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art at a public auction are likely to be acceptable decisions. As the artist is famous and the purchasewas at an auction (which is likely to reflect market value) this is an asset which is likely to increase invalue and provide capital growth. It is also unlikely to be speculative. As the trust held other realestate, it results in more diverse portfolio and as a capital investment it balances the income onlyinvestments. Reference to relevant s8 factors was expected.The sale of the other 2 apartments: It was not necessary to sell the apartments, but to do so is notclearly a breach. It may have been better to retain the investments until the ‘slump’ passed.Alternatively, if the loss was due, eg to oversupply of apartments, this may not improve. Not manyfacts are provided on this, so it is hard to form a definitive view. A more obvious problem is the useof the proceeds. The apartments were earning income and presumably generating capital growth (inthe long term). The proceeds have not been used in any meaningful way for a new investment.Adding another bank account renders the portfolio less diversified than it originally was, and it is alsolikely to breach the s8 criteria. The trustees have not had regard to other investments, reviews ofother investments, the need for capital growth etc. Loss from the breach is difficult to quantify. Thiscould be the value of the investments if the apartments had not been sold, or as a mimimum, theloss of interest that would have been earned if a better investment had been chosen.The share portfolio: If the loss of value is due to an unexpected global downturn, there is no obviousbreach. If it is a balanced portfolio, it is prudent to retain this. Shares generate income and can beexpected to increase in value over time. If trustees retain this investment, the shares are likely to
regain their value if the shares are sound. Professional advisers would know this. Selling it now couldalso be imprudent as it would merely crystallise the losses. The shares in the start-up software company: This investment could be speculative as it is a newcompany. This was expected to generate some discussion on what is a speculative investment andthe tension between ss 7, 8 and MPT. Few answers did this well.Other breaches:Purchasing the shares in the start-up may also be a breach of the duty to act in best interests unders7(2)(a) as the alcohol company shares were sold because of the trustee’s own moral and ethicalviews, rather than on a decision based on sound financial criteria (Cowan; Harries). Better answersdiscussed the duty and applied it to the facts, rather than just stating that it was a breach withoutexplaining why. Some students also highlighted the possible exception to the rule, but noted it didnot apply here. Liability will be for the loss, being the value of these shares, compared to the value ofthe alcohol shares: $50,000.S’s misappropriation of $50,000: This is an obvious breach. Weaker answers tended to highlight thisbreach, rather than address more complex issues. S is clearly liable for this loss. The more complexquestion raised by this misappropriation is whether T is also liable for this loss. Surprisingly few