APL Seminar: David Pollard The shortform 'Best Interests Duty': Mad, Bad and Dangerous to Know September 2017 29 September 2017 The shortform 'Best Interests Duty': Mad, Bad and Dangerous to Know Contents 1. ABSTRACT ....................................................................................................... 5 2. INTRODUCTION ............................................................................................. 7 Key cases and articles ........................................................................................ 8 Misleading and confusing .................................................................................. 9 Some positives? ............................................................................................... 11 3. WHY DOES THIS MATTER? ....................................................................... 12 4. THIS PAPER DOES NOT COVER: SOCIAL INVESTMENT; INTERESTS OF EMPLOYERS; OR MEMBERS AS PRIMARY BENEFICIARIES ............................................................................................ 13 5. TRUSTEE, DIRECTORS AND DISCRETIONS ........................................... 13 6. BEST INTERESTS AND WHO IS A FIDUCIARY ...................................... 15 Finn ‘Fiduciary Obligations’ ........................................................................... 16 Millett LJ: Mothew and Armitage .................................................................... 18 7. UK OFFICIAL GUIDANCE ........................................................................... 20 Scottish Law Commission: Report on Trust Law (August 2014). .................. 20 Law Commission: Trustee Exemption Clauses (July 2006) ............................ 20 Law Commission: Trustees' Powers and Duties (July 1999)........................... 21 Law Commission: Fiduciary Duties of Investment Intermediaries (June 2014) ................................................................................................................ 21 UK Pensions Regulator .................................................................................... 22 DWP Green Paper (2017) ................................................................................ 23 8. A LITERAL BEST INTERESTS DUTY IS DANGEROUS .......................... 23 9. LITERAL BEST INTERESTS DUTY: IMPRECISE AND UNWORKABLE ............................................................................................. 24 Xenia Frostick (2000) ...................................................................................... 26 SEK Hulme (2000) .......................................................................................... 27 Geraint Thomas (2008) .................................................................................... 27 Scott Donald (2008) ......................................................................................... 28 10. COWAN V SCARGILL (1984) ......................................................................... 28 Cowan involved an investment power ............................................................. 30 Megarry V-C comments (extra judicially) in Vancouver ................................ 31 Cowan v Scargill as a purpose test .................................................................. 31 11. INTERPRETING MEGARRY V-C’S JUDGMENT IN COWAN V SCARGILL: CONTEXT ETC .......................................................................... 32 Judgments are not statutes ............................................................................... 33 Context ............................................................................................................. 34 An equitable maxim? ....................................................................................... 35 APL Seminar: David Pollard The shortform 'Best Interests Duty': Mad, Bad and Dangerous to Know September 2017 Not binding ...................................................................................................... 37 What did counsel argue in Cowan? ................................................................. 38 Knox v Mackinnon: ‘Single eye’ ...................................................................... 38 Duke of Portland v Topham “with an entire and single view to the real object and purpose of the powers” ................................................................... 39 Legal advice as a source in Cowan? ................................................................ 39 Interests or benefit? .......................................................................................... 40 12. DID MEGARRY V-C INVENT THE DUTY FOR TRUSTEES? ................. 40 Cases before Cowan ......................................................................................... 41 Buttle v Saunders: “best price” ........................................................................ 42 Director cases ................................................................................................... 44 Shareholder power and amendment cases ....................................................... 45 13. CONTEXT: LIMITING FIDUCIARY DUTIES ............................................ 47 Re Coomber (1911) .......................................................................................... 47 Hospital Products (1984) ................................................................................. 50 14. LORD NICHOLLS .......................................................................................... 51 Harries v Church Commissioners (1993) ........................................................ 51 ‘Trustees and their broader community: Where duty, morality and ethics converge’ (1995) .................................................................................... 54 15. MNRPF (2015): THERE IS NO LITERAL “BEST INTERESTS” RULE ............................................................................................................... 55 Nugee J lecture ................................................................................................. 57 Not prescriptive duty? ...................................................................................... 57 16. EXPRESS CONTRACTUAL DUTY? - FISH V DRESDNER KLEINWORT ................................................................................................... 59 17. PROBLEMS WITH A LITERAL “BEST INTERESTS” DUTY ................... 61 18. (A) IS NOT A FREESTANDING DUTY ‘TO ACT’, BUT INSTEAD A LIMIT ON POWERS ................................................................................... 62 19. (B) DOES NOT OVERRIDE LIMITATIONS IN THE TRUST INSTRUMENT ................................................................................................ 63 Oceanic Steam Navigation Co (1880) ............................................................. 63 20. (C) DOES NOT OVERRIDE THE PROPER PURPOSES TEST .................. 65 21. (D) SHOULD BE SEEN AS SUBJECTIVE – WHAT DID THE TRUSTEE BOARD CONSIDER AT THE TIME WOULD BE LIKELY TO PROMOTE THE SUCCESS OF THE TRUST? ....................... 66 22. (E) THERE IS ALWAYS MORE THAT THE TRUSTEE COULD DO .................................................................................................................... 69 23. (F) LITERALLY WOULD IMPOSE A RETROSPECTIVE BEST OUTCOME STANDARD ............................................................................... 71 Mortgagees and Receivers ............................................................................... 73 Canada: KLB v British Columbia (2003) ......................................................... 74 ASIC v Australian Property Custodian Holdings (2013) ................................ 75 24. NOT A ‘PARAMOUNT’ DUTY .................................................................... 75 LON46827778/1 2ï119 APL Seminar: David Pollard The shortform 'Best Interests Duty': Mad, Bad and Dangerous to Know September 2017 25. GIVES NO GUIDANCE ON WHO IS A BENEFICIARY/ HOW TO DECIDE BETWEEN BENEFICIARIES ........................................................ 76 26. SOME CASES AFTER COWAN .................................................................... 77 Hayim v Citibank (1987) .................................................................................. 77 Bristol and West Building Society v Mothew (1996) ....................................... 78 Armitage v Nurse (1997) .................................................................................. 79 Barthelemy (2011) ........................................................................................... 81 27. ‘BEST INTERESTS’ OR JUST ‘INTERESTS’? ............................................ 82 Should not override other duty of care standards ............................................ 83 Limited view is taken in Australia ................................................................... 83 Cuckmere Brick: limit on statutory duty on a mortgagee’s power of sale ................................................................................................................... 84 28. BEST INTERESTS/SUCCESS OF THE TRUST IS BETTER ...................... 86 Purpose of a trust ............................................................................................. 87 Pension trusts ................................................................................................... 87 Charities ........................................................................................................... 88 Cases on interest of the trust ...........................................................................