Daniel & Ors v Tee & Ors [2016] EWHC 1538 (Ch) (01 July 2016)

Neutral Citation Number: [2016] EWHC 1538 (Ch) Claim No: HC14A02206 IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION Claim No: HC14A02206 Royal Courts of Justice Strand, London, WC2A 2LL 1 July 2016 B e f o r e : RICHARD SPEARMAN Q. C. (sitting as a Deputy Judge of the Chancery Division) ____________________ Between: GLYN THOMAS DANIEL AMY LOUISE DANIEL Claimants - and - JAMES RICHARD TEE DAVID IAN REDFERN PAUL FREDERICK OSBORNE Defendants ____________________ Christopher Lundie (instructed by Gateley LLP) for the Claimants Anthony de Freitas (instructed by BLM LLP) for the Defendants Hearing dates: 20, 21, 22, 25 April 2016 ____________________ HTML VERSION OF JUDGMENT ____________________ Crown Copyright © RICHARD SPEARMAN Q. C.: Introduction and nature of the dispute This is a claim for breach of trust. It raises questions concerning the duties of trustees, and in particular the extent to which professional solicitor trustees, who have no personal expertise in managing investments, may be said to have acted imprudently by relying on the advice of independent financial advisers which transpires to be incorrect. The Claimants are the children of the late Jack Raymond Daniel, a chicken farmer who died unexpectedly young on 28 June 1999, and are the beneficiaries under the Jack R Daniel Will Trust ("the Trust") established by his will dated 19 June 1998 ("the Will"). At the time of Mr Daniel's death, the First Claimant, Glyn Daniel, was 13 years of age, and the Second Claimant, Amy Daniel, was 16 years of age. Clause 4 of the Will states: "My trustees shall hold my Residuary Estate upon trust for my children GLYN THOMAS DANIEL and AMY LOUISE DANIEL in equal shares if they both shall survive me and shall attain or shall have attained the age of twenty five years but if one only of them shall survive me then for such survivor absolutely but if either of them shall die (whether in my lifetime or after my death) before attaining a vested interest in my Residuary Estate but shall leave a child or children alive at or born after my death who shall attain or shall have attained the age of twenty five years then such child or children shall take absolutely and if more than one then in equal shares the share in (or the whole of) my Residuary Estate (as the case may be) which his her or their parent would have taken had such parent lived to attain a vested interest therein." Mr Daniel's solicitors were Stanley Tee & Co (now Stanley Tee LLP) ("Stanley Tee"), a provincial firm which has offices in Bishop's Stortford and a number of other towns. The Third Defendant, Mr Osborne, was with Stanley Tee all his working life. He qualified as a solicitor in 1974 and retired in 2015. At all material times he was the partner in charge of the firm's Great Dunmow office. He advised Mr Daniel for a number of years in relation to property and business matters, and he drafted the Will. In the late 1990s, Mr Daniel's marriage to his then wife Celia Janet Daniel ran into difficulties and the Second Defendant, Mr Redfern, was introduced to him by Mr Osborne to provide advice in relation to his matrimonial affairs. Mr Redfern joined Stanley Tee as an articled clerk in 1979, and has been with the firm ever since: he qualified as a solicitor in 1981, became a partner in 1983, was Managing Partner at the material time, and is now Senior Partner. He works at the Bishop's Stortford office. By the Will, Mr Redfern and Mr Osborne (together "the trustees") were appointed as executors of Mr Daniel's estate and also as trustees of the Trust. Probate of the Will was granted to them on 21 September 1999. As professional trustees, and in accordance with Clause 1 of the Will, they were entitled to charge for their services as executors and trustees. During the time to which this claim relates Stanley Tee received a total of £91,865.95 for services provided in connection with the administration of the estate and the initial investment of the Trust funds. The First Defendant, Mr Tee, joined the Bishop's Stortford office of Stanley Tee in 1979 with a view to setting up and becoming head of a Private Client department, and this is what duly occurred: he became a partner in 1983, was the head of the Private Client department at the material time, and is now a consultant. Mr Tee was appointed a trustee of the Trust on 4 February 2004 in place of Mr Osborne, but he was involved in the investment of the Trust funds from an early stage to an extent which he accepts meant that he effectively took on the role of trustee and is liable as a trustee de son tort . According to Mr Redfern's witness statement, the role played by these three men at the time which is material to the present proceedings may be summed up as follows: "It was an agreed decision between Paul [Osborne], Richard [Tee] and myself that Richard would lead the day to day management of the Will Trust as he had the greater expertise and skill in this area of business but Paul and I would stay engaged as trustees in terms of the decision making and strategy with the assistance of Richard's advice". Although Mr Daniel had run a successful farming business, the three men reached a clear decision that the farm would need to be sold, possibly initially as a going concern, but in any event in whatever way seemed likely to secure best value from the sale of the farmhouse, the farm business and the land. The administration of Mr Daniel's estate was dealt with by Mr Tee and his team, with Mr Tee liaising with Mr Redfern with regard to the running of the farm business pending sale, the payment of wages, and catering for the needs of the Claimants (who were then still children). Consideration was also given to meeting a lump sum obligation to Mr Daniel's former wife Celia arising from the terms of the Will, although in the event it seems that nothing was paid to her. Strutt & Parker in Chelmsford were instructed on the sale of the land, and the proceeds of sale in the sum of £3,055,187.67 were received in February 2000. At that point a Will Trust file (numbered 87142-9) was set up at Mr Tee's instigation. A further property, Gifford's Farm, was sold in October 2000, generating a net sum of £351,874. The Claimants make no complaint about these transactions. Nor do they complain about the way in which the Trust funds were invested after the decision was taken to move their management, with effect from early 2002, in house to Stanley Tee (and subsequently to Tee Financial plc), where the funds remained until about 2015. However, the Claimants claim compensation in the sum of £1,476,076 for breach of trust in connection with the investment of the Trust funds in the period 2000 to 2002. During that time, the Defendants relied on advice provided by Taylor Young Investment Management Limited ("Taylor Young"), which they had previously chosen as investment advisers not only in respect of other trusts of which they (and, in the main, Mr Tee) were trustees but also, in the case of Mr Redfern and Mr Tee, in respect of their personal pensions. The Claimants do not allege that the Defendants were at fault in choosing Taylor Young as advisers for the Trust. Their case is that the Defendants were at fault in failing to take appropriate care to formulate and then implement a suitable investment strategy, and to review the investments made as time went on, and in relying on Taylor Young's advice and recommendations, which transpired in the events which happened to be poor and costly to follow. The Claimants' opening Skeleton Argument expressed the heart of the matter as follows: "This period was affected by stock market volatility in the Tech, IT and Telecom sectors and this volatility exposed the lack of a considered investment strategy for the Trust and the failure on the part of [the Defendants] to invest in a properly diversified portfolio having regard to the objectives and risk profile of the Trust." The Defendants dispute that they were in breach of any of their obligations as trustees, or that any breach of trust which may be established caused the claimed or any loss to the Claimants. If they fail on those points, the Defendants contend that they acted honestly and reasonably and ought fairly to be excused from the breach of trust, such that the court should exercise its jurisdiction to relieve them either wholly or partly from personal liability for the breach pursuant to section 61 of the Trustee Act 1925. At one stage the Defendants contended that the claims, or some of them, were time barred pursuant to section 21(3) of the Limitation Act 1981, but that argument was abandoned during the course of the trial. The Defendants also intimated that an issue of laches would arise in the event that the Claimants sought some equitable remedy which went beyond a claim for compensation for breach of trust, but that also does not arise because the Claimants have not suggested that they are entitled to anything more than compensation for breach of trust. Nevertheless, each Claimant had 6 years after her/his future interest in the trust property fell into possession within which to bring the present claim, and they did not issue their claim form until 30 May 2014. Further, partly as a consequence of stays which were granted while attempts were made to resolve this dispute by mediation, which were sadly unsuccessful, it took until April 2016 for the case to come to trial. In these circumstances, the Defendants are being asked to deal with events which occurred long ago, and which they were first expected to reconsider well over a decade after they happened. This has an inevitable impact on their evidence, for which allowances need to be made. By the time the claim was begun some files had been destroyed, and their recollection of events is necessarily imperfect. However, they accept that they did not make a written record of their internal discussions in any event, so they have not been disadvantaged in that regard by loss or destruction of documents. The Claimants were represented by Mr Christopher Lundie and the Defendants by Mr Anthony de Freitas. I am grateful to them for their clear and helpful submissions. The witnesses of fact The Claimants relied on the witness statements and the oral evidence of Glyn Daniel, Amy Daniel and Colin Wingrove. At the time of the material events, Stanley Tee did not have an easy relationship with the Claimants' mother, Celia Daniel, because the firm had represented Mr Daniel in his divorce proceedings. However, Celia Daniel had a child from a previous marriage, Mr Wingrove, with whom the Claimants were on good terms, and who, excluding their mother, was their closest living adult relative. Mr Wingrove is a police officer. He was a Sergeant at that time and is now a Superintendent. Mr Wingrove features in the evidence because Mr Tee corresponded with him about the investment decisions which were made about the assets of the Trust. All these witnesses were honest, but their evidence is of limited relevance to the issues I have to decide. Due to the nature of the claim, the focus must be on the conduct of the Defendants, which took place when the Claimants were children and in circumstances where Mr Wingrove had no formal role to play in decisions concerning the Trust assets. For example, part of the trial was taken up with the extent to which Stanley Tee decreed that the Claimants should not be provided with information concerning the assets and affairs of the Trust until they reached the age of 25. In particular, there was a dispute as to Glyn Daniel's participation in a meeting on 25 June 2008 at which Amy Daniel was told about the value of the Trust and there was a discussion about what steps she should take when she became absolutely entitled to her interest on her impending 25 th birthday. The Claimants accepted that Glyn Daniel attended that meeting, but they disputed that he participated in it to the extent suggested by a detailed attendance note of that meeting and other contemporary documents. In this regard, an earlier attendance note of 13 June 2008 prepared by Ms Mowat states: "Discussing with [Mr Tee] and agreeing that on the whole if Glyn is going to know most of the situation in any event he may as well come. Subsequently leaving message for Amy to that effect, saying we were slightly reluctant to involve him as she has had to wait until she was 25 and he still has another two years to go but if she would like him there then that is no problem at all". It is unnecessary for me to resolve this dispute. If I had to do so, I would probably prefer the evidence of the Defendants, which better accords with these contemporary documents, to that of the Claimants, which I consider to be genuine but mistaken. The Defendants relied on the witness statements and the oral evidence of Mr Tee, Mr Redfern, Mr Osborne, and Catherine Mowat. Ms Mowat is a solicitor who trained and qualified at Stanley Tee. She joined the private client department about two months after the death of Mr Daniel, and worked with Mr Tee on the administration of both Mr Daniel's estate and the Trust. They were also all honest witnesses. Their good intentions towards their late client Mr Daniel and towards the Claimants as the beneficiaries of the Trust which Stanley Tee had helped him to set up shone through their oral evidence. So also, in my judgment, did a significant degree of continuing knowledge of the affairs of the Trust, and of involvement in the decisions concerning investments, which were the subject of correspondence conducted by Mr Tee alone. In any case involving such a lapse of time as has occurred in the present case there is a heightened risk that witnesses may be honest but mistaken about what took place, and may give evidence about what they would like to think happened rather than what they can truly recollect. These factors make the appraisal of their evidence more difficult. At the end of the day, the best guide to the truth is often to be found not so much in the demeanour of the protagonists, or even concessions made in cross-examination, but in the contemporary documents and in an objective appraisal of the probabilities overall. These matters were discussed more fully a passage in the judgment of Leggatt J in Gestmin SGPS SA v Credit Suisse (UK) Limited, Credit Suisse Securities (Europe) Limited [2013] EWHC 3560 (Comm) , to which Mr de Freitas drew my attention. Leggatt J considered not only the fallibility of memory but also the difficulties to which the process of civil litigation gives rise, before concluding at [22] as follows: "In the light of these considerations, the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses' recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose – though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth." For these reasons, I have thought it right to focus on the documentary evidence, and have placed less weight on the recollections of the witnesses, save where they appear uncontroversial, or objectively probable, or are supported by the contemporary documents. For example, whether the approach to investment was "cautious" is best tested by what the documents show than by the bona fides of assertions to that effect. Expert evidence Both sides relied on expert evidence concerning financial investments. The Claimants' expert, Grahame Goodyer, is an investment consultant who has 33 years' experience in the financial services industry, and has been involved as an expert in over 200 investment related cases over the last 12 years. The Defendants' expert, Ian Barton, is a director of a corporate financial planning team and an independent financial adviser with 25 years' experience of providing personal financial planning advice to clients. He has provided expert reports and advice in a number of professional negligence cases. Mr Goodyer's central contentions were as follows. The appropriate investment risk profile for the Trust was: investment risk – low to medium; investment term – long; investment style – "Growth" (see paragraph 5.12 of his report dated 1 March 2016). The appropriate investment strategy for the Trust in the period March 2000-April 2002 (see paragraph 1.03) would have been: Cash 5%-15%; UK Government Gilts 15%-35%; UK Government Index Linked Gilts 10%-25%; UK Corporate Bonds 10%-30%; Property Funds 5%-15%; UK Equities 10%-30% (paragraphs 5.21 and 5.27). The portfolio which was built up (on the advice of Taylor Young) was very different, and (ignoring cash held by the Trust, which meant that it was "overweight" in cash): as at 28 February 2001, it comprised 100% Equities; as at 5 September 2001, it comprised 85.9% Equities, 8.5% UK Government Gilts, and 5.6% Corporate Bonds; and as at 5 April 2002, it comprised 82.4% Equities, 10.5% UK Government Gilts and 7% Corporate Bonds (paragraphs 5.37-5.40). Although, in principle, and in accordance with what was known at the time, zero dividend preference shares ("Zeroes") were a suitable investment for the Trust, it is highly unlikely – although it is impossible to be certain because the relevant evidence is no longer available due to the passage of time - that the particular Zeroes which were in fact purchased were suitable (paragraph 5.56). So far as concerns quantum, Mr Goodyer contended that the appropriate proxy portfolio for the purposes of calculating the loss sustained by the Trust by reason of the inappropriate investments which he says were made is the sector fund average of the Investment Association Mixed Investment 0-35% Shares index (paragraph 6.10). Such funds are required to have a range of different investments, made up as follows: maximum 35% equities; minimum 45% investment grade fixed income and cash (including current account cash, short-term fixed income investments and certificates of deposit); minimum 80% investment in established market currencies of which 40% must be in Sterling (paragraph 6.10). The figures in paragraphs 7.06-7.10 of Mr Goodyer's report were recalculated in an Addendum dated 11 April 2016 which replaced section 7 of that report. According to his revised calculations, had the assets of the Trust been invested in such a proxy portfolio, they would have been worth £3,463,384 as at the end of March 2002, after allowing for tax liabilities and charges, whereas in fact they were worth £2,438,592, resulting in (1) a loss of £1,024,792 at that time (paragraph 7.04) and (2) a loss of £1,408.328 when the loss of growth on that sum of £1,024,792 is carried forward to 31 January 2016 (paragraph 7.08). The losses increase if no adjustment is made for CGT liabilities (paragraphs 7.09-7.10). In his report dated 2 March 2016, Mr Barton first considered the appropriateness of the investment decisions that were made concerning the assets of the Trust. So far as concerns the Trust's attitude to risk, Mr Barton expressed the view that (1) this was not documented prior to the involvement of Duncan Scott (of Stanley Tee) in February 2002, (2) Taylor Young ought to have questioned the Trustees about this at the outset so as to be able to assess and recommend appropriate investments for the Trust, and (3) Taylor Young's original recommendations suggested a high level of risk and did not accord with the attitude of the Trustees as explained in Mr Tee's evidence (which is to the effect that the Trustees were "realistic" and wished to ensure short-term financial security through low risk investment while also wishing to benefit from long-term investment returns to provide future security) (see section 2.4 of Mr Barton's report). Mr Barton considered that (1) it was reasonable to seek and to rely upon advice from Taylor Young (paragraphs 2.5.1 and 3.6.1), (2) where the Trustees decided not to follow that advice they should have documented their reasons for acting as they did (paragraph 2.6.5), (3) nevertheless, the Trustees' deviations from the advice received from Taylor Young reduced the degree of risk within the recommended portfolio (paragraph 2.6.8), (4) the Trustees acted reasonably when they "delegated a lot of the investment decision making in respect of the Trust to Mr Tee" (paragraph 2.6.11), (5) detailed reviews or analyses of the Trust's portfolio ought to have taken place on a quarterly basis (paragraph 2.8.1) and although periodic reviews were undertaken they were deficient, among other things in not reconsidering from time to time whether the investment strategy was still appropriate for the Trust's attitude to risk (paragraph 3.6.1), and (6) there was no evidence of a clear investment strategy (paragraph 2.8.1). When considering the role of Taylor Young in acting as investment advisers to the Trust, Mr Barton was, in general, critical of Taylor Young, and he attributed the blame for many of the above shortcomings to Taylor Young. Among other things, he considered that Taylor Young did not conduct sufficient due diligence when they were first engaged, and did not adequately diversify the investments made by the Trust (paragraph 3.6.1). In particular, Mr Barton considered that "the level of investment in technology and IT stocks was not appropriate for the Trust as it represented an over concentration on this particular sector which increased the level of investment risk that the Trust was exposed to" (paragraph 3.4.8). Mr Barton expanded on these criticisms of Taylor Young in section 4 of his report, in which he expressed the view that a reasonably competent investment adviser would have complied with the benchmark provided by the Investment Association Mixed Investment 40-85% Shares sector (paragraph 4.4.4). Funds in this sector must meet the following requirements: equity exposure 40% minimum, 85% maximum; no minimum fixed income or cash requirement; minimum 50% investment in established market currencies of which 25% must be in Sterling (paragraph 4.4.5). According to Mr Barton's calculations, if the assets of the Trust had been invested in the Investment Association Mixed Investment 40-85% Shares sector, as at 28 February 2002 they would have been worth £144,972 more (equivalent to 4.6% of the initial value invested) than they were worth as a result of the investment decisions that were in fact made (supplemental pages entitled "Expected Performance of the Trust"). While not "disastrous", this difference would have required explanation, together with proposals for bringing the fund back in line with the sector in future (paragraph 4.4.9). Mr Barton accepted in cross-examination that aspects of his calculations may have been incorrect. The revised figure, if my understanding is correct, would be over £200,000. The experts produced a joint statement dated 31 March 2016. In sum, they agreed about a number of matters, but they disagreed about their impact on the issues in the case. For example, in the background section of his original report, Mr Goodyer commented that in the 3 years prior to March 2000 the FTSE All Share index had produced a return of 57.5%, which was significantly higher than other forms of investment such as Gilts, but with greater volatility. Mr Goodyer also observed that Telecoms and IT stocks had been the predominant growth sectors, with the IT sector outperforming the FT All Share index by 245%, but with greater volatility than other sectors. Mr Goodyer stated that this suggested that the IT sector at least "had probably peaked in absolute and relative terms" . Mr Barton agreed with Mr Goodyer's background facts, but disagreed about their implications, commenting in the joint statement: "Equity returns were positive and as a result many managed funds were overweight in equities. In my opinion equity volatility was not particularly high when the first investment was made and in any case I would expect a reasonably competent investment adviser to discount market volatility when making long term investments as was the case here" . In similar vein, the experts agreed that the Trust required a balanced approach to investment, but they disagreed as to what that approach ought to have been in practice. Mr Goodyer stated that the Trust's risk profile ought to have been low to medium risk, which would equate to level 3 on a scale of 1 to 10; whereas Mr Barton stated: "As the Trust needed to generate a capital return over an 8 to 10 year time period, whilst not exposing the Trust to high degrees of risk, in my opinion the risk profile should have been medium. On a scale of 1 to 10, this would equate to level 5." The Claimants also produced an expert report of Ian Johnson, an accountant and partner in Grant Thornton LLP, dated 15 March 2106, and a letter from Mr Johnson dated 13 April 2016. The purpose of these documents was to address certain tax consequences for the Claimants of their claim for compensation being successful, and, in short, they set out why a recovery of £1,476,076 is required to yield compensation of £1,408,329. In the round, I was more impressed by Mr Barton than I was by Mr Goodyer. I consider that there is something in the suggestion made by Mr de Freitas that Mr Goodyer was in danger of trespassing into advocacy and beyond his proper role. Mr Barton struck me as less single minded than Mr Goodyer. Mr Barton's report included matters which were adverse to the Defendants, and when giving oral evidence Mr Barton appeared to me to be more willing to temper his views and to make concessions where appropriate. In addition, one particular feature of Mr Barton's evidence made an impression on me. In seeking to explain why he considered that the appropriate benchmark for purposes of the present case is the Investment Association Mixed Investment 40-85% Shares sector, Mr Barton referred to various forms of portfolio currently offered by his own company, Mazars Financial Planning Limited ("Mazars"), and he produced relevant factsheets. He contended that the Mazars' "Balanced" portfolio would be suited to the Trust's objectives, risk profile and time horizons. The objective of the "Balanced" portfolio is stated to be "to provide capital growth over the medium to long term and to deliver a greater level of return than cash deposits with a lower volatility than investment in equities alone" , and its risk profile is stated to be "suitable for investors with a medium to long term investment horizon who are prepared to accept the possibility of capital loss in return for the opportunity to make higher returns, but who do not wish the majority of their portfolio to be invested in higher risk assets". Mr Barton contended that this portfolio had been independently rated as 5 on a scale of 1 to 10, and therefore represents an average risk portfolio. Because this portfolio currently holds a total of 58.5% of its assets in equities, it is benchmarked against the Investment Association Mixed Investment 40-85% Shares sector. Mr Barton argued that these considerations supported his view that this sector is the appropriate benchmark in the present case. This line of reasoning seemed to me to be correct, or at any rate not obviously unsound. As it happens, the current mix of the Mazars' "Balanced" portfolio would appear to mean that it could be placed within the Investment Association Mixed Investment 20-60% Shares sector, albeit with an equities element which is at the very top end of that sector. Assuming that it is placed in (as opposed to merely being benchmarked against) the Investment Association Mixed Investment 40-85% Shares sector, however, the actual mix of the Mazars' "Balanced" portfolio illustrates that, when using that sector as a comparator for purposes of the present case, what is being used is a mix of funds with an equities element which, typically, will fall well below the upper limit of 85%. I was also struck by certain other aspects of these factsheets. A second one relates to Mazars' "Cautious" portfolio, the objective of which is stated to be the same as the "Balanced" portfolio, but which has a risk profile which includes "a greater weighting to lower and medium risk assets". A third one relates to Mazars' "Defensive" portfolio, the objective of which is stated to include "a higher degree of capital security than would be associated with a typical managed portfolio" and which has a risk profile which explains that it is suitable for those who "are concerned about the possibility of losing money and therefore wish to limit their exposure to more volatile asset classes". These portfolios are benchmarked against the Investment Association Mixed Investment 20-60% Shares sector and the Investment Association Mixed Investment 0-35% Shares sector respectively. The current yields of these different portfolios are: "Balanced" 1.99%, "Cautious" 2.20%, and "Defensive" 2.14%; but the performance over the past 5 years is as follows: "Balanced" 38.52%, "Cautious" 34.20%, and "Defensive" 33.77%. These figures relate to dates and time frames which are different from those which are material to the present case. To my mind, however, they illustrate both (a) the nature of the predicament in which trustees may find themselves when called upon to decide which investment strategy it is appropriate for them to adopt, and (b) how more than one strategy may reasonably be regarded as prudent. They also accord with what common sense would suggest in any event, namely that, over several years, higher risk funds offer the prospect of producing greater returns than lower risk funds (because, logically, if that was not so it would be hard to attract investment in higher risk funds) whereas they may well not do so in every year (because, logically, if they did so consistently, it would be hard to attract investment in lower risk funds). At all events, I was unable to form any clear overall preference for the evidence of Mr Goodyer to that of Mr Barton. That alone presents a difficulty for the Claimants: if it is right, as I think it is, that the experts' different views as to what was the appropriate risk profile for the Trust are both tenable, then, applying the law as stated below, I consider that the Defendants cannot be said to have acted in breach of duty unless and to the extent that their investment decisions did not conform to either of those risk profiles. Legal framework The trustees' equitable duty of care Trustees have a duty to act prudently. In Nestle v National Westminster Bank plc [1993] 1 WLR 1260 ( "Nestle" ), Dillon LJ said at 1267 that the best known formulation of this duty is to be found in the judgment of Lindley LJ in In re Whiteley; Whiteley v Learoyd (1886) 33 Ch D 347 ( "Whiteley" ) at 355 in a passage which includes the following: "The principle applicable to cases of this description was stated … to be that a trustee ought to conduct the business of the trust in the same manner that an ordinary prudent man of business would conduct his own, and that beyond that there is no liability or obligation on the trustee … The duty of a trustee is not to take such care only as a prudent man would take if he had only himself to consider; the duty rather is to 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." Dillon LJ continued at 1268: "This principle remains applicable however wide, or even unlimited, the scope of the investment clause in a trust instrument may be. Trustees should not be reckless with trust money. But what the prudent man should do at any time depends on the economic and financial conditions of that time …" Leggatt LJ referred to further statements of principle at 1282, including the following: "… "A trustee must not choose investments other than those which the terms of his trust permit": Speight v Gaunt (1883) 9 App Cas 1, 19, per Lord Blackburn. So confined, the trustee must also "avoid all investments of that class which are attended with hazard": Learoyd v Whiteley (1887) 12 App Cas 727 , 733, per Lord Watson. The power of investment "must be exercised so as to yield the best return for the beneficiaries, judged in relation to the risks of the investments in question; and the prospects of the yield of income and capital appreciation both have to be considered in judging the return from the investment": Cowan v. Scargill [1985] Ch 270, 287. Since the Trustee Investments Act 1961 came into force a trustee has been required by section 6(1) to have regard in the exercise of his powers of investment "to the need for diversification of investments of the trust, in so far as is appropriate to the circumstances of the trust." It is common ground that a trustee with a power of investment must undertake periodic reviews of the investments held by the trust. In relation to this trust, that would have meant a review carried out at least annually, and whenever else a reappraisal of the trust portfolio was requested or was otherwise requisite. It must also be borne in mind that, as expressed by the Report of the Scarman Committee on the Powers and Duties of Trustees (1982) ((Law Reform Committee: 23rd Report) Cmnd. 8733), at para 2.15: "Professional trustees, such as banks, are under a special duty to display expertise in every aspect of their administration of the trust."" The claim for breach of trust in Nestle was tried at first instance by Hoffmann J (see [2000] WTLR 795). When discussing the exposition of Lindley LJ in Whiteley, Hoffmann J said at 802: "This is an extremely flexible standard capable of adaptation to current economic conditions and the contemporary understanding of markets and investments … Modern trustees acting within their investment powers are entitled to be judged by the standards of current portfolio theory, which emphasises the risk level of the entire portfolio rather than the risk attaching to each investment taken in isolation … one must be careful not to endow the prudent trustee with prophetic vision or expect him to have ignored the received wisdom of the time." In Wight v Olswang [2000] Lloyd's Law Reports PN 662, the beneficiaries of a settlement sued two solicitor trustees for breach of trust. The claim against one of the trustees was discontinued, and Neuberger J acceded to an application by the other trustee for summary judgment. That decision was reversed by the Court of Appeal, in essence on the ground that Neuberger J had been wrong to treat the claim as based on a decision by the trustees not to sell shares or a decision to retain them, and (see Wight v Olswang [2001] Lloyd's Law Reports PN 269, per Mummery LJ at 273): "That was the basis on which [Neuberger J] applied the 'no reasonable trustee' test to the pleading and the proof of the claims against Mr Olswang. That test is not applicable to the main case which is actually pleaded, namely that Mr Olswang refused to consider a bid for the shares." It appears from this passage that the Court of Appeal made no criticism of the test formulated by Neuberger J, as opposed to the way in which Neuberger J had applied that test. Neuberger J formulated the test for breach of trust as follows (at 665-666): "… one simply looks at the ultimate action in relation to the shares … and asks oneself whether or not that was something which a trustee, complying with the test laid down by Lord Watson, could reasonably have done." Neuberger J arrived at that formulation having considered the rival arguments of counsel and the case law, in a passage which includes the following (at 664-665): "Mr Steinfeld's first point is that, assuming that there were breaches of trust on the part of Mr Olswang … the claim cannot succeed unless the claimants plead and establish that no reasonable trustee could have done other than sell the shares … In other words, he says — to use a degree of shorthand — the test of whether a trustee has acted in breach of trust when it comes [to] deciding, or implementing a decision to sell, shares is to be assessed objectively. In a well-known observation in Learoyd v Whiteley [1887] 12 AC 727 at 733 Lord Watson said this: "As a general rule the law requires of a trustee no higher degree of diligence in the execution of his office than a man of ordinary prudence would exercise in the management of his own private affairs." He went on to explain that this is subject to the limitation that the investments which a trustee can make are more circumscribed than those a man can make on his own account. Accordingly, says Mr Steinfeld, the claimants' claim for damages against Mr Olswang as trustee for failing to sell the shares … can only succeed if it could be shown that no person exercising the ordinary prudence involved in managing his own affairs, with the knowledge and experience of Mr Olswang and in the position of Mr Olswang … could have retained the shares as at that time. This substantially equates the position of a trustee facing a claim for breach of trust in connection with an investment decision with that of a professional man, such as an accountant or solicitor, facing a claim for professional negligence. In Saif Ali v Sydney Mitchell & Co [1980] AC 198 Lord Diplock said this at 218C-D: "Those who hold themselves out as qualified to practise … professions, although they are not liable for damage caused by what in the event turns out to have been an error of judgment on some matter upon which the opinions of reasonably informed and competent members of the profession might have differed, are nevertheless liable for damage caused by their advice, acts or omissions in the course of their professional work which no member of the profession who was reasonably well-informed and competent would have given or done or omitted to do." … I have come to the conclusion that Mr Steinfeld's formulation is to be preferred. In this connection, I think that considerable assistance may be found from the judgment of Millett LJ in Bristol and West Building Society v Mothew [1998] Ch 1 . In a passage at 17G-18C, the learned Lord Justice said this: "Although the remedy which equity makes available for breach of the equitable duty of skill and care is equitable compensation rather than damages, this is merely the product of history and in this context is, in my opinion, a distinction without a difference. Equitable compensation for breach of the duty of skill and care resembles common law damages in that it is awarded by way of compensation to the plaintiff for his loss. There is no reason in principle why the common law rules of causation, remoteness of damage and measure of damages should not be applied by analogy in such a case. It should not be confused with equitable compensation for breach of fiduciary duty, which may be awarded in lieu of rescission or specific restitution. This leaves those duties which are special to fiduciaries and which attract those remedies which are peculiar to the equitable jurisdiction and are primarily restitutionary or restorative rather than compensatory. A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary." He then set out the special features of that duty. In that case the Court of Appeal was concerned with the approach to the measure of damages. However it seems to me that those observations are of potentially wider application, referring, as they do, in particular, to the common law rules of causation and remoteness of damage. Echoing to some extent those observations, it would be somewhat surprising if, in the absence of an allegation of fraud or bad faith, or in the absence of special features relating to his special equitable duties, a trustee, be he a solicitor, an accountant, or not professionally qualified, should have his alleged breach of duty and liability for damages assessed in a significantly different way when it relates to failing to sell shares, from that of a professional adviser, who failed to sell shares having his breach of duty and liability for damages assessed by reference to his professional duty." The measure of compensation The claim in Nestle failed before Hoffmann J, who held (so far as material to the present case) with regard to one fund that it "was well within the bounds of reasonable balance" (see 819) and with regard to another fund that the trustee's investment managers "had acted in accordance with the correct principles of prudence and fairness throughout their stewardship of the funds" (see 821). The claimant's appeal against that decision was dismissed by the Court of Appeal, which held that the trustee had misunderstood its investment powers, and had failed in its duty to review the investments regularly and in other ways, but that nevertheless the claimant had failed to prove that she had suffered loss as a result of those matters. Dillon LJ stated (at 1269) that the problem with the trustee's approach was not one of failure to invest an adequate part of the fund in equities but was instead that the part of the fund which was invested in equities was not sufficiently diversified. On that basis, the burden was on the claimant to prove that she would have been better off if the equities had been properly diversified. She could not do this. Her claim therefore failed. Accordingly, the Court of Appeal in Nestle did not need to decide the correct approach to calculating compensation for breach of trust arising from a failure to manage funds appropriately. Nevertheless, Dillon LJ discussed this topic by reference to Robinson v Robinson (1851) 1 De G. M. & G. 247 ( "Robinson" ). Dillon LJ said at 1268-1269: "The problem in that case was that trustees had been directed by their testator to realise his investments and invest the proceeds in one or other of two forms of investment; but the trustees had delayed the realisation of the testator's investments. When they actually sold they realised more than they would have realised if they had sold immediately after the testator's death, but less than if they had sold immediately after the testator's death and had thereupon invested the proceeds in one, rather than the other, of the two authorised forms of investment. It was sought to charge the trustees for what they would have received if they had followed that course of realisation and investment which in the event would have been the most favourable to the beneficiaries, but the court rejected that claim. The ratio, in the leading judgment of Lord Cranworth LJ, seems to have been in part, at pp257–258: "Where a man is bound by covenants to do one of two things, and does neither, there in an action by the covenantee, the measure of damage is in general the loss arising by reason of the covenantor having failed to do that which is least, not that which is most, beneficial to the covenantee: and the same principle may be applied by analogy to the case of a trustee failing to invest in either of two modes equally lawful by the terms of the trust." and in part, at p259, that the liability of the trustee should not depend on the accident of the subsequent rise of one particular investment. With every respect to the court, however, the first ground is flawed since there is no true analogy between a covenantee acting in his own interests who can choose the cheapest way to himself to perform or get out of his obligations — cf Lavarack v Woods of Colchester Ltd [1967] 1 QB 278 , 293 — and a trustee who owes duties to his beneficaries, and cannot prefer his personal interest to theirs. If what had happened in the present case had been that the bank, through failure to inform itself as to the true scope of its investment powers, had invested the whole of the annuity fund in fixed interest securities, and no part in equities, for the whole period from 1922 to 1960, then, as on the evidence loss would clearly have been proved to have been suffered, the appropriate course would have been to require the bank to make good to the trust fair compensation — and not just the minimum that might have got by without challenge — for failure to follow a proper investment policy. On this I find the Canadian decision in Guerin v The Queen (1984) 13 DLR (4th) 321 helpful." Staughton LJ said at 1280: " … if I had found a breach of trust in this respect, I would have been reluctant to accept that compensation should be measured by the difference between the actual performance of the fund and the very least that a prudent trustee might have achieved. There is said to be 19th century authority to that effect; but I would be inclined to prefer a comparison with what a prudent trustee was likely to have achieved — in other words, the average performance of ordinary shares during the period." Leggatt LJ said at 1283-1284: "In Guerin v The Queen (1984) 13 DLR (4th) 321 the Crown leased to a golf club land belonging to an Indian band to which the Crown owned a fiduciary duty. Since the terms of the lease were unsatisfactory and the lease for 85 years was irrevocable, the court had to evaluate the loss to the band, and did so by presuming against the Crown that the band would have made the most profitable use of the land by letting it for residential development. That loss had been suffered by the letting to the golf club was obvious: the presumption applied in proving the extent of the loss by relieving the band from the need to prove that they would have let the land for development. In my judgment either there was a loss in the present case or there was not. Unless there was a loss, there was no cause of action. It was for the plaintiff to prove on balance of probabilities that there was, or must have been, a loss. If proved, the court would then have had to assess the amount of it, and for the purpose of doing so might have had recourse to presumptions against the bank. In short, if it were shown that a loss was caused by breach of trust, such a presumption might avail the plaintiff in quantifying the loss. The plaintiff's difficulty is in reaching that stage." Robinson was a decision of the Court of Appeal in Chancery. The case was heard on 12 December 1851, but judgment was not delivered until 22 December 1851, for reasons explained by Lord Cranworth LJ at 254: "The case was very fully argued before us a few days since, and as there has been a difference of opinion in different branches of the Court on the subject of the duties and liabilities of executors, and the rights of a tenant for life in cases like the present, we desired a short time to look into those authorities before we came to a decision." At one time I was troubled by the apparent tension between what seems to me to be the binding authority of Robinson and the observations of the Court of Appeal in Nestle . On reflection, however, I consider that the approaches adopted by the Court of Appeal in both cases can probably be accommodated within broader principles. I have found it necessary to consider this topic as a matter of principle because Counsel were unable to refer me to any decided case in which the claimants have proved loss flowing from an imprudent exercise of a trustee's power of investment, such that the court was required to quantify that loss. Lewin on Trusts ("Lewin"), 19 th edn, states at para 39-054: "This has not been achieved in any reported case in England, but probably the measure of compensation would be the difference between the value of the fund at trial and an estimate of what a prudent trustee would have been likely to achieve, based on the average performance of ordinary shares. Such loss was proved in a New Zealand case (Re Mulligan [1998] 1 NZLR 481)." The text of that paragraph goes on to explain that the basis of that decision was that by early 1972 the trustees had a duty to diversify into equities which they had breached, and that compensation was calculated by reference to an appropriate index of equities. Footnote 177 adds: "It might be different where a "tracker fund" was available (none were in 1972), although the management costs would have to be taken into account." Whether the claim is based upon equitable duty or, after section 1 of the Trustee Act 2000 came into force on 1 February 2001, the statutory duty of care set out in that section, the award of equitable compensation in a case like the present resembles the award of damages at common law. Depending on the facts, the most helpful common law analogy may be a claim for breach of contract (in which case the approach to quantification of loss suggested by Robinson may appropriate) or it may be a different type of common law claim, possibly analogous to negligence or conversion (in which case a different approach may be appropriate, as suggested by the judgments in Nestle ). This reflects the consideration that although equitable compensation and common law damages are remedies based on separate legal obligations, the broad aim of both remedies is the same. The essence of the matter is that "Equitable compensation for breach of trust is designed to achieve exactly what the word compensation suggests: to make good a loss in fact suffered by the beneficiaries and which, using hindsight and common sense, can be seen to have been caused by the breach" : see Target Holdings Ltd v Redferns (a firm) [1996] 1 AC 421 ( "Target" ), Lord Browne-Wilkinson at 439. That decision was followed by a wide ranging debate, which included academic criticism to the effect that Lord Browne-Wilkinson had failed to recognise that different remedies might be appropriate in respect of breaches by trustees of (among others): (1) a custodial stewardship duty, (2) a management stewardship duty, and (3) a duty of undivided loyalty. That debate is rehearsed in the speech of Lord Toulson SCJ in AIB Group (UK) plc v Mark Redler & Co Solicitors ( "AIB" ) [2015] AC 1503 at [47]-[61]. Lord Toulson said at [49] that the case raised the question of "whether Lord Browne-Wilkinson's statement in Target Holdings of the fundamental principles which guided him in that case should be affirmed, qualified or … reinterpreted" . At [62], Lord Toulson stated the following conclusion: "absent fraud, which might give rise to other public policy considerations that are not present in this case, it would not in my opinion be right to impose or maintain a rule that gives redress to a beneficiary for loss which would have been suffered if the trustee had properly performed its duties" . Accordingly, where claims for negligence, breach of contract and breach of trust arise out of the same facts, the level of compensation recoverable under each head of claim may be held to be the same. That is what happened in AIB . Lord Reed SCJ said at [136]-[137]: "It follows that the liability of a trustee for breach of trust, even where the trust arises in the context of a commercial transaction which is otherwise regulated by contract, is not generally the same as a liability in damages for tort or breach of contract. Of course, the aim of equitable compensation is to compensate: that is to say, to provide a monetary equivalent of what has been lost as a result of a breach of duty. At that level of generality, it has the same aim as most awards of damages for tort or breach of contract. Equally, since the concept of loss necessarily involves the concept of causation, and that concept in turn inevitably involves a consideration of the necessary connection between the breach of duty and a postulated consequence (and therefore of such questions as whether a consequence flows "directly" from the breach of duty, and whether loss should be attributed to the conduct of third parties, or to the conduct of the person to whom the duty was owed), there are some structural similarities between the assessment of equitable compensation and the assessment of common law damages. Those structural similarities do not however entail that the relevant rules are identical: as in mathematics, isomorphism is not the same as equality. As courts around the world have accepted, a trust imposes different obligations from a contractual or tortious relationship, in the setting of a different kind of relationship. The law responds to those differences by allowing a measure of compensation for breach of trust causing loss to the trust fund which reflects the nature of the obligation breached and the relationship between the parties ..." In Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd (in administrative receivership) and Others [2011] EWCA Civ 347 , [2012] Ch 453 , Lord Neuberger MR said at [47]: "… although it is subject to limiting principles, equitable compensation is a more flexible concept than common law damages. Kirby J in the High Court of Australia put it this way in Maguire v Makaronis (1997) 188 CLR 449 , 496: "[Equitable] remedies will be fashioned according to the exigencies of the particular case so as to do what is 'practically just' as between the parties … The fiduciary must not be 'robbed'; nor must the beneficiary be unjustly enriched …" Lewin, 19 th edn, states at para 39-019: "This may explain the adoption of different bases of loss in different circumstances, ensuring that the award of equitable compensation operates fairly between the defaulting trustee and the beneficiaries". Reliance on external advice Counsel were also unable to refer me to any case in which the court has been required to consider the extent to which trustees are entitled to rely upon advice from independent financial advisers. Mr de Freitas submitted that guidance is provided by the cases concerning the extent to which a solicitor is entitled to rely upon the advice of Counsel who has been properly instructed. At the end of the day I did not understand Mr Lundie to take any substantive issue with that submission. The position in that context, and so far as material to the present case, was summarised by Taylor LJ in Locke v Camberwell Health Authority [2002] Lloyd's Law Reports PN 23 at 29: "Our attention was helpfully drawn to relevant authority especially as to the relationship between solicitor and counsel and as to how far the former can rely on the latter's advice. In particular, citation was made from the following cases: Davy-Chiesman v Davy-Chiesman [1984] FAM 49 , Orchard v S. E. Electricity Board [1987] QB 565 , Swedac v Magnet and Southern plc [1990] FSR 89 and Manor Electronics v Dickson [1990] NLJ 590 . The principles relevant to the present case to be derived from those authorities can be shortly stated. (1) In general, a solicitor is entitled to rely upon the advice of counsel properly instructed. (2) For a solicitor without specialist experience in a particular field to rely on counsel's advice is to make normal and proper use of the Bar. (3) However, he must not do so blindly but must exercise his own independent judgment. If he reasonably thinks counsel's advice is obviously or glaringly wrong, it is his duty to reject it …" In Ridehalgh v Horsefield [1994] Ch 205 , Sir Thomas Bingham MR said at 237: "We endorse the guidance given on this subject in Locke v Camberwell Health Authority [1991] 2 Med LR 249 . A solicitor does not abdicate his professional responsibility when he seeks the advice of counsel. He must apply his mind to the advice received. But the more specialist the nature of the advice, the more reasonable is it likely to be for a solicitor to accept it and act on it." Section 61 of the Trustee Act 1925 Section 61 provides: "If it appears to the court that a trustee, whether appointed by the court or otherwise, is or may be personally liable for any breach of trust, whether the transaction alleged to be a breach of trust occurred before or after the commencement of this Act, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the court in the matter in which he committed such breach, then the court may relieve him either wholly or partly from personal liability for the same." Examples of conduct which, on the facts of particular cases, has been held to be unreasonable and reasonable are given in Lewin at paras 39-151 and 39-153 respectively. The cases concerning the exercise of the court's discretion, in the event that the trustee discharges the burden of showing that he acted both honestly and reasonably, are summarised as follows in Lewin at para 39-154: "Though a trustee acted honestly and reasonably, the court still has to consider whether the trustee should fairly be excused, having regard to all the circumstances. A key factor in that assessment is the effect of the breach on the beneficiaries. That the trustee acted on legal advice is not, without more, a passport to relief. Efforts to recoup the loss are required; it comes at a price and should not be described as an act of mercy on the part of the court. And trustees may be at risk for failure to obtain counsel's opinion instead of relying on their solicitor. It is thought that lay persons, unremunerated, ought to be excused where they take decisions within the limits of their experience and knowledge, listen to reason, and do not act irrationally or obdurately. The same can also be said where the actions of the trustee are the subject of technical legal guidance, when the trustee is unaccustomed to problems of such nature. But with a trustee acting for remuneration (such as a trust corporation), though relief under the section is not barred, the court is reluctant to grant relief and, certainly, a much stronger case for relief must be made out, especially if the trustee has put itself into a position of conflict." The issue of delegation How the issue arises The Claimants' Skeleton Argument for trial stated that in light of the comment in Mr Barton's report that "I understand that the Trustees delegated a lot of the investment decision making in respect of the Trust to Mr Tee" (paragraph 2.6.11) it might be necessary to consider the issue of delegation by trustees. The Defendants' Skeleton Argument for trial did not address this issue, and Mr de Freitas submitted that, although it had been mentioned in the Claimants' Skeleton Argument and pursued in cross-examination, it had not been pleaded and did not form part of the list of issues for trial. Accordingly, during the course of closing submissions I was asked to consider whether the issue formed part of the Claimants' pleaded case. I took the view that it did not, and that if the Claimants wished to pursue the point, they would need to re-amend the Particulars of Claim, either with the consent of the Defendants and the approval of the Court, or by obtaining permission from the Court. In the event, Counsel were able to agree, and I was prepared to approve on the papers, an appropriate re-amendment to the Particulars of Claim on the following basis: (a) the Defendants should be permitted to make a responsive amendment to the Defence (b) the usual terms as to costs and (c) both parties were permitted to lodge further written submissions dealing with the issue. The pleas of breach of duty in the Amended Particulars of Claim were as follows: "12. The Trustees breached the aforesaid duties in a number of different respects from 1999/2000 through to 2002 at which point, having sought advice from Mr Duncan Scott (an Investment Manager at [Stanley Tee]), the Trustees sought to rectify the prior errors that had been made. 12.1 The Trustees did not give proper consideration to, and/or did not seek proper advice on, the portfolio of investments that the Trust ought to hold. The Trustees ought to have considered (and reviewed from time to time) the appropriate risk profile for the Trust and then select a range of investments, appropriately diversified, to reflect the risk profile. A portfolio of primarily low risk assets such a cash deposits and bonds (UK government and corporate bonds) with a small weighting in equities in the range of 15% to 30% was appropriate for the Trust. 12.2 The Trustees did not invest so as to produce an appropriately diversified portfolio of investments. The Trustees initially sought to build up an investment portfolio comprised almost entirely of equities and which were over exposed to the Technology, Information Technology and Telecommunications sectors ("the Tech, IT and Telecoms sectors"). The Trustees only made such investments on a limited basis initially and retained large amounts of cash that the Trustees simply did not invest at all. The Trustees continued to make further investments until by year end 5 April 2001 well over 50% of the monies received by the Trustees had been invested in equities and the portfolio of equities thereby created was substantially overexposed to the Tech, IT and Telecoms sectors. 12.3 The Trustees failed to properly review the portfolio of investments made on a timely basis and/or when deciding to make further investments on behalf of the Trust the Trustees failed to properly consider the suitability of the particular proposed investments and to properly consider the need for diversification of investments of the Trust. 12.4 The Trustees, in undertaking such reviews of the portfolio of investments as they did, failed initially to give any proper consideration to investments other than equities and/or failed to give any proper consideration to the question of whether the portfolio of investments was over exposed to any particular sector (and, in particular, the Tech, IT and Telecoms sectors which were particularly volatile in 2000-2002). Further in 2001 the Trustees failed to properly consider the suitability of investment in zero dividend preference shares and the suitability of the particular companies, the zero dividend preference shares of which the Trustees proposed to acquire." By the re-amendment, a new paragraph 12.5 was added as follows: "12.5 The Second and Third Defendants delegated the exercise of their investment powers to the First Defendant (who in turn delegated decisions as to suitability to [Taylor Young]) and did not themselves consider whether the investments made on behalf of the Trust were suitable and/or whether the portfolio was appropriately diversified. The Second and Third Defendants were not permitted, as a matter of law, to delegate the exercise of their investment powers in this manner and the Claimants will say that the Second and Third Defendants are liable for the loss suffered by the Claimants arising from this impermissible delegation." Paragraphs 10-14 of the Amended Defence answered the original pleas as follows: "10. It is denied that the Defendants were in breach of their duties as trustees either as alleged in paragraph 12 or at all. 11. As to paragraph 12.1 it is denied that the Defendants did not give proper consideration to and did not seek proper advice on the portfolio of investments which the Trust ought to hold. The Defendants will rely on the exchange of letters in February 2000 set out in paragraphs 15.1 and 15.3 and will refer to the full terms thereof. The Defendants specifically sought advice from [Taylor Young] whom the Defendants reasonably believed to be qualified to give it by their ability in and practical experience of financial and other matters relating to the proposed investments and who in fact the Defendants had every reason to believe were skilled and experienced financial advisers well versed in advising trustees on investment of trust funds. The Defendants aver that the request which was made for advice as to investment from [Taylor Young] implicitly, by its disavowal of the requirement for significant income from the investments, made it clear that long term protection of the capital of the Trust was required with [Taylor Young] being specifically informed that having regard to the ages of the beneficiaries the funds of the Trust were likely to be invested for at least 9 years. The Defendants deny that it was any breach of their duties as trustees to seek and follow as they did the advice of [Taylor Young] as advisers whom the Defendants (at the time the advice was sought and given) reasonably believed to be qualified to give it by their ability in and practical experience of financial and other matters relating to the proposed investment. The allegation as to what it is alleged was an appropriate portfolio for the Trust is noted but denied as being the product of hindsight. 12. The first sentence of paragraph 12.2 is denied. Save that the Defendants deny the appropriateness or accuracy of words which are pejorative or attribute motives to the Defendants namely "sought to build up" "over-exposed" , "simply " "at all" and "substantially over-exposed", and save that the "large amounts of cash" were retained in interest bearing accounts, the factual allegations in paragraph 12.2 are otherwise admitted. The Defendants aver that what they were doing was following the advice of [Taylor Young] whom they reasonably believed to be qualified to give it by their ability in and practical experience of financial and other matters relating to the proposed investment who they had every reason to believe were skilled and experienced financial advisers well versed in advising trustees on investment of trust funds. 13. Paragraph 12.3 is denied but it is impossible to plead more fully thereto in the absence of any precise allegation as to what precisely the Defendants ought to have done or failed to do and precisely when, so as to constitute a failure to "properly review the portfolio of investments on a timely basis" or a failure "to properly consider the suitability of the particular proposed investments" or a failure "to properly consider the need for diversification". 14. Paragraph 12.4 is denied. The Defendants gave consideration to other investments and reasonably decided to make the investments which they did. In the absence of any particularisation of the respects in which (as is implicitly alleged) zero dividend preference shares and particular companies were unsuitable the Defendants can only deny that they failed properly to consider the suitability of investment in zero preference shares." The re-amendment to the Defence took the form of adding a new paragraph 14A: "14A. As to paragraph 12.5 the Defendants plead as follows: (1) The unparticularised allegation that there was delegation by the Second and Third Defendants to the First Defendant is inconsistent with the Claimants' pleaded case that the First Defendant is liable as a Trustee de son tort. (2) It is in any event denied that there was any blanket delegation to the First Defendant by the Second and Third Defendants of their duties in relation to the exercise of their powers of investment; the reasons for the denial are first that the decision to invest the trust funds with a view to relatively long term growth was a joint decision in which the Second and Third Defendants were participants and second that the decision to seek investment advice from [Taylor Young] through the First Defendant was also a joint decision in which the Second and Third Defendants were participants. (3) It is denied that there was any delegation to [Taylor Young] which was engaged to provide investment advice to the Defendants as Trustees. (4) It is in any event denied that any delegation which occurred was impermissible and the Defendants say that such delegation as occurred was permissible: a. On the basis of the principle of "moral necessity" under which it was always permissible for trustees to act by other hands if to do so was to act prudently as a trustee in accordance with the common usage of mankind or the usage of business; b. Under Section 23(1) of the Trustee Act 1925 (in force till 1 February 2001) by which "Trustees or personal representatives may, instead of acting personally, employ and pay an agent, whether a solicitor, banker, stockbroker, or other person, to transact any business or do any act required to be transacted or done in the execution of the trust, or the administration of the testator's or intestate's estate, including the receipt and payment of money, and shall be entitled to be allowed and paid all charges and expenses so incurred, and shall not be responsible for the default of any such agent if employed in good faith"; c. On the basis that it was conformable with what the Defendants aver is the overarching duty of Trustees to 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. (5) It is in any event denied that any loss was suffered arising from the alleged impermissible delegation; the reason for the denial is that the Second and Third Defendants, themselves lacking investment expertise and not being authorised to give investment advice would (taking 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) have made the same or virtually the same investments of the trust fund as were actually made." Significance of the issue As I understand it, the main significance of the claim added by the re-amendment is that the Claimants contend that it is advantageous to them for the reasons suggested by Underhill and Hayton, the Law Relating to Trusts and Trustees ("Underhill"), 18 th edn, at para 87.39: "The beneficiaries could therefore derive a significant advantage from framing their claim as a substitutive performance claim rather than as a reparation claim, in a case where the trustee's decision to delegate management of the trust portfolio is negligent as well as unauthorised. In such a case, their reparation claim for breach of the trustee's equitable duty of care would be subject to principles relating to causation, foreseeability and remoteness that would not apply to their substitutive performance claim." The basis of this suggestion is said to be the endorsement by the House of Lords in Target of the views expressed by Lord Cottenham in Clough v Bond (1838) 3 My & Cr 490 at 496-497, which include the following passage: "It will be found to be the result of all the best authorities on the subject, that, although a personal representative, acting strictly within the line of his duty, and exercising reasonable care and diligence, will not be responsible for the failure or depreciation of the fund in which any part of the estate may be invested, or for the insolvency or misconduct of any person who may have possessed it, yet, if that line of duty be not strictly pursued, and any part of the property be invested by such personal representative in funds or upon securities not authorised, or be put within the control of persons who ought not to be intrusted with it, and a loss be thereby eventually sustained, such personal representative will be liable to make it good, however unexpected the result, however little likely to arise from the course adopted, and however free such conduct may have been from any improper motive." Claimants' submissions The Claimants' principal arguments were as follows. The general principle is that "Trusteeship is an office of personal confidence and a trustee who has assumed it is in general not entitled, unless the settlement so provides, either to abandon it at will by retiring or to commit its exercise to others" (Lewin, 19 th edn, at para 29-093). Moreover, "where a person is to be remunerated for what he does, he ought not to accept the employment unless he has competent knowledge and skill in the business he is to transact, and may properly be held liable if he proves deficient in either" ( Speight v Gaunt (1883) 9 App Cases 1, Lord Blackburn at 17). Accordingly, it is no answer for a trustee, particularly a professional trustee, to say that s/he does not have sufficient competency to be able to administer the trust. Prior to legislation, there were limited exceptions to the general prohibition on delegation, as summarised in Thomas On Powers, 2 nd edn, at para 6.10: "Nevertheless the position was reached where, under general law, trustees could employ an agent where (i) such employment was expressly authorized by the trust instrument, or (ii) ex necessitate rei it was impossible for the trustee to do the particular act himself or (iii) the act was merely ministerial and the employment of an agent was reasonably necessary in the circumstances or was in accordance with ordinary business practices." The delegation of a discretion was not permitted, and if trustees delegated outside these limited exceptions they would be liable for any default of the agent. See Underhill, 18 th edn, at para 87.39, cited in part above, and Lewin, 19 th edn, at para 36-011 and at para 29-100: "If a trustee wrongfully delegates to an agent or attorney acts involving the exercise of his discretion, then not only is the trustee answerable for all the wrongful consequences of the delegation but the exercise of the discretion by the agent or attorney will also be void." The position was altered by legislation and in particular section 23 of the Trustee Act 1925, but only to a limited extent. See: (1) Lewin, 19 th edn, at para 36-012: "Until the Trustee Act 2000 came into force those provisions - primarily section 23(1) - allowed trustees to delegate the carrying out of ministerial tasks, or in other words, the performance of acts which the trustees had already decided should be done; for the most part, the delegation of discretions was still prohibited in the absence of a power conferred by the trust instrument or some other enactment." (2) The Law Commission Report (Law Comm No 260) which preceded the Trustee Act 2000 and summarised the existing law at para 7 of Appendix C (emphasis added): "7 …. The principal limitations and uncertainties are as follows: (1) Section 23(1) authorizes trustees to delegate their ministerial powers, but not their fiduciary discretions . This fact is readily apparent when the provision is compared with subsection (2) [which did expressly permit the delegation of discretions in connection with property which is situated outside of the United Kingdom]. (2) Section 23(1) does not appear to authorize trustees to confer on any agent they appoint a power to subdelegate. …." (3) Lewin, 19 th edn, at para 36-053 (emphasis added): "Section 23(1) was limited to the employment of an agent "to transact any business or do any act required to be transacted or done". Unlike section 23(2), with which it contrasted, it did not alter the principle that a trustee might not delegate a trust discretion; the agent was confined to business or acts which the trustees had previously resolved should be transacted or done. Thus under section 23(1) a trustee could not delegate the decision when to execute a trust for sale or a power of sale. Nor could he leave the choice of investments to an agent . Only the trustees' ministerial functions could be delegated." The Claimants submitted that: (1) where a substitutive performance claim is made, the trustees are required to perform their core obligation of accounting for and delivering to the beneficiaries the assets of the trust, and in giving that account they are not entitled to include unauthorised transactions, and (2) accordingly, the beneficiaries do not have to prove that the trustees' acts or omissions have caused them loss, and the amount due from the trustees to make the accounts balance is the amount of the misapplied funds. These propositions were said to be derived from Underhill at paras 87.12-87.17. Under the Trustee Act 2000 it is permissible for trustees to delegate their 'asset manager' functions. However, in the present case there was no lawful delegation to Mr Tee of these functions because the following requirements of section 15 of that Act were not satisfied: "(1) The trustees may not authorise a person to exercise any of their asset management functions as their agent except by an agreement which is in or evidenced in writing. (2) The trustees may not authorise a person to exercise any of their asset management functions as their agent unless— (a) they have prepared a statement that gives guidance as to how the functions should be exercised ("a policy statement"), and (b) the agreement under which the agent is to act includes a term to the effect that he will secure compliance with— (i) the policy statement, or (ii) if the policy statement is revised or replaced under section 22, the revised or replacement policy statement. (3) The trustees must formulate any guidance given in the policy statement with a view to ensuring that the functions will be exercised in the best interests of the trust. (4) The policy statement must be in or evidenced in writing. (5) The asset management functions of trustees are their functions relating to— (a) the investment of assets subject to the trust, (b) the acquisition of property which is subject to the trust, and (c) managing property which is subject to the trust and disposing of, or creating and disposing of an interest in, such property." Mr Lundie further drew my attention to Lewin, 19 th edn, paras 36-037 to 36-041, which include the following: "36-039 There are also provisions (referred to in section 15(2)) extending the trustees' duty to supervise the agent when they have delegated any of their assets management functions. Section 22(2) and (3) provide: "(2) If the agent has been authorised to exercise asset management functions, the duty under subsection (1) includes, in particular— (a) a duty to consider whether there is any need to revise or replace the policy statement made for the purposes of section 15, (b) if they consider that there is a need to revise or replace the policy statement, a duty to do so, and (c) a duty to consider whether the policy statement (as it has effect for the time being) is being complied with. (3) Subsections (3) and (4) of section 15 apply to the revision or replacement of a policy statement under this section as they apply to the making of a policy statement under that section." The guidance to be given in the policy statement will typically be guidance as to such matter as liquidity and risk or the desired balance between capital growth and income yield. 36-041 The asset management functions of trustees are not confined to dealings in securities, as the duties imposed by section 22(2) and (3) might suggest, but extend to any trust property whatever. Indeed, the expression "asset management functions" is given a very wide definition in section 15(5), especially in view of the words "relating to" …" Defendants' submissions The Defendants' principal arguments were as follows. So far as concerns the common law, the general proposition that " A trustee has no business to cast upon brokers or solicitors or anybody else the duty of performing those trusts and exercising that judgment and discretion which he is bound to perform and exercise himself" ( Speight v Gaunt (1883) 22 ChD 727 , Lindley LJ at 756) is not unqualified. On the contrary, in that case both the Court of Appeal and the House of Lords (see (1883) 9 App Cases 1) regarded it as subject to the qualifications enunciated by Lord Hardwicke in Ex parte Belchier 1754 Amb 218: " … where trustees act by other hands, either from necessity, or conformable to the common usage of mankind, they are not answerable for losses. There are two sorts of necessities: 1st, Legal necessity. 2d, Moral necessity … from the usage of mankind. If a trustee acts as prudently for the trust as for herself, and according to the usage of business. " Lord Selborne LC applied the proposition in Speight v Gaunt at 10 " I think that, when an investment of trust moneys is proper to be made upon securities which are purchased and sold upon the public exchanges, either in town or country, the employment of a broker for the purpose of purchasing those securities, and doing all things usually done by a broker which may be necessary for that purpose, is prima facie legitimate and proper. A trustee is not bound himself to undertake the business (for which he may be very ill qualified) of seeking to obtain them in some other way …" Section 23(1) of the Trustee Act 1925 was in force until it was repealed by the Trustee Act 2000 with effect from 1 February 2001. In Re Vickery [1931] 1 Ch 572, Maugham J said of section 23(1): " It is hardly too much to say that it revolutionizes the position of a trustee or an executor so far as regards the employment of agents. He is no longer required to do any actual work himself, but he may employ a solicitor or other agent to do it, whether there is any real necessity for the employment or not. No doubt he should use his discretion in selecting an agent, and should employ him only to do acts within the scope of the usual business of the agent; but, as will be seen, a question arises whether even in these respects he is personally liable for a loss due to the employment of the agent unless he has been guilty of wilful default. " The lack of certainty surrounding the concepts of delegation and impermissible delegation resulted in successive considerations by the Law Commission. The Law Commission Report (Law Comm No 260) was preceded in 1994 by another Law Commission Report (Law Comm 220) entitled "The Law of Trusts: Delegation by individual trustees" and a detailed treatment of what was perceived to be the existing law appeared at Parts III and IV of the earlier Law Commission Consultation Paper entitled "Trustees' Powers and Duties". Part III of that Consultation Paper stated: (1) At paragraph 3.4: " Although the distinction between fiduciary powers and ministerial acts is easily stated the dividing line between those functions which only a trustee may perform and those which may be delegated is not easily drawn." (2) At paragraph 3.9: that the majority of cases in which trustees were held liable for the default of their agents "were ones in which the trustees had –(1) failed to take reasonable care in their choice of their agent (2) employed an agent to perform some function that was outside his or her competence or (3) failed to exercise proper control over an agent once appointed." (3) At paragraph 3.11: that in Re Muffett (1886) 56 LJ Ch 600 "the Court of Appeal held that trustees who had delegated the entire management of some eighty rented properties to agents were not as a result entitled to an annuity given to them under the testator's will for their services. The court did not question the propriety of the delegation despite its extensive nature" ; that the cases suggest that "the rule against delegating discretions was viewed pragmatically" ; and that "had not statute intervened the doctrine of necessity might have been developed to allow the delegation of fiduciary discretions in appropriate circumstances." The Defendants accepted that a trustee cannot just abandon his role but submitted, first, that in any given case it was necessary to identify the dividing line between the specific fiduciary responsibility and ministerial acts, and, second, that justice and coherence could be achieved by testing the trustee's actions at every stage by reference to "the touchstone" of "the overriding prudence principle". They submitted that Cross J in Re Lucking's Will Trusts [1968] 1 WLR 868 invoked the "prudence principle" in dealing with submissions about the effect of Maugham J's judgment in Re Vickery . They submitted that where it is obvious that trustees do not themselves have the expertise to decide what investments to make in order to achieve the appropriate benefit for the beneficiaries, it cannot be an infringement of the "prudence principle" for them to seek advice from a third party who they reasonably believe to have the appropriate expertise. Applying these principles to the facts of the present case, once the trustees had determined that the immediate needs of the beneficiaries could be met and that they should invest so that as to satisfy the longer term requirement to ensure that the Trust "maximised" the cash value by the time the Claimants were able to take absolutely, there was nothing impermissible in utilising the perceived expertise of Mr Tee and Taylor Young in attempting to achieve that general aim. To use that perceived expertise was entirely consonant with the common usage of mankind. Indeed, for the trustees to have sought instead to exercise their own uninformed judgment - especially in the modern era with its variety of possible avenues of investment, and where the common and indeed prudent usage is to have resort to professional financial advisers – would have amounted to something approaching guesswork. The Defendants did not accept that there was, in fact, any impermissible delegation. In any event, no loss was caused by any impermissible delegation which may have occurred. While it is correct that, in a claim for breach of trust "the common law rules of remoteness of damage and causation do not apply" , nevertheless "there does have to be some causal connection between the breach of trust and the loss to the trust estate for which compensation is recoverable, viz, the fact that the loss would not have occurred but for the breach" (see Target , Lord Browne-Wilkinson at 434). Earlier in the same passage, Lord Browne-Wilkinson said (emphasis added): "If specific restitution of the trust property is not possible, then the liability of the trustee is to pay sufficient compensation to the trust estate to put it back to what it would have been had the breach not been committed : Caffrey v Darby (1801) 6 Ves. 488; Clough v Bond (1838) 3 M & C 490. Even if the immediate cause of the loss is the dishonesty or failure of a third party, the trustee is liable to make good that loss to the trust estate if, but for the breach, such loss would not have occurred. " Lord Browne-Wilkinson also cited extensively and with approval (at 438-439) from the exposition of the rules relating to equitable compensation which is contained in the minority judgment of McClachin J in Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4 th ) 129, and which includes the statement that "it is essential that the losses made good are only those which, on a common sense view of causation , were caused by the breach" (emphasis added). These citations are followed by Lord Browne-Wilkinson's brief statement of principle which was the subject of consideration in AIB: "Equitable compensation for breach of trust is designed to achieve exactly what the word compensation suggests: to make good a loss in fact suffered by the beneficiaries and which, using hindsight and common sense, can be seen to have been caused by the breach." The Defendants contended that, assuming both that delegation took place and that it was impermissible, the relevant question is: "what would have happened if that had not occurred?" They suggested that it would have made no material difference: Mr Redfern and Mr Osborne would have consulted Mr Tee as the partner having greater experience than them, Mr Tee in turn would have advocated consulting Taylor Young, they would have agreed with that, the same information would have been provided to Taylor Young as was in fact provided, the same advice would have been provided by Taylor Young as was in fact provided, and the same or very similar decisions concerning investments would have been taken as were in fact taken in light of that advice, albeit with more prominent and immediate participation by Mr Redfern and Mr Osborne. In so far as the Claimants were contending that it is unnecessary to consider causation in a claim framed as a substitutive performance claim, the Defendants disputed that support for such a contention could be derived either from the peculiar facts of Clough v Bond (1838) 3 M & C 490 or from Lord Browne-Wilkinson's reference to that case (or from his speech generally) in Target . Background to the investments The decades prior to the established of the Trust were an era of numerous tax planning opportunities. One consequence of this was that many trusts were established which were, or aspired to be, tax-efficient. This in turn led to an increased need for trustees. Mr Tee estimated that in 1979 the partners in Stanley Tee, including him, were trustees of about 20-25 trusts; by 1990 that number had risen to about 100; and by 2000 it had risen further to about 200. Many of these trusts were of a relatively modest size - typically of a value equivalent to the nil rate band for inheritance tax purposes, which stood at £150,000 for at least part of that period - and they were accordingly not generally of interest to any large stock broking companies. Following the "Big Bang" in the City of London in 1986 it was possible for Stanley Tee to deal electronically without the need to hold, or for the firm's clients to hold, original paper certificates. Stanley Tee could also charge commission on the buying and selling of shares. In August 1997, Stanley Tees Nominees Limited was incorporated so that the firm could start offering "back office" services such as the issuing of contract notes and the holding of cash rather than being obliged always to go through brokers. However, the firm was not permitted to give investment advice. During the same period, the team at Stanley Tee expanded. Duncan Scott joined the firm in 1995 as a Trust Accountant, and he later qualified as an investment adviser. In 1996, Catherine Mowatt joined as a trainee solicitor. Mr Tee was increasingly unhappy with the advice and service which he had been receiving from the investment managers with which he had been dealing from the mid-1990s. He was also dissatisfied with the service which stock brokers were providing to Stanley Tee. For example, a firm which Stanley Tee had often used, Grievson Grant, was taken over by Kleinwort Benson, which was a very large organisation, and, in Mr Tee's perception, often did not give appropriate advice, and wanted to push Stanley Tee into its own trusts. In his search for alternative stock brokers, Mr Tee was particularly concerned to ensure continuity of advice and personnel and to engage a firm which could deal with significant trust funds but which was also prepared to take on the bulk of smaller value funds. He considered a number of firms with which he had some dealings, but he was unimpressed with their turnover of staff, their inaccessibility to Stanley Tee, and the lack of performance of their trusts in comparison to the FTSE 100. Mr Tee was recommended to Taylor Young by Stanley Tee's accountants, Price Bailey, who said that they had used Taylor Young and that they had a pretty good track record. In the Autumn of 1997 Stanley Tee were presented with a professional services pitch by Taylor Young, led by the company's moving light Christopher Taylor-Young, which impressed the firm. There were a number of reasons for this, including Mr Taylor-Young's claim that he had done spectacularly well with his own pension investments. Most of the partners who attended that presentation had pensions with Equitable Life and were increasingly dissatisfied about performance issues, although as far as Mr Redfern can recall this preceded the major concerns relating to Equitable Life which led to its ultimate collapse. Following that presentation, various partners, including Mr Redfern, made decisions concerning their personal financial affairs, and the firm also made a decision to strengthen its links with Taylor Young with regard to providing advice and guidance on investment for the benefit of the firm's private clients. With effect from 1998, Mr Redfern decided to appoint Taylor Young to manage a proportion of his own pension investments and to rely upon their advice in investing pension funds into the stock market, and at some time after December 2000, when Equitable Life was in melt down, he transferred the management of all his pension funds to Taylor Young. Accordingly, Mr Redfern makes the point that his treatment of his own pension funds, and his willingness to be guided by the advice of Taylor Young, was broadly in line with the decisions that he made or approved of in relation to the assets of the Trust. Taylor Young made it clear that they could give Stanley Tee advice and treat the firm as the client, while at the same time participating in an arrangement whereby Stanley Tee could conduct the back office work. This is what the parties named the portfolio review service ("PRS"), which they established in 1998. This was one of the means by which Taylor Young, principally through Christopher Taylor-Young's son Nicholas, would provide advice to Mr Tee concerning the management of the many funds which were held under trust and were managed by Mr Tee. Many of the funds - perhaps 30 or 40 - in the PRS "stable" were of between £100,000 and £200,000 in value. The Trust became one of two or three funds in the PRS stable which was worth more than £2m. In contrast to the stock broking firms which Mr Tee had been looking at, Taylor Young's results were excellent: over a 2 or 3 year period, what they called their "growth" and "aggressive growth" portfolios had achieved impressive results. These terms referred to two of the four categories of fund identified in Taylor Young's literature: the others were "cautious" and "balanced". In this context, although the relevant literature is no longer available, Mr Tee's recollection and understanding is that a "balanced" portfolio comprised in the region of 60% equities and 40% gilts, and that a "growth" portfolio comprised around 80% equities and 20% non-equities. On 9 January 1998, Stanley Tee and Taylor Young entered into a short form written Agreement relating to the instructions to be given by Stanley Tee to Taylor Young in respect of any present or future client of Stanley Tee (referred to therein as "the Client"). The Agreement provided (among other things) as follows: "4. Stanley Tee will request advice from Taylor Young on behalf of the Client and Taylor Young agree that in giving such advice they will treat the Client as their customer for the purposes of all rules of IMRO. 7. Taylor Young will deal exclusively with Stanley Tee and not with the Client and will rely on Stanley Tee to supply any necessary information, disclosures, explanations and documents to the Client … 8. …Taylor Young will be responsible for advising on the suitability of the investment on the Client's portfolio". Taylor Young produced a document entitled "Investment Outlook – January 2000". This began by stating that a bear trend which seemed to have been developing in the third quarter of 1999 had come to a startling end, but that what had really happened was as follows: "a two tier market has developed in which the general run of equities has not performed particularly impressively, while growth stocks, especially in the technology sectors, have outperformed spectacularly". The document then asked whether these developments represent "a typical sector bubble" or "the beginning of a trend which may last for a generation" . The document went on to explain, with reasons, Taylor Young's view that "a revolution is occurring in the economy" which was being "recognised and confirmed by institutional investors" and that "we are seeing only the beginning of a vast trend which may take many years to work itself out". It further stated that: "In a revolutionary condition, as now obtains, the companies which will be industry leaders in five or ten years' time may not even possess historical profit records, and in some cases do not have profits to report at present. This is why current valuation techniques can give seemingly absurd measures. The IT revolution is so radical in its impact that it is necessary in some cases to buy stocks on the basis of the role that they will play in the developing new economy. Concept, potential market size and potential market growth are the measures that must be used in measuring these investments. We do not suggest that portfolios should be wholly invested in stocks of this kind. The normal rules of risk diversification must continue to apply … [But] the real message [is that] the performance of IT or high-tech stocks only began in the last quarter of last year, and the trend is underlain by massive real changes which, having begun their journey into the next century, will continue for a generation. Whilst the first surge of outperformance may well have run too far, any weakness is likely to be short term as long term investors use the opportunity to build holdings". Mr Tee explained the background to the exchange of letters, referred to below, which took place in February 2000 between Taylor Young and Stanley Tee, as follows: 38. … by this point TY had been advising my firm for over a year on a number of trusts and I was aware that over a period of time they had built up diversified portfolios with varying allocations of assets. Therefore, when on behalf of the trustees I requested a growth portfolio I would have had those existing trusts in mind and in particular the existing growth trusts, so that when I talked to TY of a growth trust, TY would have been clear about the advice I required. 39. In terms of attitude to risk, when considering the different categories of portfolio, I would have understood that a growth portfolio would be higher risk than a balanced portfolio, but in terms of the Daniel fund it would seem appropriate because a growth portfolio would have more chance of capital growth and of being protected from inflation. Moreover, where one had time, which in the case of Daniel we did because the children were still young, and would not inherit for another 10 or 12 years, there was time for the fund to recover from any falls. 40. Essentially I understood that equities were inherently more risky than other types of investment. I was also aware that the perception was that there was perhaps less growth potential in the FTSE 100 than in smaller growth companies. This perception was gained from discussions with TY and reading the financial pages of the newspapers. However, FTSE 100 companies are and were then, not without their risk: I was aware that having shares in large companies did not necessarily mean less risk, and that whilst some FTSE 100 shares were steady and had achieved some growth, others were "treading water". I did not want to be in the market and be subject to the risk that entailed, without having a chance at the rewards, by which I meant growth. 41. In the circumstances, it was vital that one chose the right companies to invest in. Whilst I took steps to inform myself in general terms about investments, I did not feel I had sufficient knowledge to question TY on major matters of investment policy or question specific investment advice when firmly given. Once I had discussed with the Trustees the strategy that we would go for growth, I needed the investment managers to choose the right companies. 42. TY were able to demonstrate from the performance of their investments on behalf of clients that their strategy had paid off. 43. TY also made much of the fact that they went to see the companies in whom they recommended investing which is not something which other brokers had mentioned. Perhaps by today's standards, my approach looks amateurish, but as part of the 1980s and 1990's progression of the investment industry and of ST's development, TY gave an impression of being more professional than most of the other firms we considered, and willing to enter into a formal arrangement to give advice on portfolios of all sizes. Different sizes of portfolio could be accommodated with adjustments in unit sizes, whilst still achieving the appropriate spread of investments. 44. However, I also specifically knew from clients that TY also managed some large funds such as those of a size with the Daniel trust and some funds which were considerably larger. 45. TY was a member of the Association of Private Client Investment Managers and Stockbrokers ("APCIMS") and was regulated by the Investment Management Regulatory Organisation ("IMRO"). 46. I do not recollect TY discussing with me asset allocations, as such, except in broad terms by reference to their different types of portfolio namely cautious, balanced, growth and aggressive growth. I note that APCIMS were in fact issuing asset allocations from February 1997 for Income, Growth and Balanced funds and that between April 1999 and March 2005 for a Growth fund, the APCIMS allocations were UK equities 60%; International Equities 25%; Bonds 10%; Cash 5%. 47. Although I was not aware of these specific allocations at the time, and it was not referred to by TY, a fund comprised of 85% equities, and 15% bonds and cash was the sort of split that TY was looking to achieve and which I and the Trustees would have been comfortable with. Certainly this would "fit" with TY's initial suggestion that of the £2.5m fund available for investment, some £2.1m should be in equities represented by thirty different holdings each of £70,000: I do not know but perhaps TY were following a recommended APCIMS allocation without being explicit about it. 48. International exposure would have been achieved in the purchase of shares in companies with interests internationally, and later, through collectives such as investment trusts with a specific international component. 49. What I was very careful not to do, was to become involved in the choice of equities: this was TY's remit, and I would not have attempted to second guess them. As I have said above, I was reasonably well informed about investments, but would not have felt that I had sufficient knowledge to question TY on major matters of investment policy." History of the investments On 7 February 2000, Mr Tee wrote to Mr Nicholas Taylor-Young, adding the Trust "to the PRS stable". The letter explained that Mr Daniel had died the previous year, leaving two children aged 14 and 16 who would not inherit until they reached the age of 25, and that following the sale of the farm for development it was expected that there would be a trust fund of between £2m and £2.5m. Mr Tee continued as follows: "Initially, however, we will have say £2 million to invest and I would be grateful for your initial advice as to how this should be done. In view of their ages and the fact that their need for income is fairly small – I doubt very much if we are looking to expenses of more than £30,000 a year, I think we ought to be going for a growth portfolio and not be too concerned about income. Accordingly, I would be grateful if you would let me have your brief suggestions as to what we should initially look to invest in". It is the evidence of the Defendants, which I accept, that the contents of this letter would have been known to, and discussed by Mr Tee with, Mr Redfern and Mr Osborne. The partners in Stanley Tee's Bishop's Stortford office, which typically included Mr Tee and Mr Redfern, met every morning to open the post and to discuss their cases. Mr Tee and Mr Redfern discussed significant matters relating to the Trust during these meetings, following these meetings, and informally when visiting one another's offices, which were only two doors apart. These discussions would have embraced strategic matters, such as the amount of income which was likely to be required; and the need to grow the fund to beat inflation. In addition, all three men attended the partners' meetings which were held each Wednesday lunch time, both to discuss partnership business and to exchange important information about developments in cases; and they held discussions following these partners' meetings at which they discussed what was appropriate for the Trust and at which Mr Tee passed over copies of important letters or papers relating to the Trust. Mr Tee's evidence is that "Whilst our internal discussions were generally not documented, the outcome of those discussions was scrupulously recorded in the written communications with the client and with the investment advisers" and that "… I discussed with David Redfern the fact that, given the age of the children and the relatively modest income needs of the Trust, that there was no real need for income and that it would be appropriate to aim for growth of the fund whilst not endangering the future security of the fund" . Mr Taylor-Young replied by a letter dated 10 February 2000, thanking Mr Tee "for your recent letter asking for advice in relation to Jack Daniel's Will Trust". Mr Taylor-Young started with some general comments about Taylor Young's approach to investment, which replicated part of the company's "Investment Outlook – January 2000". With regard to technology and IT stocks, Mr Taylor-Young stated "As you will read in the accompanying Investment Outlook, we believe that it is prudent to maintain overweight positions in what we believe are the quality companies in this area". Mr Taylor-Young then repeated the essential background facts concerning the Trust which had been set out in Mr Tee's letter, and continued as follows: "I would therefore suggest that the £2m is invested into the growth companies we know and like for their superior growth prospects. As I have indicated above, the area in which growth is focused at the moment is in technology and IT stocks, though I would of course encourage investments in other sectors to spread the risk. I propose investing in roughly 30 companies, in unit sizes of about £70,000, in what we class as a Growth portfolio. In this respect, I would propose that at least 25% of the portfolio be invested in large FTSE 100 companies, with the balance being invested in medium and smaller sized growth companies. I outline on the attached page some suggestions as to the individual equities I would be happy to buy for their long term growth prospects." Before acting on the advice contained in Taylor Young's letter dated 10 February 2000, and in keeping with a pattern which continued throughout the relevant history, Mr Tee sent a copy of that letter to Mr Wingrove under cover of a letter dated 16 February 2000. In his letter to Mr Wingrove, Mr Tee stated: "Obviously there are concerns at the height of the market and therefore I think one is really looking to put a bit of the money in fairly soon and then wait with the bulk of the money to see how things go over the summer …Clearly, we are looking to invest for the long term and hope that we can generate significant capital growth". It appears from contemporary files notes of Taylor Young and Mr Tee that on 29 February 2000, at Mr Tee's request, Dominic Liversedge of Taylor Young sent Mr Tee a fax attaching a list of the stocks which Taylor Young "would be happy to buy today". Mr Liversedge added "I would suggest the portfolio starts with perhaps three FTSE 100 companies, and that three or four smaller sized companies are also bought. The unit sizes should be aimed at about £70,000, based on an estimated fund value of around £2m …" On receipt of this fax, Mr Tee spoke to Mr Liversedge on the telephone. Mr Liversedge recommended buying shares worth £70,000 in each of 10 companies: British Aerospace, Cable & Wireless, Lloyds TSB, Scottish & Newcastle, Vodafone, FI Group, Mayflower, Mitie, RM Group and Staffware. Mr Tee's attendance note of that conversation ends by stating "Confirming we would now proceed". An "Instructions from Client" form of Taylor Young dated 29 February 2000 records the receipt of instructions on behalf of the Trust to buy the shares discussed in that call. On 1 March 2000, Mr Tee wrote to Mr Wingrove saying that "I am beginning to invest the money as advised by [Taylor Young]" . On 2 March 2000, the two men had a long discussion on the telephone about the shares which Mr Tee had decided to buy and "the philosophy behind it". According to Mr Tee's attendance note, Mr Wingrove "was anxious we would not be looking to put all our eggs in one basket and he had a fear that this might be happening". Mr Tee replied "Explaining that we were probably going to look mainly to invest in stocks and shares. We might be more cautious if the markets went through a rough time possibly towards the end of the year, but in any event we would not be investing all the money at any one time" On 3 March 2000, Mr Tee sent a letter to Mr Wingrove confirming the initial investments which had been made on behalf of the Trust. On 6 March 2000, Mr Tee wrote to Mr Wingrove enclosing a schedule which set out the companies in which shares had been purchased, the prices paid, and a brief description of each company (for example, FI Group was described as "IT consultancy" ). The purpose of this was to enable Mr Wingrove to pass this information on to the Claimants, so that they could "follow the shares without knowing how much is invested in them" . This accorded with the policy of the trustees, which they followed until the Claimants were 25 years old, of not telling the Claimants how much they stood to receive under the terms of the Will. On 28 March 2000, Mr Wingrove sent an email to Mr Tee, most of which was concerned with the immediate financial needs of Celia Daniel and Amy Daniel. With regard to the buying and selling of shares, however, Mr Wingrove wrote: "Do you have a limit to which you would allow the share price to fall? Similarly, how high would you let a share price rise before profiting? … Amy is taking a very keen interest in this, vested interest aside, so any buying/selling strategy, and any other company info you have, she would like to know". Mr Tee replied on 29 March 2000, as follows: "There is no real limit to how far the share price will fall. It will be a question of perception of how the company is doing. You will appreciate that we are currently in extremely volatile times, with share prices moving by over 10% a day. It is therefore very difficult to be dogmatic about how soon one would sell a share if it was not performing. I would certainly let all the shares we have bought have a run for twelve months before reviewing the portfolio, as otherwise we have not given them a fair chance. If, however, we are lucky and one share shines, then we would certainly be looking to take a profit if they doubled or made a similar increase … I am delighted that Amy is taking a keen interest in this and certainly I am more than happy, subject to any thoughts you may have, to show her the advice we get from [Taylor Young]". Also on 29 March 2000, Mr Tee wrote to Mr Nicholas Taylor-Young, enquiring "whether you would now be buying any of the other shares which were on your initial list eg in view of the sudden recent falls in Redstone, Hays, Colt etc would you be adding these?" Mr Tee continued: "We invested the full £70,000 into each of the initial core holdings, but I wonder whether it would be more sensible in some of the more volatile ones to add slightly less, with a view to topping them up if necessary". According to Mr Tee's attendance note dated 7 April 2000, Mr Taylor-Young's advice in answer was given in a "long discussion" that he had with Mr Tee. That advice and Mr Tee's response to it are recorded in that attendance note as follows: "He is firmly of the view that we should add some more money to the market now in a mixture of different shares and indeed he would be looking to do this on a regular basis. He would buy Colt, Autonomy, Baltimore, Capita, Infobank, Sage, Photobition, Redstone Telecom, Telemetrix, Xaar and Activcard. Suggesting we put £25,000 into each. Confirming we would proceed." On 14 April 2000, Mr Tee wrote two letters: first, to Mr Taylor-Young, confirming the purchase of the above shares as well as shares in Easynet; second, to Mr Wingrove, informing him about those purchases. Mr Tee's letter to Mr Wingrove concluded: "The markets are certainly extremely volatile at the moment, and although one or two of the shares have not got off to a good start, fortunately they have been balanced by ones that have done extremely well". Mr Wingrove replied by email dated 18 April 2000, saying that he thought the tone of Mr Tee's letter "is a touch over optimistic". Mr Wingrove went on to say that having checked all the shares that he could (which excluded Staffware, Activcard and Autonomy because he could not find their listings) only three companies had made modest gains, while the rest had done less well and "Baltimore (-34%), Easynet (-53%), Infobank, Cable & Wireless, FI Group, and RM are the most notable losers". He suggested that there would have been a 25% loss overall on the basis that further purchases had been made in tranches of £70,000. Mr Wingrove concluded: "I'm aware of the volatility of the market, especially in the technology sector. Luckily the UK market hasn't eroded as much as the NASDAQ, however I have to voice concern at over exposure in this sector, and the general reliance on shares to generate future income. I appreciate your experience in this field, and toughing it out at present may well bear fruit later, but I would like to know what the contingency plan is". Mr Tee responded by letter dated 25 April 2000, pointing out that the second round of purchases had been made in tranches of £25,000 (not £70,000), and stating that he would send a copy of Mr Wingrove's email to Mr Taylor-Young and ask for his comments. Mr Tee stated that, on reflection, he wished he had not followed Taylor Young's advice, because "When it works it is spectacular, but when we are in a market of great volatility, as we are now, it is less good". Mr Tee further stated that: "the timing of the latest lot of purchases was slightly unfortunate on a short term basis, although I am absolutely positive that on a longer term basis we will see the rewards" , and explained that "My letter was of course written before the latest fall and therefore I was perhaps being slightly optimistic" . He said he understood Mr Wingrove's disappointment at the portfolio's short term losses, but urged him to take the longer view and judge matters after 12 months. He made the following points: "The contingency plan is merely to hold more in cash and wait to see how things evolve. We are looking for a long term growth portfolio and I think it would be fair to say that never in the history of the market has there been such volatility over such a long period. There is absolutely no knowing which way the market is going, although the advice we are getting from Taylor Young, and they have a very good track record, is that we should be in the market to a limited degree. We have invested less than half of the cash that we are holding and I do not propose to do very much more, other than perhaps to add to one or two of the holdings if we are still happy that they are the right ones to buy. These would be small amounts, not large, but the absolute priority is to ensure that Nicholas Taylor-Young is happy to continue to hold these shares." On 25 April 2000, Mr Tee sent Mr Wingrove's email to Mr Taylor-Young and asked for his comments. Mr Tee explained that he was thinking of buying further shares in some of the companies whose shares had fallen badly "if nothing else to ensure that the base cost per share is reduced". Mr Tee further wrote: "I would also be grateful for your comments and thoughts about spreading the portfolio into less IT sectors and particularly those where we might be looking to generate some income from the fund." On 2 May 2000, in accordance with the advice of Mr Taylor-Young which had been given on the telephone on 28 April 2000, the Trust bought £25,000 worth of shares in Halma, "an old world stock". Mr Tee informed Mr Wingrove of this on 9 May 2000. On 22 May 2000, Mr Taylor-Young advised purchases of shares in Cable & Wireless, Invensys and Persimmon, and between that date and 1 June 2000 the Trust bought £25,000 worth of shares in two of those companies (Persimmon and Invensys). The documents do not record why Mr Taylor-Young's advice was not followed in its entirety. Mr Tee informed Mr Wingrove about these purchases on 1 June 2000. On 12 July 2000, a letter was sent to Mr Tee which was signed by Mr Liversedge on behalf of Mr Nicholas Taylor-Young. The letter began with comments on Taylor Young's views of the stock market, which included the observations that although six telecommunications, media and IT companies had been promoted into the FTSE index in early March, these previously popular sectors had subsequently been "hit hard" , yet a return of confidence and gains in some "lowly rated companies" had meant that "the overall downturn in the market over the quarter has been limited". It further stated: "In some cases, there have been large falls in the share prices of [telecommunications and IT] stocks, despite the underlying businesses continuing to grow well. This has provided an opportunity for buying more shares at a much lower price …". The letter enclosed an Investment Outlook for July 2000. It then made the following recommendations (giving reasons in each case, not all of which are quoted below): "Consequently, I would encourage adding to telecom holdings such as Colt, Redstone and Easynet, and software companies such as Sage, Autonomy and Baltimore. Elsewhere, the electrical equipment manufacturers, Xaar and Telemetrix, could both be added to … The holdings in Invensys, the large FTSE 100 engineer, could also be added to, as the shares have begun to regain some of their losses, helped by their acquisition of Baan, the German control systems software company … In the support services sector, I would be happy to add to Capita, the outsourcing company whose share price has not fallen far from its recent highs … Other than the companies which are exposed to telecoms or IT, we have been buying some Celltech, a fast growing biotech company, with a strong pipeline of drugs. There are now 25 holdings in the portfolio, and I believe that less than half of the funds have been invested … I would be happy to recommend that another £300,000 is invested into the market over the next month or so … A number of the most frequently voiced concerns have been addressed in the Investment Outlook, in which you will also read that out strategy remains intact … we remain convinced that investing in the growth companies of tomorrow will provide long-term investors with above average returns." On 17 July 2000, Mr Tee spoke to Mr Taylor-Young, and on 18 July 2000 he sent a letter to Mr Wingrove explaining that in accordance with the advice given by Mr Taylor-Young he had "added to some of the shares which we bought earlier by investing £10,000 to a number of them and hopefully they will begin to pay dividends". Mr Tee went on to say that it had been an extremely difficult 4 months, and to acknowledge that, with hindsight, "we made a mistake by investing in such large sums when the initial investments were made". Mr Tee stated that investing was being made for the long term, i.e. at least 3-5 years, and there was "every reason to believe" that the growth companies identified by Mr Taylor-Young would "come through in the end". Mr Tee then explained: "I aim to review matters again in September, with a view to adding more funds to the market if it seems appropriate, but we will still be less than one half invested, which gives huge room for future growth." On 6 September 2000, Mr Tee spoke on the telephone with Mr Liversedge. Mr Tee's attendance note of that conversation records that Mr Liversedge suggested, and that Mr Tee agreed, that it would be sensible to sell some shares: Staffware, in order to take profits out of the "sharp rise" in those shares; British Aerospace to take profits also; and RM to reduce the Trust's holding. Mr Liversedge's note places the emphasis the other way round, stating: "… Though a number of [TMT] stocks had clawed their way back to original cost, Richard thought it would be a sensible client taming exercise to reduce some of the IT stocks which had recovered, to around £30,000 unit sizes …[He] had moved towards buying in £30,000 lumps, as he was aware of the Trustees' nervous view towards markets. He said that he might be reducing Staffware given its recent strength, and I agreed with him that this would seem sensible given his Trustees' attitude to risk ..." By letters to Mr Liversedge and Mr Wingrove dated 7 September 2000, Mr Tee confirmed that part of the holdings in Staffware, RM and British Aerospace had been sold, in circumstances where the former two shares "have now gone back into profit". On 2 October 2000, Mr Liversedge wrote to Mr Tee with Taylor Young's views, since July, on the market and some of the stocks held and traded within the portfolio of the Trust, and with Taylor Young's latest investment ideas. The letter described the performance of the portfolio as "mixed", mentioned that investments in Xaar, Redstone, Baltimore, Sage and Activcard were "beginning to claw back some of their losses", suggested that some of the holdings added in July "have proven to be sensible, as Autonomy, Easynet and Baltimore have since moved ahead", and said Telemetrix, MITIE and Capita "have been strong performers over the period". The letter went on to recommend adding to holdings in Xaar, Sage, Vodafone, Redstone and Photobition, essentially on the grounds that the shares looked cheap in light of those companies' future business prospects, and that the portfolio should be diversified beyond the current 24 holdings by buying shares in larger companies, namely Celltech, Great Universal Stores, and Experian. The letter ended by stating "We are very happy in the longer term as there are good macro-economic forces in play" and that: "Yes, there a short term risks, particularly in the valuation afforded to some high fliers, but judicious investing in quality companies should continue to reward the long term investor". On 5 October 2000, Mr Tee wrote to Mr Wingrove, enclosing the letter from Mr Liversedge and a valuation of the Trust's portfolio as at 31 August 2000. Mr Tee stated: "While it is disappointing to note that a number of shares have performed so poorly, we are looking for a long term performance and I think it is right that we continue to add to the growth stocks favoured by Taylor Young to benefit from the upturn in the market which undoubtedly will come." On 13 October 2000, Mr Tee sent letters to Mr Nicholas Taylor-Young and Mr Wingrove confirming that, on the advice of Taylor Young, the Trustees had purchased shares in Xaar, Redstone Telecom, Photobition, Celltech and Great Universal Stores. The documents do not record why Taylor Young's advice was not followed fully on this occasion, and why shares in Experian, Sage and Vodaphone were not purchased. On 14 November 2000, Mr Tee received further advice from Mr Nicholas Taylor-Young. On 16 November 2000, Mr Tee relayed that advice to Mr Wingrove. It seems there had been further falls in the stock market at this time, and that, according to Mr Tee's attendance note, the advice was to put monies into a total of 7 investment trusts "to add some solidity" and to invest further in Capita as it had "fallen back too far" and was "a good buy" . In addition to buying 1,519 further shares in Capita, the Trust invested £30,000 into each of the 7 investments trusts recommended to Taylor Young. On 12 January 2001, Mr Tee spoke to Mr Nicholas Taylor-Young. According to Mr Tee's attendance note, they went through all the shares in the portfolio, and Mr Taylor-Young made recommendations with regard to each shareholding as to whether it should be held, sold, or increased. Mr Taylor-Young listed further shares that "he would not be averse to buying" , and suggested that shares in Mitie might be sold if they rose higher "to take some of the profits". The two men also discussed whether to sell shares in Lloyds TSB "to get some profits". Mr Taylor-Young suggested that any future selling or buying should not be done "automatically" but instead should depend on choosing the right day, and that it should be done selectively. The basis of his advice was that by and large he thought prices would have increased at the end of the coming 3 months. Following that meeting, in accordance with the advice of Taylor Young, and as recorded in a letter from Mr Tee dated 18 January 2001, the Trust (1) sold shares in Activcard, Infobank, Redstone Telecom and Easynet, and (2) bought shares in Medisys, Shire Pharmaceuticals, HSBC and Greene King. The basis of Taylor Young's advice and the strategy which Mr Tee was seeking to pursue was further explained in a letter from Mr Tee to Mr Wingrove dated 19 January 2001. In substance, the decision was to sell shares in respect of which there were short term concerns, to buy other shares which were thought to have better prospects, to wait for future opportunities to buy further Tech shares on poor days in the market, to consider taking profits of any significant size, for example 20%, and "to look to work the portfolio back into credit". On 2 February 2001, Mr Taylor-Young suggested adding some shares in Persimmon (although he was "slightly nervous" about this), buying shares in Tesco, and dribbling more money into some Tech shares. By letter dated 6 February 2001, Mr Tee informed Mr Wingrove that, on the advice of Taylor Young, the Trust had added Tesco to the portfolio and had "bought a number of the Tech shares at a low with a view to selling as and when matters improve" . It seems likely that the suggestion of buying shares in Persimmon was not taken up because Mr Taylor-Young was less positive about that. As recorded in letters of that date from Mr Tee to Mr Taylor-Young and Mr Wingrove, on 20 February 2001, again on the advice of Taylor Young, the Trust bought shares in TT Group "which is an engineering group about to be rerated as an electronics group, which is likely they believe to have a significant impact on its valuation and which also has the added advantage of a yield of over 6%" and also in Medisys. The Trust also added about £10,000 to 5 of the investment trusts that Taylor Young had recommended. On 7 March 2001, Mr Liversedge sent Mr Tee a further report on the Trust's investments. This recorded that the FTSE 100 index had fallen 11.3% between 31 August 2000 and 28 February 2001, but the FTSE Techmark index had fallen by a "scary" 31%. It stated that the only companies that had made any real progress were defensive companies, which were slower growing and therefore not the sort of companies which Taylor Young liked to invest in for the longer term. The report discussed the "mixed performance" of the portfolio over the previous 6 months, the "heavy de-ratings of companies in the IT and telecom sectors" , the fact that certain named shares in the Trust's portfolio had been "affected worst" , that (in the events which had happened) the Trustees had been sensible in the short term to express concern about the technology sector and to reduce or sell many such shareholdings, and that "the more defensive holdings" and the investment trusts had "held up well" . It commented that "The Trustees have been relatively cautious by investing smaller-sized units into [technology] companies, which has proved to be very sensible considering the volatilities in the market". It made recommendations for further share purchases. It ended by saying "the longer term prospects for the market continue to look healthy" . On 12 March 2001, Mr Tee wrote to Mr Liversedge, recording that, acting on the advice of Taylor Young, the trustees had added new shareholdings in Peterhouse and Regus, and had increased existing shareholdings in Shire, Greene King, and GUS. Mr Tee also asked whether it would be worth adding some zero divided preference shares to the portfolio, as had recently been done for another trust. On 16 March 2001, Mr Tee sent a letter to Mr Wingrove, reporting on the position and stating "In our capacity as trustees we will of course be keeping a steady eye on matters" and that "with the help of Taylor Young [we] are trying hard to bring round the performance of the portfolio" . Both letters described the value of the portfolio at that time as "fairly ghastly". On 23 and 24 April 2001, Mr Tee spoke to Mr Nicholas Taylor-Young on the telephone, and then wrote to Mr Liversedge and Mr Wingrove recording what had been done in response to Taylor Young's advice. In summary, there was a discussion about split capital investment trusts, gilts and War Loan. Following this, the Trust invested a total of £200,000 in 5 holdings of zero dividend preference shares, described by Mr Tee in his letter to Mr Wingrove as "a relatively safe and assured way of getting a return over the next few years of somewhere between 7% and 8% per annum. They do not pay any income, but are entitled to a fixed rate of growth, providing that, for example, the values of the funds do not decline by more than say 25% to 30%". On 27 April 2001, there was another conversation between Mr Tee and Mr Taylor-Young, in which the latter advised investing at least £250,000 in gilts and making further share purchases. In accordance with this advice, on 3 May 2001 the Trust bought further shares in TT Group, Greene King, Medisys and Peterhouse, and new holdings in Alliance & Leicester and McCarthy & Stone. By letter dated 9 May 2001, Mr Taylor-Young provided detailed advice to Mr Tee about investing in fixed interest markets. On 14 May 2001, acting on that advice, the Trust invested £300,000 equally between Treasury 9.5% Conversion 2005, Treasury 7.5% 2006, Treasury 5.5% 2008/12 and Conversion 9% 2011, and War Loan. Mr Tee informed Mr Wingrove of this. In the meantime, Mr Tee had written to Mr Wingrove on 3 May 2001. In that letter, Mr Tee set out the latest share purchases made by the Trust. He continued as follows: "I feel I ought to make some comment concerning the performance of the fund, and particularly the advice we have received from Taylor Young. I would not wish you to think that the Trustees have just followed the advice blindly, and will continue to do so without considering it carefully. I have discussed with the Trustees and our view is that we should continue to follow their advice, notwithstanding that it has been fairly disastrous to date, in the hope that things will improve significantly in the next twelve months. If, however, by the time we get to February 2002 we do not see a sizeable improvement in relation to the performance of the investments, then the Trustees will I think take the view that they need to take alternative investment advice. Taylor Young have given clients of my firm and individuals significant and successful investment advice over the past 3-4 years. Unfortunately, their advice has not been so good over the last twelve months and it is precisely in this timespan that the Trustees have begun to invest". Events continued in similar vein in June and July 2001. The Trust took up a rights issue in one instance and sold shares in other instances, either to take profits or to cut losses or avoid expected future falls in price, in accordance with the advice of Taylor Young. During this period, on 16 July 2001, Mr Tee had a long conversation with Mr Wingrove about the Trust. According to Mr Tee's attendance note, Mr Wingrove was understanding about the performance of the investments, Mr Tee said they "were taking a much safer view to try and recoup the difference", and Mr Wingrove appears to have accepted that, even if there were losses, the Trustees were doing their best. On 3 September 2001, Mr Liversedge sent a further report to Mr Tee. This recorded that the FTSE 100 had fallen by 9.5% between 1 March 2001 and 31 August 2001. However, Taylor Young considered that this "cannot keep on happening" , and the report expressed confidence that, before early 2002, "a large part of the cash made available by the easing of the money supply in 2001 will find its way back into equities, which should provide some good opportunities for portfolio performance". The report recorded that Telecom and Technology sectors had produced "further disappointments" , and that all the Trust's holdings in these sectors had fallen dramatically after most of the Trust's holdings had been sold off earlier in the year. It recorded that new holdings in Shire, Peterhouse and TT had "met with mixed performance so far" , but that there had been good or excellent performance or "strong recovery" shown by other shares: Greene King, GUS, Lloyd TS, Halma and Mayflower. It recorded that "The investment trusts that are held have all suffered in these difficult markets" , that two funds exposed to technology markets had done especially badly, and recommended selling the holding in one of those two funds and buying a holding in another "top ranking fund which currently trades at a 20% discount to its assets". The report recorded little change in the value of the Trust's fixed income holdings in government bonds and zero dividend preference shares, and advised that although the capital value of one of the zero holdings had fallen by 25% "the Trustees should [not] be too concerned about holding onto this ZDP, though the short-term risks have gone up". The report recommended selling some holdings which were had performed badly "despite carrying such large losses" , in order to avoid further expected losses, selling part of the holdings in some of the larger holdings "in order to reduce the risk of being over exposed in one company" , and selling the holding in Halma "for some profits" . It recommended making purchases in identified companies involved in retail, gaming and leisure, and well as Alliance & Leicester. It also announced the launch of the Taylor Young Growth Fund, and recommended investing in this in order to benefit from "a more actively managed investment service". It ended by stating "we remain positive on a two to five year view, but the short term will remain tricky, until confidence returns". On 7 September 2001, Mr Tee sent a copy of this report to Mr Wingrove. Mr Tee's covering letter states: "… Whilst it is disappointing that the fund still shows considerable losses, there is one slightly heartening note in that the fund's performance between February and August has actually beaten the FTSE 100 index by some 3% …I do believe that we are beginning to get things right and I write to confirm that I have followed their advice by selling a number of the poorer performing telecoms and other shares, as well as top slicing and taking profits from some of the better performing shares. I have not as yet taken any decision as to reinvestment, and I think this we will be doing some time next week …" On 11 September 2001, as recorded in Mr Tee's letters of that date to Mr Liversedge and Mr Wingrove acting on the advice of Taylor Young, the Trust sold holdings in Greene King, Henderson Smaller Companies, Scottish & Newcastle, Persimmon, Lloyds TSB, Halma, Xansa, Vodafone Group, RN, Cable & Wireless and Autonomy. Mr Tee's letters expressed the view that these sales were well timed in light of the sudden fall in the market, and expressed the intention of not making any reinvestment for the time being and the hope that it might be possible to buy cheaply in the future. On 20 September 2001, Mr Tee sent Mr Wingrove accounts which covered the administration of Mr Daniel's estate and the management of the Trust up to 5 April 2001. The letter recorded that the Trust fund was just over £3m, although this was subject to potential tax liabilities which were explained elsewhere in the letter. On 9 November 2001, Mr Tee wrote to Mr Wingrove as follows: "We have recently been reviewing the portfolio and I have spoken at length with David Redfern about the way forward. Naturally, it has been very disappointing that the value of the portfolio has fallen so much over the last eighteen months, and one of my concerns has been whether we have been getting the right sort of advice from Taylor Young. Allied with this concern has been developments within the office whereby we have now set up our own investment management arm in order to service clients in a way which we feel would be advantageous for them. It is still early days and we feel very strongly that we need to be realistic and to look at the less risky end of the investment market, but in view of the poor performance of the fund over the last twelve to eighteen months, the Trustees do feel that this is something which we ought to be considering". The letter went on say there would be two real advantages which Stanley Tee could offer. First, the Trust fund would be looked at on a far more frequent basis, i.e. monthly if not more frequently. Second, because of the way in which they would look to run their business, the risk factor would be significantly reduced. The letter stated that this was a decision for the Trustees, but they would not wish to make it without some input from Mr Wingrove. It referred to Mr Duncan Scott as "the authorised person within the office" , and stated that he would be pleased to discuss the matter with Mr Wingrove. On 13 November 2001, Mr Liversedge said that he was strongly in favour of adding some income producing shares to the portfolio, and Mr Tee confirmed that the Trust would do this. On 14 November 2001, Mr Tee confirmed to Mr Liversedge and to Mr Wingrove that, on the advice of Taylor Young, the Trustees had bought new holdings in Monsoon, Six Continents, and United Utilities and had increased the holding in Alliance & Leicester. The reasoning was stated to be that the amount paid to the Trust on deposit "now is so low" and that these shares produced a divided of over 5%. On 10 December 2001, Mr Wingrove approved the transfer from Taylor Young to Stanley Tee. Mr Tee's memorandum to Mr Scott of that date stated: "We need to sit down when you have had a chance to think through as to how we ought to look at the portfolio and what action we ought to be taking". The trial papers contain a version of that memorandum which bears some manuscript notes made by Mr Scott. These include the following: "huge losses B/F from previous investments, therefore potential to take profits tax free …beware of balance – make sure that enough growth potential". On 18 December 2001, Mr Tee wrote to Mr Liversedge explaining that the decision had been taken to seek separate investment advice concerning the Trust. On 23 January 2002, Mr Tee wrote to Mr Wingrove explaining that holdings in Invensys and Sage had been sold, both at a loss, because "it appears the prospects of any growth are slim and the possibility of a fall in the value appears quite high". On 11 and 13 February 2002, respectively, Mr Osborne and Mr Redfern signed Terms of Business concerning the investment services to be provided by Stanley Tee in relation to the Trust. On 12 February 2002, Mr Scott prepared an Investment Report containing recommendations concerning the Trust, based on information provided by Mr Tee. The report summarised the objectives of the Trustees as being "to generate sufficient income to satisfy the relatively modest needs for the beneficiaries, whilst at the same time investing the capital in such a way that it at least keeps pace with inflation". On a scale of 0 to 5, the Trustees were rated as 3, namely "a realistic investor who wishes to ensure short-term financial security through low risk investment, but also wishes to benefit from long-term investment returns to provide future security" . Further, the Trustees' needs for income, accessibility, and tax efficiency were rated in each instance as 2, and their need for growth as 3. It was stated that the portfolio had made a loss of £246,000 or 14% of the original capital value, whereas the FTSE 100 had fallen by 16% in the previous year. It was also stated that the portfolio comprised 40 holdings, with 20% of the value in Government Stocks and a further 21.6% in Investment Trusts. Mr Scott's comments and recommendations included the following: "With the benefit of hindsight it is clear that too much was invested into certain sectors at a time when prices were quite high and I also believe that the structure of the portfolio does not necessarily reflect the Trustees' risk profile … The Trustees have been unfortunate in that some of the Investment Trusts have lost value, particularly the Zero Dividend Preference Shares, where I think the general panic about those type of split capital trusts has meant that the market price does not necessarily reflect the true value of the investments. I am confident that in time the price of these shares will recover …I am less confident of some of the other Investment Trusts …My initial feeling would be to dispose of those three Investment Trusts … For the time being I would suggest that we hold the majority of the investments … I propose to look at the portfolio on a weekly basis and I suggest that we adopt a policy of disposing of any stocks that have fallen by more than 20% compared to the value as at 1 st February. The Trustees are still holding a considerable amount of cash which can be invested in the market over a period of time. Initially I would recommend adding £100,000 and investing this in Government Stocks … My initial strategy is to try to take some of the volatility out of the portfolio and reduce the overall risk rating. To do this I will be looking to buy more defensive stocks, particularly those which give an above average yield. I will be looking for Unit Trusts or Investment Trusts to provide the growth element in the portfolio. Although the Government Stocks give little prospect of capital growth, they do provide a good income yield and this can be reinvested and in effect provide growth in the portfolio …" The documents show that, as might be expected, in general terms this advice was followed by Mr Tee. However, this was not universally the case: for example, on 4 March 2002, the price of shares in Mitie had fallen by 35% from the 1 February 2001 level, but Mr Tee was nevertheless of the view that it should be held and not sold, and accordingly, and contrary to Mr Scott's advice, he instructed Mr Scott not to sell it at that time. Further, on 26 March 2002 it was decided to keep the holding in Medisys under review, even though it had fallen by 19% from the 8 February 2001 level, as the company's prospects might be quite good if it managed to develop certain products. The documents also show that a number of the shares which the Trust had bought on the recommendation of Taylor Young went up in price by significant amounts. Some of these shares were sold to take profits, and others were held in the hope of further gains. Thus: on 27 March 2002, Monsoon was sold at a profit of 50%; on 12 April 2002, BAE was sold at a profit of 23%; on 25 April 2002, a review form completed by Mr Scott recorded "Persimmon 124% profit – will want to take at some point but housebuilders definitely a hold – poss more growth" ; on 2 May 2002, Alliance & Leicester was sold at a profit of 13%; and on 13 May 2002 Mr Scott wrote to Mr Wingrove that he had taken the opportunity to bank profits on Scottish & Newcastle and McCarthy & Stone. As against this, according to a report prepared by Mr Scott in June 2002, the 5 holdings of Zero Dividend Preference Shares recommended by Taylor Young and bought by the Trust in April and May 2001 for a total of £207,931.88 were worth only £112,597.72. Mr de Freitas prepared a table as part of his closing submissions, according to which the percentage of the total asset value of the Trust which was invested in equities at various dates was as follows: 22.68% on 29 February 2000; 32.37% on 7 April 2000; 37.20% on 17 July 2000; 35.09% on 14 November 2000 (plus 6.19% in investment trusts); 40.17% on 15 January 2001 (plus 6.72% in investment trusts); 47.39% on 9 March 2001 (plus 7.25% in investment trusts); 51.90% on 27 April 2001 (plus 7.23% in investment trusts and a further 6.88% in Zeros); 51.82% on 10 May 2001 (plus 7.22% in investment trusts, a further 6.87% in Zeros, and 10.23% in gilts); 42.45% on 13 November 2001 (plus 7.21% in investment trusts, a further 6.86% in Zeros, and 10.22% in gilts); and 39.49% on 31 March 2002 (plus 10.03% in investment trusts, a further 6.73% in Zeros, and 10.03% in gilts). According to the same table, the assets reached their highest total value, namely £3,449,518.74 in November 2000 after Gifford's Farm had been sold (converting a probate value of £325,000 to an actual realisation amount); and they were worth £2,957,937.53 on 13 November 2001 (the last date in the Taylor Young era) and £3,016,192.92 on 31 March 2002 (the first date in the Stanley Tee era). The parties' submissions on the facts The Claimants' arguments that the Defendants acted in breach of duty, and the Defendants' arguments to the contrary effect, essentially followed the structure of their respective pleaded cases. The relevant paragraphs from the statements of case have been quoted above, and it is unnecessary to rehearse those arguments further. In addition, Counsel made a number of points of detail on the evidence, in particular with regard to the issue of delegation. I address these, to the extent appropriate, below. Discussion I propose to deal first with the Claimants' case as originally pleaded, applying the principles which I have sought to extract from the case law discussed above. Among other things, this involves considering the duty of trustees to act prudently as discussed in Nestle , applying the "no reasonable trustee" test as formulated by Neuberger J, applying the common law rules of causation, and (in respect of any breach of trust which may be established) asking, with the benefit of hindsight and applying common sense, what loss was caused to the beneficiaries by the breach. If some aspect of the trustees' approach can be criticised as having fallen below appropriate standards, that will call into question their competence and whether they complied with their duty of care. However, it will not be sufficient to establish liability unless any breach of duty resulted in investment choices which were imprudent, and then only to the extent of the difference between the position to which those choices gave rise and the position which would be likely to have resulted from prudent investment choices. For example, if the trustees decide on an inappropriate investment strategy, but either they do not implement that strategy or when it is implemented it results in investments being made which are no more disadvantageous to the beneficiaries than those which would have been made in accordance with an appropriate investment strategy, then that decision will not have occasioned any loss. When assessing equitable compensation, in order to achieve a result which is practically just to the beneficiaries as well as to the trustees, it may be appropriate to recognise the difficulties to which requiring proof of quantifiable loss may give rise. Depending on the exigencies of the particular case, where loss has plainly occurred, it may even be appropriate, as seems to have occurred in one of the cases discussed in Nestle , to make presumptions in favour of the beneficiaries as to the extent of that loss. In a case where the trustees have misunderstood or misapplied their investment powers in some radical way and this has plainly resulted in loss – for example, investing in fixed interest securities and failing to invest in equities at all (an illustration given in Nestle ) – then it may be appropriate to measure fair compensation (i.e. a comparison with what a prudent trustee would have been likely to achieve) by reference to the performance of an appropriate index of equities. In principle, however, it seems to me that where the trustees are alleged to have been at fault in making particular investments (such as equities or Zeroes) or in failing to make particular investments (such as bonds or gilts) then it is necessary to establish on the balance of probabilities what loss has resulted from each breach of duty. For example, if it is accepted that they were right to invest in equities and to hold some cash, but it is said that they invested too much in equities and held too much in cash, it seems to me that what is required is to identify the class(es) of assets (e.g. bonds and gilts) in which they ought to have invested instead, and to show that those assets would have produced greater gains or smaller losses than the assets in which the trustees chose to invest. Similarly, if it is accepted that, in principle, they were right to invest in Zeroes to the extent that they did, but it is said that they invested in unsuitable Zeroes, it is necessary to show the extent to which loss resulted from buying the wrong Zeroes as opposed to buying the right ones. In a case like the present, which involves a series of investment decisions which are made over a number of years, there may come a time – possibly at the outset – where any breaches of duty are so serious as to make it appropriate to measure loss and compensation by reference to a proxy portfolio or an index. At that stage, it may be permissible to avoid consideration of the trustees' reasons for making subsequent decisions, and to do no more than to take into account the consequences of those decisions and whether they increased or reduced the overall loss. Unless and until that stage is reached, however, each decision has to be considered separately, and having regard to all the circumstances in which it was made. For example, if an earlier decision which is unobjectionable has resulted in the acquisition of equities, and the prices of equities have fallen sharply, this may affect the extent to which it is within the bounds of prudence to invest in equities at that stage: it may then be acceptable to invest either more or less in equities than would otherwise be the case, depending on whether, within whatever time frame is material, it appears sensible to expect a recovery in share prices (which would enable losses to be recouped and further profits to be made), or a fall in share prices (such that continued investment in equities would lead to increased losses). Although Mr Tee's letter dated 7 February 2000 asked for the advice of Taylor Young as to how an initial £2m should be invested, it also expressed Mr Tee's view that "we ought to be going for a growth portfolio" . It was in that context that Mr Tee asked Taylor Young for their "suggestions as to what we should initially look to invest in". Accordingly, I do not read that letter as asking for advice as to whether or not to invest in a growth portfolio, but rather as asking for advice as to what ought to be chosen to make up a growth portfolio. Moreover, by the time the letter was written, there was a course of dealing between Stanley Tee and Taylor Young, and it is apparent from Mr Tee's evidence that, set in that context, the expression "growth portfolio" had a particular meaning, namely one comprising around 80% equities and 20% non-equities. Indeed, his evidence is that a fund comprising 85% equities and 15% bonds and cash is the sort of split with which he and the trustees "would have been comfortable" . If Mr Tee had been asking for Taylor Young's advice as to the kind of portfolio in which it would be suitable for the Trust to invest, I consider that the letter would have provided Taylor Young with sufficient information to enable them to provide such advice. If they had been asked for such advice and they did not consider that they had enough information to give it, they could and should have asked for further details. Although Mr Goodyer stated (in paragraph 5.14 of his report) that the contents of the letter were insufficient for Taylor Young "to make recommendations or understand the requirements of the Trust" , I agree with Mr de Freitas that the letter mentioned each of the key factual matters relevant to the requirements of the Trust which are identified in that report. In my view, however, the letter was not asking for that type of advice. The decision to opt for a portfolio comprising 80% or 85% equities has to be viewed in the context of the economic conditions and perception of the markets which were applicable at the time, as well as all the other factors mentioned in the Defendants' evidence. These include the fact that over the previous few years equities had produced good returns and had not been particularly volatile (see Mr Goodyer's report, Appendix 4 Chart 2), the successes which Taylor Young had achieved for others, the fact that the time frame for the investments was 8-12 years, the need to balance the increased risk which was known to be involved in investing in equities with the desirability (if it could be achieved) of growing the funds to a greater extent than could be achieved by investing in less risky investments, and the consideration that investing in smaller companies might offer more potential for growth as well as a greater risk of loss. Nevertheless, I consider that such a decision is one which no trustee, complying with the duty to act prudently which is laid down in the authorities, could reasonably have made. That conclusion seems to me to be supported by the evidence of both experts. Mr Goodyer expressed the view that no more than 30% of the assets of the Trust should have been invested in equities. Mr Barton's report, addressing the initial recommendations which were made by Taylor Young, states (paragraphs 2.4.5 and 2.4.6) that "the proposed investment was being made into a single asset class (UK equities) which, in my opinion, also suggests a high level of risk" and that their recommendations "reflected a higher level of risk" than the level which Mr Tee stated that he and the Trustees had in mind throughout (namely - see paragraph 177 of Mr Tee's witness statement – " to seek to ensure the short term security of the fund but also wished the fund to benefit from long term investment returns" ). Mr Barton's evidence is not specifically directed to whether a decision to invest 80% or 85% in equities was manifestly unreasonable in light of the appropriate risk profile of the Trust. If his evidence is right, however, I cannot see that it readily accords with any other view. Having been asked for advice as to what investments should be made as part of a growth portfolio for the Trust, the recommendations produced by Taylor Young were not suitable for the appropriate risk profile of the Trust (regardless of whether that is properly to be classed as low, low to medium, or medium). I will call that risk profile "realistic" for convenience. This, again, is the evidence of both experts. This analysis permeates Mr Goodyer's report, which states, for example, that "dot.com" sector equities were not suitable for the Trust (paragraph 5.19). Mr Barton states that Taylor Young's approach represented "a high level of investment risk" (paragraph 2.4.5). Those findings lead on to two further questions. Both are based on the premise that the trustees had spelled out the need for the investments of the Trust to comply with a realistic risk profile, and had asked Taylor Young to make recommendations as to initial investments which accorded with a realistic risk profile. First, what, if any, difference would that have made to Taylor Young's recommendations? Second, what ought the trustees to have done in response to Taylor Young's recommendations? These questions have to be answered in light of Taylor Young's "Investment Outlook – January 2000", which they had produced before they were asked for any advice concerning the Trust. It is clear from that document that, as Mr Goodyer put it in his report, Taylor Young's general approach to equities in early 2000 was "very bullish". Moreover, based on the contents of that document, that approach was not unthinking. On the contrary, although Taylor Young's reasoning may have transpired to be flawed, the document sets out a case which is, on the face of it, rational for investing in "revolutionary" companies to which, for reasons given in the document, it is hard to apply traditional valuation techniques, while at the same time it acknowledges and states that "The normal rules of risk diversification must continue to apply" . In my judgment, in response to such a request for advice, on the one hand Taylor Young would not have recommended that the entire £2m referred to in their letter of 10 February 2000 should be invested in equities: that would have been too high risk a strategy. On the other hand, based on their investment outlook at the time, I consider it more likely than not that they would nevertheless have recommended a strategy which involved substantial investment in equities and, moreover, a significant investment in medium and smaller sized companies including those in the IT and technology sectors. Taylor Young did in fact advise as they did knowing that their advice concerned a trust. I doubt that Taylor Young's recommendations in this regard would have extended no further than the upper end of the bracket identified by Mr Goodyer of placing 30% of the available sum in equities. It is more likely that they would have recommended a significantly higher equities element. The evidence of both experts is that Taylor Young ought not to have recommended much, if any, investment in IT and technology shares for the Trust. However, I am doubtful that Taylor Young would have viewed matters in that way in early 2000, even if they had been asked to recommend investments which complied with a realistic risk profile: their view was that shares in such companies had great investment potential, and should be bought for their long term growth prospects. I am not persuaded that their recommendations as to diversification of the investment in equities would have been materially different to those which they made in fact. If Taylor Young had made recommendations to the above effect, I see no reason to doubt that Mr Tee and the trustees would have responded to them in the same way as they responded to the recommendations that Taylor Young made in fact. In short, I consider that these recommendations would have been subjected to critical appraisal, and assessed with the possibility that the stock market had reached a peak in mind. However, at the end of day, and having chosen Taylor Young for reasons which seemed sound to Mr Tee and the trustees, it would not have been thought right, in Mr Tee's words, "to question specific investment advice when firmly given" . These reasons included their understanding that Taylor Young carried out extensive independent research on companies, and that Mr Redfern at least had visited the offices of Taylor Young and seen for himself what he was told was their research department. Nor do I consider, on the evidence before me, that there is any basis for saying that no trustee, complying with the applicable duty to act prudently, could reasonably have decided to act in that way in reliance on the advice of responsibly chosen investment advisers. Accordingly, while I consider that the trustees and Mr Tee were at fault in believing that it was in keeping with a realistic risk strategy to invest in what they and Taylor Young termed a "growth portfolio", and while I also consider that Taylor Young's advice and recommendations should and would have been different if the requirement of complying with a realistic risk strategy had been clearly explained to them, I am not satisfied that getting these matters right would have made any material difference to the initial investment decision that was made in February 2000. In fact, the amount which was invested in equities at that time was below 30% of the value of the Trust assets. Moreover, the investment was spread over 10 different companies. It is true that half of this investment (or, based on the figures produced by Mr de Freitas, about 11.34% of the assets of the Trust) was invested in smaller companies, three of which appear (from the brief descriptions provided by Taylor Young) to be IT or similar companies. In addition, it may be that many trustees, erring on the side of caution, would not have invested in such companies to that extent, if at all. In all the circumstances, however, including the tenor of Taylor Young's recommendations and their explanations for their advice, I do not consider that no trustee, acting with appropriate prudence, could reasonably have decided to invest assets of the Trust to this extent in such companies. The next investment was made in early April 2000, and involved spending £300,000 on shares in 12 companies, as recommended by Taylor Young. These companies appear to have been mainly, if not exclusively, smaller companies, with a significant IT and similar component. This took the proportion of the assets of the Trust which were invested in shares to 32.37%. These purchases were made in the knowledge that the stock market was (in Mr Tee's words) "extremely volatile" at the time, and one of Mr Tee's letters refers to "share prices moving by over 10% a day". They were also made in the knowledge that a number of the shares which were on Taylor Young's original list and which the Trust had not purchased had suffered "sudden recent falls" . Based on the contemporary documents, Mr Tee's thinking appears to have been that, subject always to Taylor Young's advice, it was still right to invest in the stock market, and where shares had fallen in price there was a chance to acquire them at a good price. However, Mr Tee was alert to the possibility that this approach might turn out to be too optimistic, and for this reason only £25,000 was invested in each new company. I think that, confronted by this degree of volatility and the losses which some of the original investments had made, many trustees would not have thought it prudent to put further sums into shares, and especially into shares in smaller companies which had suffered recent falls. In addition, these further purchases were made in the context that, in principle, Mr Tee and the trustees were of the view that 80%-85% of the assets of the Trust should be invested in equities, which was in my opinion an impermissibly high risk strategy for the trustees to have adopted. Nevertheless, in light of the reasoning and approach of Mr Tee and the advice provided "firmly" by Taylor Young, I do not consider that this decision is one which no reasonable trustee, acting prudently, could have made. It might be different if the shares in some of the companies in which £25,000 was invested had fallen by as much as the figures given by Mr Wingrove in his email of 18 April 2000. Doing the best I can on the documents, however, it seems to me that falls of such magnitude did not occur until after the investment had been made. The next investments were more modest, and involved investing £25,000 in Halma in May 2000, £25,000 in each of Persimmon and Invensys in May 2000, and a further £10,000 in a number of the shares which the Trust had bought earlier in July 2000. All these investments were made on the advice of Taylor Young, which was to the effect that there were answers (detailed in their current Investment Outlook) to the concerns arising from recent falls in share prices, and that investment in equities would provide long-term investors with above average returns. Mr Tee accepted that, with hindsight, the initial investments had been a mistake, but he nevertheless considered that it made sense to follow Taylor Young's advice in the expectation of a recovery in share prices and in light of the prospects for future growth of the companies which had been recommended by Taylor Young. In those circumstances, I do not consider that these decisions are ones which no reasonable trustee, acting prudently, could have made. By this time the percentage of the total value of the assets of the Trust which was invested in equities had risen to 37.20%. If, contrary to my earlier findings, the evidence of Mr Goodyer should be preferred to that of Mr Barton, this would mean that, by July 2000, and to a lesser extent by April 2000, the assets of the Trust were invested in equities to an imprudent extent. It would then be necessary to undertake a comparison between the position of the Trust as a result of this lack of prudence and the position which would have prevailed if the trustees had not acted in breach of duty. This would not be straightforward. Some of the shares which, on this hypothesis, the trustees ought not to have bought later went up in price, and were either sold at a profit or were retained with a view to realising further gains. Accordingly, any comparison with the performance of the assets which, on this hypothesis, ought to have been held instead could not be a straight comparison between assets all of which fell in value and assets all of which went up in value. In addition, to the extent that the "overweight" shares were not sold when they later went up above the cost of acquisition but still later their price fell again, the loss flowing from the original, ex hypothesi , imprudent decision to buy those shares cannot be said to have been incurred on the date of that decision, but would instead seem to have been incurred or exacerbated on the date of the later decision not to sell after the price had gone up. Next, it would appear that some of the "overweight" shares were retained and continued to rise in value after Taylor Young were replaced as investment advisers: for example, Mr Scott recorded on 25 April 2002 that Persimmon had made a 124% profit, but those shares should continue to be held. Finally, Mr Scott also advised holding on to the investments made by the trustees in Zeroes and at least some investment trusts on the basis that their prices would recover. This raises an issue as to the appropriate cut-off date for measuring any losses which may be said to flow from any breach of duty of the trustees during the Taylor Young era. The fact that the Claimants have limited their complaints to what occurred during that era does not mean that such losses crystallised during that time. There is also an issue as to the tax consequences of any losses arising from investments which may have been made in breach of duty. On the face of it, as noted by Mr Scott, such losses could be set off against the profits made on other investments, and thus enable those profits to be taken tax free. In my judgment, this would need to be taken in account when quantifying any entitlement to compensation in respect of breach of duty. Another criticism made by the Claimants is that too great a part of the assets of the Trust was held in cash. The validity of that complaint is tied up with the validity of the complaint about the trustees' strategy regarding equities. If the trustees adopted a permissible approach, both as to the percentage of the assets which should be held in equities and as to building up shareholdings over time, that may mean that a greater part of the assets could permissibly be held in cash than would otherwise be the case. If and to the extent that the trustees were in breach of duty in holding as much cash as they did, the question arises as to what, if any, loss this has occasioned to the beneficiaries: to be entitled to compensation, they need to show that the trustees ought to have invested in, say, bonds and gilts, and how much more this would have yielded. In the Autumn of 2000, shares were sold in some companies (including some IT companies) on the basis that the prices had recovered to the original purchase level or had risen above that level, thus recouping losses or enabling profits to be taken. In addition, the Trust's portfolio of equities had experienced gains in some instances, including in some of the shares which had been bought in July 2000. At the same time, it was resolved to buy more shares in some companies where the share prices remained low (in the expectation that profits would be made in future), to further diversify the portfolio by buying shares in some larger companies, and to move towards making more modestly sized investments of £30,000 each. All this was done on the advice of Taylor Young, to the effect that in spite of short term risks the long-term prospects for "judicious investing in quality companies" were good. I do not consider that these decisions are ones which no reasonable trustee, acting prudently, could have made. Nevertheless, it appears from Mr Tee's letter to Mr Wingrove dated 5 October 2000 that a number of shares had continued to perform badly, and from his further letter dated 16 November 2000 that there were further falls in the stock market at that time. At that stage, the Trust bought further shares in one company, Capita, on the basis that its shares were undervalued. More importantly, faced with the further fall in share prices, the Trust altered its investment strategy and invested in investment trusts, to the extent of £30,000 in 7 different trusts. I do not understand either of the experts to say that, in principle, investment trusts were an unsuitable investment for the Trust. This form of investment provided further diversification. By this time the percentages of the total asset value of the Trust which were invested in equities and investment trusts were 35.09% and 6.19% respectively. These investments were made on the advice of Taylor Young, who recommended these 7 investment trusts. I do not consider that these decisions are ones which no reasonable trustee, acting prudently, could have made. The Claimants complain that this diversification amounted to "too little, too late". For the reasons set out above, I do not uphold that complaint. If I am wrong about that, however, it would give rise to other issues concerning proof of loss and quantification of compensation. It is unclear whether a diversification into investment trusts (or other classes of asset) at an earlier date would have produced greater or lesser returns than keeping assets in cash between that date and the date when this investment was made: in particular, the investment trusts which were in fact chosen fell in value after monies were invested in them, but it is unclear whether they also fell in value before that date. I have set out above the history of the investment decisions which were made thereafter, between 12 January 2001 (when Mr Tee and Taylor Young discussed all the shares in the portfolio) and 18 December 2001 (when Mr Tee communicated to Taylor Young the decision that they should be replaced by Stanley Tee), and the explanation for those decisions. I consider that the like conclusions apply to each of those decisions. Among others, the following points can be made about this part of the history: (1) By this time, the portfolio had sustained significant losses, and this set the context for a significant part of the strategy of the Trust, which included (a) selling shares which continued to present short term concerns, (b) holding on to or increasing shareholdings which were expected to recover and (c) monitoring movements in the stock market closely in order to pursue these tactics to optimum effect. (2) The percentage of the total value of the assets of the Trust which was held in equities never reached the headline figure of 80%-85% which the trustees appear to have determined at the outset to be appropriate in principle. (3) Overall, while they were driven to acknowledge that their advice had largely not been borne out in the short term, Taylor Young remained bullish about the stock market, and in particular about the long term prospects of less defensive shares. They supported their advice on various grounds, which were difficult to gainsay. (4) Mr Tee did not follow the advice of Taylor Young unthinkingly, but, on the contrary, subjected it to critical consideration, and gave reasons on most if not all occasions as to why the Trust was or was not following it as the case might be. In particular, Mr Tee's approach tended to be more cautious than that advocated by Taylor Young, and this reduced the losses which the Trust sustained; and he stated that the trustees were taking a "safer view" in trying to recoup past losses. (5) The Trust continued to diversify its shareholdings, and to increase its investments in a restrained manner in some of its existing shares and investment trusts. (6) The Trust further diversified its investments by investing a total of £200,000 in 5 holdings of Zeroes, on the basis that they were thought to be "a relatively safe and assured way" of getting a return of 7%-8% pa over the next few years. In the result, these investments did badly, although Mr Scott appears to have thought that their lower market price did not necessarily reflect their true underlying value. (7) The Trust also diversified by investing in gilts. According to the table prepared by Mr de Freitas, the percentage of the assets of the Trust which was invested in gilts stayed at about 10%, although the Investment Report prepared by Mr Scott on 12 February 2002 states that 20% of its value was invested in Government Stocks. (8) This was a difficult time for the stock market, with the FTSE 100 falling by 9.5% between 1 March 2001 and 31 August 2001 and by 16% in the year to February 2002. Accordingly, to the extent that it was appropriate to invest in shares, even if investment had been limited to FTSE 100 companies, losses would have occurred. The overall actual losses (as opposed to allegedly missed opportunities for gain) of the Trust assets were in any event much more modest than the sums claimed in these proceedings, and significant parts of those losses (e.g. relating to Zeroes) are not attributable either to investing in the wrong classes of asset or in investing in appropriate classes of assets to an inappropriate extent but instead to individual choices of asset, all of which were made on the recommendation of Taylor Young. (9) Mr Tee continued to be mindful of the need to balance disappointment with the short term performance of the portfolio against the consideration that the trustees were investing for the longer term and Taylor Young's repeatedly upbeat advice. (10) From May 2001 onwards, while they were of the view that they should continue to follow Taylor Young's advice until February 2002 "notwithstanding that it has been fairly disastrous to date" , the trustees were considering replacing Taylor Young, and in fact they decided to do this sooner, in December 2001. I can readily understand the Claimants' disappointment and concern about the losses which were occasioned in 2000 and 2001. I also accept a number of the criticisms which have been made about Mr Tee and the trustees, some of which are reflected in Mr Barton's report. Among other things, they should have devised a realistic investment strategy at the outset, they should have conducted periodic reviews which specifically considered whether their investment strategy was still appropriate for the Trust's attitude to risk, and in focussing on equities to the exclusion of other forms of investment and in holding the assets of the Trust in cash - in each case to the extent that they did and for as long as they did – they adopted an approach which was less balanced and diversified than I consider many trustees would have thought appropriate. With hindsight, they would have been better advised to heed Mr Wingrove's common sense observations and misgivings than the apparent sophistication of Taylor Young. On the other hand: the claim is based on assessing the performance of the investments which the trustees made over a relatively short period of time, whereas they were investing for a longer period over which they could reasonably have expected a negation of short term volatility in share prices and a recovery from short term falls in share prices; they were investing when, in terms of recent history, investing in shares had produced good results over time; they relied on professional advice, which was provided on apparently sensible and rational grounds, and which they did not follow unthinkingly; and, while holding so much in cash may seem unenterprising, it appears to me that funds in both of the sectors mentioned by the experts as appropriate comparators contemplate that a large percentage of assets may be held in cash, and it is unclear whether the risks and rewards of holding what was held in cash in other investments (e.g. gilts and bonds) was such that any prudent trustee would have converted cash into such investments, and, if so, with what benefits for the Trust. Accordingly, although for different reasons on the different facts of the present case, I have come to the same conclusion as was reached in Nestle : the Claimants have established some breaches of duty, in particular in the early stages of the material period, but have failed to prove that they suffered loss as a result of those breaches. It will be apparent that, in reaching this conclusion, I have applied the "no reasonable trustee" test as formulated by Neuberger J in Wight v Olswang [2000] Lloyd's Law Reports PN 662. If, on the proper application of that test, I have reached a conclusion that is wrong, and I ought to have held that the Defendants are liable for breach of trust, then I would have some difficulty in seeing how it would be open to me to relieve the Defendants from personal liability pursuant to section 61 of the Trustee Act 1925. This would involve saying that trustees who have acted as no reasonable trustees could have done may nevertheless be said to have acted "reasonably" for purposes of section 61. However, if I have applied the wrong test, and I ought to have applied some other test which is less generous to the Defendants and pursuant to which they should have been found liable for breach of trust – such as, on balance, that they should have "put safety first" to a greater extent than they did – then, in my judgment, there would be scope for the application of section 61 on the facts of this case. Moreover, I would be minded to exercise my discretion and wholly relieve the Defendants of personal liability. It is a weighty factor against the grant of such relief that the Defendants acted for remuneration, and it may be (although this has not been suggested by the Claimants) that depriving them of their remuneration would be one way of achieving a result that is practically just where they have acted honestly and reasonably but, ultimately, in breach of their duties as trustees. As against that, however, having regard to all the other circumstances set out above, this seems to me to be a strong case for relief. The Defendants were by no means cavalier, self-interested or unthinking. On the contrary, I consider that they worked hard and consistently and over a long period of time, to the best of their abilities and in reliance on what they reasonably believed to be competent professional advice, to achieve the best results that they could for the Trust: even if it is right that they ought not to have succumbed to the aspiration that they could "generate significant capital growth" , their sincere intention was always to benefit the Claimants. It seems to me that the degree of harm which any breaches of trust have occasioned to beneficiaries is a matter which may and typically should be taken into account when deciding whether trustees "ought fairly to be excused" under section 61. For this reason, if I had thought that any breaches of duty on the part of the Defendants had occasioned loss to the Claimants of the magnitude of their claim in these proceedings, I would have been more hesitant about granting the Defendants relief from personal liability. In my opinion, however, even if, contrary to my primary findings, the Defendants' breaches of duty occasioned loss to the Claimants, that loss is appreciably less than the amount claimed in these proceedings. It is difficult to put a figure on that loss, because, in my view, it should not be calculated on the basis of a comparison with one of the Investment Association Mixed Investment Shares sectors but instead by comparing the outcome of individual investment decisions which were taken by the Defendants ex hypothesi in breach of trust with the outcome of alternative decisions which ought to have been taken by them acting prudently, and that second basis of calculation has not been explored in the evidence before me. However, as discussed above, not all the allegedly imprudent decisions which were made resulted in losses, and even those which may have done so will have resulted in losses which ought to be assessed net of the tax advantages to which they gave rise. Overall, I consider that it is likely that the sum claimed by the Claimants is significantly greater than their true loss. This brings me on to the issue of delegation, and whether, on the facts of this particular case, the Claimants can succeed on the basis of a claim for substitutive performance where their claim for reparation has failed. In my judgment, the answer is negative. On proper analysis, the substance of the present case is that the Defendants are alleged to have acted in breach of the equitable duty of skill and care, and any impermissible delegation which occurred is an aspect of that breach. The trustees did not embark on any aspect of their dealings with the assets of the Trust in the knowledge that either any transaction(s) or the means that they chose or permitted with regard to carrying out any transaction(s) was or were unauthorised. On the contrary, they adopted an approach which they believed to be permissible and in the best interests of the Trust. In substance, it seems to me that they treated their appointment as trustees as having been made in their capacity as partners in Stanley Tee, and that they regarded the involvement of a fellow partner who was better qualified to deal with investment decisions as unobjectionable in principle, sensible in practice, and the best way of discharging their duties. Some cases of unauthorised transactions may involve betrayals of trust and confidence, or lack of good faith, or disloyalty, or conflicts of interest. That is not true of any impermissible delegation which may have occurred in the present case, which would seem to me to be essentially a matter of form rather than substance. A further and related point is that any impermissible delegation which may have occurred did not result in any losses which would otherwise not have happened. In one sense, all such losses were sustained as a result of the assumed delegation in that, in the events which happened, they flowed from the acts of ex hypothesi unauthorised persons. On the other hand, however, if the trustees had personally considered in respect of each and every investment made on behalf of the Trust whether the same was suitable and whether the assets of the Trust were appropriately diversified (as it is alleged by paragraph 12.5 of the Re-Amended Particulars of Claim they ought to have done) I have no doubt that they would have done so in consultation with Mr Tee and having careful regard to the advice of Taylor Young. I am wholly unpersuaded that this would have resulted in any change to the investment decisions which were in fact made, or that it would have had made any difference save perhaps to increase fees. In these circumstances, I consider that the answer to the claim based on impermissible delegation in the present case is provided by Lord Toulson's conclusion in AIB at [62]: "absent fraud, which might give rise to other public policy considerations that are not present in this case, it would not in my opinion be right to impose or maintain a rule that gives redress to a beneficiary for loss which would have been suffered if the trustee had properly performed its duties". That conclusion makes it less important for me to determine whether there was any impermissible delegation in the present case, although I will do so briefly in case this litigation goes further. This issue has two main aspects. First, what happened as a matter of fact? Second, did that amount to delegation which was impermissible? Paragraph 14A of the Re-Amended Defence denies that there was any "blanket delegation" by the trustees to Mr Tee of their duties in relation to the exercise of their investment powers. I consider that this denial is correct. I have already found that the contents of Mr Tee's initial letter to Taylor Young concerning the Trust were known to and were approved by all three Defendants, and that they discussed significant matters relating to the Trust and also what was appropriate for it at their regular meetings. This in borne out by the language used in some of contemporary documents, for example Mr Tee's letters dated 16 March 2001 ( "In our capacity as trustees we will of course be keeping a steady eye on matters" ) and 3 May 2001 ( "I would not wish you to think that the Trustees have just followed the advice blindly, and will continue to do so without considering it carefully. I have discussed with the Trustees and our view is that we should continue to follow their advice, notwithstanding that it has been fairly disastrous to date, in the hope that things will improve significantly in the next twelve months … Unfortunately, their advice has not been so good over the last twelve months and it is precisely in this timespan that the Trustees have begun to invest". I also accept Mr de Freitas' submission to the effect that it would not be reasonable to infer that Mr Tee was writing on his own behalf alone merely because many letters only refer to him. Mr Lundie submitted that the trustees had delegated their investment duties to Mr Tee, further or alternatively Taylor Young. In particular, Mr Lundie relied on the following evidence elicited from the Defendants in cross-examination: (1) Mr Tee accepted that (a) part of his day to day management of the Trust included making investment decisions and putting together a balanced or mixed portfolio, (b) there was no discussion between him and the trustees as to the specific companies the shares in which had been identified by Taylor Young as potential acquisitions for the Trust, (c) the decision-making as to which shares to buy was delegated to Taylor Young, (d) he relied on Taylor Young as to what shares to buy and to advise when a share was no longer suitable, (e) he would not have bought anything without Taylor Young telling him to do so, and (f) all that he knew about the criteria that Taylor Young were using when making recommendations was that "I assumed that we were buying companies where they still considered there were good prospects for growth and that the companies were basically sound" . (2) Mr Redfern accepted that (a) Mr Tee made all the decisions about buying and selling assets within the portfolio of the Trust, (b) he left that entirely to Mr Tee, (c) it would it be fair to say that he delegated the decisions about what to invest in to Mr Tee and that "in terms of exercising investment powers, you left that entirely to Mr Tee?", and (d) he was not aware that prior to the Trustee Act 2000 it was not permissible for a trustee to delegate investment decisions. (3) Although Mr Osborne said that he had discussed the initial portfolio planning, he relied entirely upon Mr Tee. Further, Mr Osborne's evidence generally confirmed that he did not get involved in the decisions as to whether particular investments were suitable for the Trust. So far as concerns the issue of suitability, Mr Osborne said that he would rely on Taylor Young. Mr Lundie also submitted that Mr Tee appeared to have effectively delegated all investment decision making to Taylor Young so that Taylor Young was effectively acting as a discretionary investment manager, although it unclear that Taylor Young understood this to be their role. There was no formality or clarity as to the mutual responsibilities of Mr Tee and Taylor Young, while at the same time (as set out above) Mr Tee had no clear understanding of the basis of Taylor Young's recommendations. I consider that a number of these points are overstated, and are inconsistent with the contemporary documents. It is clear to me that Mr Tee did not delegate all investment decision making to Taylor Young, and that Taylor Young did not effectively act as a discretionary investment manager. Further, in many instances Mr Tee knew more about the criteria that Taylor Young were using when making recommendations than that they considered the companies were sound and offered good prospects for growth. Other of these points are not, or are not necessarily, inconsistent with the trustees discussing with Mr Tee significant matters relating to the Trust and what was appropriate for the Trust at their regular meetings. For example, relying on Mr Tee (a) to make decisions as to whether particular investments were suitable for the Trust and/or (b) to exercise investment powers (for example, at the point when particular investments were made) and/or (c) to put together a balanced or mixed portfolio, is not inconsistent with the trustees being involved in deciding whether a particular strategy should or should not be pursued or whether a particular raft of recommendations made by Taylor Young (or Mr Tee) at any given time should or should not be accepted. Still other of these points do not, in my judgment, support a case of delegation. For example, that Mr Tee relied on Taylor Young as to what shares to buy and to cease holding, and that he would not have bought anything without them telling him to do so. I am not persuaded that what occurred in the present case contravened the prohibitions on delegating fiduciary discretions, or on leaving the choice of investments to an agent, which are referred to in the legal materials on which Mr Lundie relied. In particular, I do not consider that, especially in light of the potential complexity of investment choices in the 21 st century, and the number of decisions which are likely to need to be made over a period of several years, the applicable legal principles required the trustees not only to exercise supervision and control over the strategy and pattern of investments (which I consider that they did) but also personally to make or to be involved in making each individual investment decision that was made over time (which it is plain that they did not do). Nor am I persuaded that what occurred in the present case involved the trustees authorising Mr Tee (and still less Taylor Young) to exercise their asset management functions with the meaning of section 15 of the Trustee Act 2000. Accordingly, I am not satisfied that the claim of impermissible delegation is made out. If I am wrong about that, I consider that I have jurisdiction to relieve the Defendants from personal liability pursuant to section 61 of the Trustee Act 1925, and I would exercise my discretion and wholly relieve them of personal liability for the same reasons as I have given above in respect of the primary claim for breach of duty. Conclusion For all these reasons, this claim fails and there must be judgment for the Defendants. I invite Counsel to agree a form of order which reflects the above conclusions. I will hear submissions on any points on which they are unable to agree, and on any other issues such as costs and permission to appeal, either when judgment is handed down, or at some other convenient date. BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII