Bartlett v Barclays Bank

In English case law, "Bartlett v Barclays Bank" [1980] Ch 15, and the eponymous rule in "Bartlett v Barclays Bank" relate to the duties of trustees 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" (1883) 9 App Cas 1.

The facts

Barclays Bank was the sole trustee of the Bartlett trust, and the sole asset of the trust were shares amounting to almost all of the issued shares in the family company. 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 certain speculative developments, one of which ended in disaster when planning permission could not be obtained for a large development, and the trust suffered a significant loss.

The decision

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 directors to be competent and capable of running the business, was rejected.

The court reiterated older propositions as to the duty of trustees, viz:

:"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.

Criticisms

Notwithstanding the long standing pedigree of the rule, it has been subjected to considerable criticism. Amongst the arguments made for moderating are:

* 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 insurance for trustees

* it can have the effect of forcing the trustees to sell to a hostile bidder for the company (where the share price is greater than that which the market offers) even where the settlor 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