 reasonable businessman may have. It is doubtful that it does lower the standard of care, all that it appears to be saying is that reasonableness must be measured in light of different trustees.
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