Presentation to ACCA Isle of Man (1) Directors’ Duties (2) Trustees’ Duties (3) NMV 2 Years On Tom Maher &a

1. Presentation to ACCA Isle of Man (1) Directors’ Duties (2) Trustees’ Duties (3) NMV 2 Years On Tom Maher & Mark Dougherty Dougherty Quinn 11 November 2008 www.dq.im

2. DIRECTORS DUTIES Mark Dougherty Director Dougherty Quinn

3. “There is one and only one social responsibility of business – to use its resources and engage in activities to increase its profits so long as [it] stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” Milton Friedman ‘Capitalism and Freedom’

4. ‘The Rules of the Game’

5. Role of Directors • The company is a separate legal entity from its directors, shareholders and beneficial owners. • The Role of Directors:- • As Agents • As Managers • As Trustees • As Employees • Companies as Directors

6. Types of Directors • “De Jure” Directors • Validly appointed in accordance with the memorandum and articles of association and resolution. • “De Facto” Directors • Assumes to act as a director or purports to act as a director, although never properly appointed as such. • Shadow Directors • Does not claim or hold himself out to be a director, however he may still be considered a director provided:- • the person was able to direct the actions of the other directors whether de facto or de jure; • it was shown that the directors acted in accordance with the directions of the individual; and • the directors are accustomed to so act. • Nominee Directors • No such concept under Isle of Man law. All directors are under the same duty and principles. Do not let others unduly influence your actions. • Non-Executive Directors • Remember in law the standards are the same for Non-Executive and Executive Directors; • Higgs Review 2003 – They have an important role to play in corporate governance. • ALL OF THE ABOVE ARE SUBJECT TO THE SAME DUTIES

7. Fiduciary Duties “…in carrying out their duties, directors are in a privileged position and they are in a position of trust. They owe duties and must act bona fide in the interests of the Company. The duty owed by a director is primarily to the Company and not to individual shareholders or even to creditors…” Deemster Kerruish In the matter of Anita Gillian Costain – 18 February 2000

8. To act bona fide in the best interests of the company • The directors must act in what they assume is in the best interests of the Company. • Subjective Test. Did you yourself believe your actions were in the best interests of the Company (what was your state of mind at the time of making that decision)? • In whose interest? Deemster Kerruish clearly states that the directors’ interest should be primarily for the Company and not for shareholders or creditors. However, acting in the best interest of the Company could mean at a specific time considering the interests of shareholders or creditors. For instance, if the company is insolvent and there is a possibility of a winding up, the directors may have to have regard to the interest of creditors as well as to other parties. • The Group When acting for a group of companies, although you may take into consideration all members of that group, the duty is still to the individual company as a separate stand alone entity and not to the group as a whole when exercising your interest.

9. Duty to act for Proper Purpose Your duty is to act for a proper purpose for the Company and not for any “collateral purpose” which may be viewed to be improper. Objective Test • The court determines whether the nature of the action, even if authorised under the memorandum and articles, was done for an improper purpose. This is a question of fact for the court to consider. • The court will look at what is the ‘substantial purpose’ of the action being undertaken by the director. Examples • Directors allotting shares to themselves, in order to prevent themselves from being removed from the board on the take over of the Company; or • A refusal to transfer shares as authorised under the memorandum and articles, may be judged to be improper if it is to protect their own personal interest.

10. Directors Duties of Skill and Care • If a director is found negligent in respect of the performance of his duties for a company, he may be reasonably liable to the company for damages. • What is the degree of negligence (gross or ordinary)? • Things you need to bear in mind:- • Objective test: what is the general knowledge, skill and experience that may reasonably be expected from a person carrying out the same functions as are carried out by that director in relation to the company; and • Subjective test: what is the exactdegree of skill, knowledge and experience of that individual.

11. The Conflict of Duty and InterestSection 148 of the Companies Act 1931Section 104 of the Companies Act 2006 • Under both the 1931 Act and 2006 Act (which applies the 1931 principles) directors are under a duty to declare any conflict (actual or potential) between personal interest and their duties to the company. • See sample minutes. • Many standard articles do authorise directors who declare their interest at a meeting to still vote in respect of such matter at the meeting. See sample articles. • If they do not declare their personal interest in a matter, the Company can void the contract if the person to whom their contractual relationship was entered into was on notice of such interest. The Company may be able to recover any profits made by that individual director in respect of such contract.

12. Duty not to make secret profits • A director must not make a secret profile for himself from the use of corporate assets, information or opportunities. • The relevant word is secret - case law suggests that if you disclose profits to the shareholders at a general meeting and get approval from them then directors can be relieved from liability. • However, most articles of association will permit a director to benefit from a contract/arrangement with the company if he discloses his interest at the relevant board meeting. See handout for sample articles dealing with this.

13. Duty of Independence • Be independent in your judgment. • Do not allow your discretion to be fettered by any agreement, whether in writing or not between you and a third party.

14. Reliance on other Company Directors and Officers • You are under a duty to inform yourself of the business and activities of a company and cannot through delegation or otherwise, simply assign that interest away to other directors or officers of the Company. • However, many articles, including the standard articles for a 2006 company, authorise directors to appoint committees or agents to deal with certain aspects of the Company, indeed sometimes it is important to divide and delegate responsibility. However, even if you have delegated authority to committees or an agent, you must yourself remain active in assessing the actions of those committees or agents – total abrogation of responsibility is not permissible. • Remember, although acting as a collective with your other directors is important, it is extremely important that you yourself act also as an individual.

15. Seeking Professional Advice • It is important for directors in exercising their judgment to recognise when they may not themselves have the requisite knowledge in order to make a valid decision. • We as lawyers have seen so many contentious actions being brought in respect of agreements being drawn up “on the back of fag packets”.

16. Statutory Duties Fraudulent Trading – Section 259 of the Companies Act 1931 and Section 182 of the Companies Act 2006 • If in the process of the winding up of a company it appears that any business of a company has been carried on with the intent to defraud creditors or for any fraudulent purpose, the court may declare that any of the directors, whether past or present, who are knowingly party to the carrying on if it is a business in that manner shall be personally responsible without any limitation of liability for such debts. • There must be dishonesty in respect of the directors actions. Re: Peak and Hall Limited • Wrongful Trading? Although Isle of Man legislation does not recognise the offence of wrongful trading as UK legislation does, if the Company holds property or assets within the UK these can be subject to action within the UK courts and directors could be held accountable under statute within the UK in respect of such property or assets includingwrongful trading. What should you do if Company is insolvent? • You could consider, if the company is in financial difficulties, to cease trading in order to not increase the liabilities that may be owed to creditors at that particular time. Or, if you think it may be in the best interests of the company and creditors to do so, you may think that you could continue trading in order to realise payments due or in order to achieve a sale of the business as a going concern. • What you should not do is simply resign from office, as it is clear that your obligations to the company will not be discharged!

17. Fraudulent Assignment • Fraudulent Assignments Act 1736 • All fraudulent assignments or transfers of the debtors goods or effects shall be void and of no effect against his just creditors, any custom or practice to the contrary notwithstanding • Re Heginbotham:- • when dissipating assets in the company – important to consider if there is an intent to delay, hinder or defraud creditors, if there is then could be guilty of fraudulent assignment. • who are creditors – they can include known ascertainable debts which may fall due on a date in the future.

18. Misfeasance(Section 260 of the Companies Act 1931) • This gives the liquidator the right to examine the conduct of a person who has taken part in the formation/promotion of the Company, a past or present director, manager, liquidator or any officer of the Company. • If the court is satisfied that any such person has misapplied, attained or become liable or accountable for money or property of the Company or guilty of misfeasance or breach of trust in relation to the Company, the court may examine the conduct of that person and tell him to repay or restore the money or property or to contribute to some of the assets of the Company by way of compensation. • Vannin Accumulators Limited v Beesley Vincent and Sloan

19. Unlawful Distribution(Section 51 of the Companies Act 2006) • A distribution is the direct or indirect transfer of any assets other than shares to or for the benefit of members of the Company. • Must on the distribution satisfy the solvency test:- • is the Company able to pay its debts as they become due in the normal course of business; and • does the value of the Company’s assets exceed its liabilities? • Transactional minutes should include the consideration of the solvency test by the directors. • If you do not do a solvency test, directors may be personally liable to the Company to repay the Company so much of the distribution as can not be recovered from members.

20. Power of court to grant relief in certain casesSection 337 Companies Act 1931 • The court can relieve a director in respect of any liability of the Company upon application to the court for relief. • The court must be satisfied that the directors acted honestly and reasonably in regard to all circumstances of the case. • Section 99 of the Companies Act 2006 does contain a similar relief, however only applies to directors and not other officers or auditors of the Company.

21. AIM Listed Companies • Please note for AIM listed company, directors will be required to sign separate letters of responsibility to the Company and to the NOMAD. • Under the AIM rules, directors have to ensure that they are adequately covered in respect of D&O insurance and notification of such D&O insurance must be given prior to listing. • Terms of business therefore may be different in respect of a company going to list on AIM for provision of directors services.

22. How May Action Be Taken Against A Director? There are several methods available to shareholders and directors of a company in which action may be taken against another director of that company. These include: Companies Act 1931: • Under section 259: an application to Court by the liquidator or a creditor of a company in relation to fraudulent trading • Under section 7 (1) of the Companies Act 1968: a shareholder of a company who complains that the affairs of the company “are being conducted or that the powers of the directors of the company are being exercised in a manner oppressive to him or some part of the members (including himself)”, may apply to the Court for such relief as the Court sees fit. • Under section 141A: a company may by special resolution remove a director before the expiration of his period of office. • However: the company must send a copy of the notice of removal to the director concerned and the director is entitled to attend the meeting and make representations. S26 Companies Act 1996 • Disqualification of an individual from acting as a director of companies.

23. How May Action Be Taken Against A Director? (ctd) Companies Act 2006: • Under section 96: a director may by resolution be removed by the company, and if the articles permit, a director of a company may be removed from office by the other directors of the company. • Under section 175: a single shareholder may bring a derivative action - an action in the name and on behalf of the company. However, views of the directors will be sought by the Court when deciding whether to grant leave under this section. • Under section 179: a member may bring an action against the company for breach of a duty owed by the company to such member. • Under section 180: a member who considers that the affairs of the company have been, are being or are likely to be, conducted in a manner that is, or is likely to be, oppressive or unfairly prejudicial to such member, they may apply to the Court for such relief as the Court thinks fit.

24. Company Officers (Disqualification) Bill 2008 • This new piece of legislation is expected to be passed early 2009 • Aims to draw together into one stand-alone and more accessible body of law all of the current grounds for disqualification of directors and other officers who may be unfit to be involved with the promotion, formation or management of a company

25. Case Study You administer an Isle of Man SPV (company), newly incorporated and act as a director on the board of such company. The Company is not a trading Company and has only one asset being a property held in the United Kingdom. It is 4.30 pm on a Friday and you have a dinner date to attend that evening at 6.00 pm. You are contacted by the ultimate beneficial owner who has signed your terms of business. He requires that you sign transactional minutes (which he himself has drafted) in the next 30 minutes. The minutes are required to ensure that a loan can be drawn down by a group subsidiary you are not aware of from a bank in the Far East. The beneficial owner states that if you do not sign off the transactional minutes and execute a third party guarantee in respect of such group subsidiary, they will not be able to draw funds and the group could lose millions. Considering the above and the duties you have as a director, what should you do?

26. How to safeguard your position? • A director’s service contract • Your own terms of business to include indemnification in respect of certain actions taken without your knowledge or authority • Directors and officers insurance • Good corporate governance (record all decisions by way of board meetings and/or resolutions). • Good communication with members, beneficial owner and other directors • Limited recourse provisions within contracts (particularly important where chargor is third party and not borrower) • Seek professional advice!

27. Director’s Duties - What Does The Future Hold? • The provisions of the UK Companies Act 2006 relating to directors’ duties came into force on 1 October 2007 and the remaining sections were brought into force on 1 October 2008. • These provisions have codified certain common law duties as well as introduce new statutory duties (sections 171 – 177). • Under the Act, a director has a general duty: 171: to act within his powers; 172: to promote the success of the company; 173: to exercise independent judgment; 174: to exercise reasonable care, skill and diligence; 175: to avoid conflicts of interest; 176: not to accept benefits from third parties; and 177: to declare any interest in a proposed transaction or arrangement with the company • Section 170 of the Act confirms that these general duties are based on common law rules and equitable principles and have effect in place of those rules and principles, however they should be interpreted and applied in the same way as the corresponding common law rules and equitable principles.

28. Director’s Duties - What Does The Future Hold? (ctd) • Section 172 – the duty to promote the success of the company - has so far attracted the most comment in the UK. This section goes on to list a non-exhaustive set of factors to which a director should have regard when discharging this duty, including: • the likely consequences of any decision in the long term • the interests of the company’s employees • the impact of the company’s operations on the community and the environment • the need to act fairly as between members of the company • This section goes further than the common law in that it has introduced the concept of ‘corporate social responsibility’ into statute.

29. TRUSTEE’S DUTIES Tom Maher Director Dougherty Quinn

30. Trustees’ Principal Duties Duty of trustee concerning acceptance of trust or additional trust property Duty of trustee to obey the directions of the settlement unless deviation sanctioned by the court Duty of trustee to act impartially in the sense of fairly and disinterestedly, between the beneficiaries Duty of trustee to sell improper property Duty of trustee in relation to the payment of outgoings out of corpus and income respectively Duty of trustee to exercise reasonable care and skill Powers and duties of trustee in relation to the investment of trust funds

31. Trustees’ Principal Duties (ctd) • Duty of trustee to see that he transfers trust property only to beneficiaries or to object of a power of appointment or only to persons authorised under the trust instrument or the general law to received such property (eg as custodian or portfolio manager) • Duty of trustees not to delegate their duties or powers unless authorised • Duty of trustees to act jointly where more than one • Duty of trustee not to set up jus tertii • Duty of trustee to act gratuitously unless otherwise authorised (as is usual now) • Duty of trustee not to traffic with or otherwise profit by trust property not to cause loss from a conflict between his fiduciary duty and his self-interest • Duty of trustee to be ready with his accounts

32. Trustee’s Duties - Focus for this Presentation • Comply with the terms of the trust instrument • Exercise reasonable skill and care – one of the most important duties • Duties in respect of investment – particularly important during credit crisis • Ensure fairness between the beneficiaries • Act without reward and not make profit from the trust • Provide information and accounts • Consult with the beneficiaries – not a strict duty but often helpful as they are the people who sue you!

33. The Two-Part Test to Exercising Powers and Complying with Duties • Firstly, do the trustees have the power to do what they propose? Either under the trust deed or by statute • Secondly, if the power exists, is the power being exercised for a proper purpose and in accordance with fiduciary duties? • Trustees must review the relevant, and exclude irrelevant, factors in considering whether to exercise a power • Consultation with settlor, protector, beneficiaries? • Document decisions and keep a full minute book • Will consider this in more detail later

34. Compliance with the terms of the trust instrument • The trust deed is the framework for the operation of the trust and how the trust fund is to be dealt with. Trustees have a duty to administer the trust according to its terms • It is important that all parties to the trust deed, especially the settlor, understand the provisions of the trust deed and the role of each party and their relationship to the trust. • A settlor with too much control within the deed or in practice - danger that the trust is considered a sham. • Changing the terms of the trust deed • power to add beneficiaries under the trust deed • power to vary the terms of the trust instrument - can the trustee amend the document in any manner or does the trust deed merely permit changes to the administrative powers? • Variation of Trusts Act 1961 – approval for those who cant give approval themselves • consent of all the beneficiaries • Importance of future events– in particular with regard to the powers of trustees going forward, the retirement of trustees and the potential liability of trustees

35. Compliance with the terms of the trust instrumentCase study • Client is a successful businessman, resident non dom in England, who is the settlor and protector of a discretionary trust of which he is the primary beneficiary • Trustees removed by the Protector • Trustees demand payment of fees and suitable indemnity prior to the transfer of the trust assets • Virani[2004] WTLR 1007 – once removed a trustee cannot charge for its fee or third party expenses • ATC v Rothschild Trust Cayman9 ITELR 36 – trustee refused to transfer the trust assets until it received a satisfactory indemnity • Protector a de facto trustee

36. Compliance with the terms of the trust instrumentCase study Practical points • Get the terms of the trust deed right at the beginning • DORA as a schedule to the trust deed in order to reduce costs and negotiations on retirement of trustees • Criteria for the selection of future trustees • Bill at regular intervals • Ensure formalities of the Trust Deed are completed - See Christopher Richard Oakley v Osiris Trustees Limited, Goodways Limited and De Montfort Securities Limited 21 December 2005 - directors resolution and minutes do not pass legal test of a deed of variation.

37. Exercise reasonable skill and care • Statutory Duty of Care set out in section 1 Trustee Act 2001:- • “Whenever the duty under this subsection applies to a trustee, he must exercise such care and skill as is reasonable in the circumstances, having regard in particular- (a) to any special knowledge or experience that he has or holds himself out as having, and (b) if he acts as trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession.” • Schedule 1 of the Trustee Act 2001 sets out the situations when the duty of care applies to trustees. It covers the trustees when:- • investing the trust fund • appointing agents & nominees • acquiring land and dealing with insurance • This statutory duty can be excluded from applying within the trust instrument.

38. Exercise reasonable skill and care Common law fiduciary duty • Duty has not been “laid down with precision”. It is an evolving duty • To exercise the care that an ordinary prudent businessman would in managing his own affairs • However, in selecting investments, duty to consider that the trustee is making an investment for the benefit of other people (for whom he is morally obliged to provide) • Safety first, no speculative investments. However, what is the position if they don’t use power to invest fully Standard of Care • Objective test • The conduct of trustees will be judged with reference to the facts and circumstances existing at the time when they had to act and which were known or ought to been known to them at the time. • Decisions of the trustees are not judged in hindsight. • Paid trustee expected to exercise higher standard of knowledge than unpaid • Corporate trustee expected to use special care and skill which it professes to have

39. Duties in relation to investment • Section 3 Trustee Act 2001 contains the general power of investment:- “Subject to the provisions of this Part, a trustee may make any kind of investment that he could make if he were absolutely entitled to the assets of the trust.” • Remember the mere existence of a power to invest is only half of the test: must exercise the power properly • Standard Investment Criteria set out in section 4 Trustee Act 2001:- “(1) In exercising any power of investment, whether arising under this Part or otherwise, a trustee must have regard to the standard investment criteria. (2) A trustee must from time to time review the investments of the trust and consider whether, having regard to the standard investment criteria, they should be varied. (3) The 'standard investment criteria', in relation to a trust, are- (a) the suitability to the trust of investments of the same kind as any particular investment proposed to be made or retained and of that particular investment as an investment of that kind, and (b) the need for diversification of investments of the trust, in so far as is appropriate to the circumstances of the trust.’

40. Duties in relation to investment (ctd) • Section 6 Trustee Act 2001 provides that the general power of investment is:- • in addition to powers conferred on trustees otherwise than by this Act, but • subject to any restriction or exclusion imposed by the trust instrument or by any statutory provision.’ • Section 4 makes it clear that trustee has a duty to consider suitability of investment at the time of investment • Section 4 also imposes an ongoing duty to monitor • Section 5 requires the trustees to obtain proper investment advice from suitably qualified person unless in the circumstances it is inappropriate to do so: Bank accounts -v- derivatives

41. Duties in relation to investment (ctd) • Fiduciary duties in relation to investment also apply, for example:- • investments to be in the best interests of the beneficiaries, generally that is going to be mean their best financial interests • Cowan v Scargill [1985] Ch 270 - in this case the trustees had very wide powers of investment and it was found that trustees must ‘take such care as an ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide.’ • seek advice on matters that the trustee does not understand • consider diversification of investments • fairness between the classes of beneficiaries • duty of care still applies when appointing nominee, agent etc

42. Duties in relation to investment/Duty to exercise reasonable skill and care Case study – Collapsed Bank Trustees invested part of the trust fund in a 12 month fixed income bond with a bank three months ago. Bank has now gone into liquidation with little prospect of the liquidator being able to repay all deposits at the bank. What responsibility, if any, do the trustees have for the loss to the trust fund? Relevant factors • Did the trustees have the necessary power to invest? Any relevant investment restrictions? • Was the power exercised in accordance with fiduciary duties (skill and care/investment duties) • Is there an ongoing duty to monitor investment/deposit? • What if money was deposited 2 days prior to liquidation despite a run on the bank? • What if money was deposited 2 years ago when the bank was the leading European bank with the highest credit rating of all European banks? • What if trustees deposited the entire trust fund with the bank? • Difference between a private individual acting as trustee and a corporate service provider?

43. To ensure fairness between the beneficiaries • Act fairly and disinterestedly between the beneficiaries • Life interest or remainderman – impact of expenses on income or capital • Consider each potential beneficiary carefully and objectively • In the case of a discretionary trust you may favour the wishes of one beneficiary over another • Document decisions carefully and include the following in the relevant trustee minutes:- • the reasons for your decision; • the factors that you have taken into account; • the reasons for taking such factors into account; • the factors which you have ignored or deemed irrelevant; • the reasons why you have ignored or deemed such factors to be irrelevant; and • if the exercise of the power amounts, at face value, to a preference of certain beneficiaries over the others, the motivation, logic and reasons for this apparent preference.   • Ultimately, it is a matter for the Courts to determine, in all the circumstances of each particular case, whether the exercise of the trustees’ powers was a proper one. 

44. To ensure fairness between the beneficiariesCase study – Death in Service Pay-Out by Trustees • Employee died, leaving very young child, unmarried partner and parents • Employer was trustee of the death in service scheme • Eligible beneficiaries under scheme were child, partner and parents of the deceased • Trustee indicated it was going to benefit child and partner, but exclude parents from any benefit • “Crisis meeting” called by parents to explain this apparent preference and to voice concerns • Trustee explained its thinking in very general terms but did not disclose detailed thought process or minutes • Trustee ultimately resolved to benefit child and partner to exclusion of parents despite risk of attack by parents • However, provided the trustee complied with its duty and documented its decision as set out on previous slide, likelihood of any successful challenge was minimal

45. To act without reward/ not to make profit from the trust • This duty effectively creates the general rule that trustees are not entitled to payment for taking up their position. Ensure you have a charging clause within the trust deed • Part 5 Trustee Act 2001 makes provision for professional trustee to be entitled to remuneration provided specific charging clause contained in the trust deed • If the clause is wide enough, trustee entitled to retain commissions, directors fees, etc • Comply with FSC Codes (now the Rulebook) on what is included in your terms of business or client engagement letter • Rulebook - in particular, note the requirement to state that you will disclose:- • any business relationships with third parties recommended to the client • inform clients how interest on clients money is to be dealt with

46. To provide information and accounts • Do beneficiaries have a right to information or is the provision of information of the affairs of the trust at the discretion of the Trustee? • The right of a beneficiary to information depends on:- • the status of the beneficiary; and • the nature of the information requested • Each request must be considered individually. The decision as to whether to disclose is discretionary unless there is a right to access under the Trust Deed. • Vadim Schmidt v Rosewood Trust Limited[2003] WTLR 565 PC departed from the traditional view that a proprietary right to trust documents needs to be established before disclosure can be made. This case highlights the court's equitable function in deciding what class of documents should be disclosed to whom and holds that a proprietary right in the material requested is no longer a necessary condition to establish a claim for sight of it. • Re Londonderry’s Settlement [1965] Ch 918 held that beneficiaries are not entitled to documents setting out the reasons for the exercise of a discretionary power e.g. minutes of meetings, correspondence between the trustees and individual beneficiaries. This is considered a confidential process. • Would Londonderry be decided differently now if the documents requested by the beneficiaries related to the trustee investing or depositing in a failed financial institution?

47. To provide information and accounts (ctd) • Letters of wishes – disclosable? What is its legal status? (legally binding, legally significant, morally binding) • Hartigan Nominees Pty Limited v Rydge [1991] 29 NSWL 405 held that if a letter of wishes is given on a confidential basis then no disclosure to beneficiaries • Re Rabaiotti[2000 JLR 173] found that thecourt has jurisdiction to award disclosure of a letter of wishes however there is a presumption against disclosure. The beneficiary must show good cause for disclosure. The interests of all the beneficiaries as a whole must be considered • Breakspear and others v Ackland and others [2008] EWHC 220 (Ch) confirmed that a proprietary right to the trust assets does not lead to the automatic right to disclosure of trust information. Potential beneficiaries requested disclosure of a letter of wishes. The trustees refused to disclose and informed the beneficiaries that to do so would cause family discord and was therefore not in the interests of the beneficiaries. In disclosing their reasons for withholding the letter of wishes they opened up their decision to review by the courts. Letter of wishes considered a means by which a settlor could confidentially express his wishes to the trustees which could be invaluable to the trustees in exercising their powers. Counter argument beneficiaries with the information in such a letter can plan for their own future.

48. To provide information and accounts (ctd) • Beneficiaries have the right to supervise the administration of the trusts and therefore trustees must be accountable. • However, as this is not an automatic right of beneficiaries or the settlor, consider carefully if disclosure is likely to expose you to a greater risk of a claim by the beneficiaries or strengthen an otherwise weak claim. • This cautious approach is particularly important in the credit crisis when many beneficiaries will seek to challenge investment and other decisions.

49. To consult with the beneficiaries • Give effect to the wishes of the beneficiaries provided they are in the general interest of the trust • This does not infringe the trustees’ duty to act as ordinary, reasonable and prudent trustees would act, but it requires them to be satisfied that as trustees they can properly form the view that the proposed transaction is for the benefit of the beneficiaries or the trust fund • As beneficiaries are the people who will be suing you, it makes sense to consult • Considering getting a deed of indemnity from beneficiaries in respect of potentially risky or questionable decisions • Ignoring the wishes of adult beneficiaries – DQ recent experiences

50. Conclusion • Always apply the guiding principle that you must act for the benefit of the trust and in the best interests of the beneficiaries • Ensure that you consider the following before you act • Do you have the power to do what you are proposing? • If so, is it an appropriate exercise of that power? • Have you considered all relevant factors? • Have you ignored irrelevant factors? • Document your decision but keep disclosure of your reasons to a minimum where appropriate • Consider who might sue you if things go wrong. Can you get their consent in advance? • If in doubt seek professional advice • If in serious doubt and significant exposure to risk, consider application to court for guidance under section 61 Trustee Act 1961