Bartlett v Barclays Bank
Encyclopedia
Bartlett v Barclays Bank Trust Co Ltd [1980] 1 Ch 515 in an English trusts law
case. In it Brightman J gave a comprehensive discussion of the duties of trustee
s in connection with companies whose shares
are part of the trust property. Despite the commonly used name of the rule, the case only restated law that had been accepted since Speight v Gaunt
.
was 99.8% of the issued shares in the family company
. On the company board were two surveyors, an accountant and a solicitor. The trustee appointed none. In an attempt to raise cash, the trust appointed merchant bankers to consider taking the company public. The bankers advised that a public offering
would be much more successful if the company expanded its business from managing property to developing property as well. Barclays Bank as trustee agreed to this policy (so long as the income available to the beneficiaries
was not affected). The board then embarked on speculative developments, one of which ended in disaster when planning permission
could not be obtained for a large development (the Old Bailey
project), and the trust suffered a significant loss.
to be competent and capable of running the business, was rejected.
The court reiterated older propositions as to the duty of trustees, "to conduct the business of the trust with the same care as an ordinary prudent man of business would extend to his own affairs."
However, the implication was that where a prudent man of business holds the majority of shares in a company, he would actively engage himself in the company's undertakings rather than leaving it to the board. Brightman J distanced the court from suggestions made in Re Lucking's Will Trusts [1968] 1 WLR 866 (at 874) that a controlling shareholder should insist upon being represented on the board, although he agreed that this would be one way in which the trustee could ensure that all of the necessary information was available to him.
. It can, however, be excluded in a trust instrument (see Sch 1, para 7 TA 2000).
Certain arguments can be made against the operation of the standard of competence that the case lays down.
English trusts law
English trusts law is the original and foundational law of trusts in the world, and a unique contribution of English law to the legal system. Trusts are part of the law of property, and arise where one person gives assets English trusts law is the original and foundational law of trusts in the...
case. In it Brightman J gave a comprehensive discussion of the duties of trustee
Trustee
Trustee is a legal term which, in its broadest sense, can refer to any person who holds property, authority, or a position of trust or responsibility for the benefit of another...
s in connection with companies whose shares
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
are part of the trust property. Despite the commonly used name of the rule, the case only restated law that had been accepted since Speight v Gaunt
Speight v Gaunt
Speight v Gaunt LR 9 App Cas 1 is an English trusts law case, concerning the extent of the duty of care owed by a fiduciary.-Facts:...
.
Facts
Barclays Bank was the sole trustee of the Bartlett trust, and the sole asset of the trustTrust law
In common law legal systems, a trust is a relationship whereby property is held by one party for the benefit of another...
was 99.8% of the issued shares in the family company
Family business
A family business is a business in which one or more members of one or more families have a significant ownership interest and significant commitments toward the business’ overall well-being....
. On the company board were two surveyors, an accountant and a solicitor. The trustee appointed none. In an attempt to raise cash, the trust appointed merchant bankers to consider taking the company public. The bankers advised that a public offering
Initial public offering
An initial public offering or stock market launch, is the first sale of stock by a private company to the public. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises...
would be much more successful if the company expanded its business from managing property to developing property as well. Barclays Bank as trustee agreed to this policy (so long as the income available to the beneficiaries
Beneficiary (trust)
In trust law, a beneficiary or cestui que use, a.k.a. cestui que trust, is the person or persons who are entitled to the benefit of any trust arrangement. A beneficiary will normally be a natural person, but it is perfectly possible to have a company as the beneficiary of a trust, and this often...
was not affected). The board then embarked on speculative developments, one of which ended in disaster when planning permission
Planning permission
Planning permission or planning consent is the permission required in the United Kingdom in order to be allowed to build on land, or change the use of land or buildings. Within the UK the occupier of any land or building will need title to that land or building , but will also need "planning...
could not be obtained for a large development (the Old Bailey
Old Bailey
The Central Criminal Court in England and Wales, commonly known as the Old Bailey from the street in which it stands, is a court building in central London, one of a number of buildings housing the Crown Court...
project), and the trust suffered a significant loss.
Judgment
Brightman J held that the bank, as trustee, had not discharged its duty as trustee in failing to supervise the new ventures of the company. He held that, given the size of the shareholding, the bank should have obtained the fullest information on the conduct of the business, and it was not sufficient to rely merely on the supply of information that they received in the ordinary course as a shareholder. Their defence, that they honestly and reasonably believed the board of directorsBoard of directors
A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. Other names include board of governors, board of managers, board of regents, board of trustees, and board of visitors...
to be competent and capable of running the business, was rejected.
The court reiterated older propositions as to the duty of trustees, "to conduct the business of the trust with the same care as an ordinary prudent man of business would extend to his own affairs."
However, the implication was that where a prudent man of business holds the majority of shares in a company, he would actively engage himself in the company's undertakings rather than leaving it to the board. Brightman J distanced the court from suggestions made in Re Lucking's Will Trusts [1968] 1 WLR 866 (at 874) that a controlling shareholder should insist upon being represented on the board, although he agreed that this would be one way in which the trustee could ensure that all of the necessary information was available to him.
Significance
This rule bears a striking similarity to that enacted in s 1 Trustee Act 2000Trustee Act 2000
The Trustee Act 2000 is an Act of the Parliament of the United Kingdom that regulates the duties of trustees in English trust law. Reform in these areas had been advised as early as 1982, and finally came about through the Trustee Bill 2000, based on the Law Commission's 1999 report "Trustees'...
. It can, however, be excluded in a trust instrument (see Sch 1, para 7 TA 2000).
Certain arguments can be made against the operation of the standard of competence that the case lays down.
- it confuses the duties of the trustee to the trust with those of the board to the company
- it presupposes that the trustees have greater expertise with regard to the company's affairs than the board, and that they should meddle with the board's running of the company's business
- it has had a dramatic effect with respect to the cost of insuranceInsuranceIn law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
for trustees - it can have the effect of forcing the trustees to sell to a hostile bidderTakeoverIn business, a takeover is the purchase of one company by another . In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to the acquisition of a private company.- Friendly takeovers :Before a bidder makes an offer for another...
for the company (where the share price is greater than that which the market offers) even where the settlorSettlorIn law a settlor is a person who settles property on trust law for the benefit of beneficiaries. In some legal systems, a settlor is also referred to as a trustor, or occasionally, a grantor or donor. Where the trust is a testamentary trust, the settlor is usually referred to as the testator...
and the beneficiaries are opposed to the sale of the family business - it means that, where the trust fund includes company shares, it is almost impossible to have a non-professional trustee, given the degree of skill and care, and the amount of time, which the court has indicated that the trustee should dedicate
See also
- English trusts lawEnglish trusts lawEnglish trusts law is the original and foundational law of trusts in the world, and a unique contribution of English law to the legal system. Trusts are part of the law of property, and arise where one person gives assets English trusts law is the original and foundational law of trusts in the...
- Nestle v National Westminster Bank plcNestle v National Westminster Bank plcNestle v National Westminster Bank plc [1993] 1 WLR 1260 is an English trusts law case concerning the duty of care when a trustee is making an investment.-Facts:...
[1993] 1 WLR 1260 - Evans v London Co-operative Society [1976] CLY 2059, (6 July 1976) Times