Cowan v Scargill [1985] Ch 270

Facts

• The case concerned the management of the Mineworkers’ Pension Fund, valued at over £3,000 million.
• The fund was administered by a committee of ten trustees: five appointed by the National Coal Board (NCB) and five by the National Union of Mineworkers (NUM).
• Disputes arose when NUM-appointed trustees refused to accept a revised investment plan, seeking modifications such as halting increases in overseas investments, withdrawing existing overseas investments, and refraining from investing in energy sectors that competed with coal.
• The NUM trustees' objections were grounded in union policy and political considerations.
• The NCB trustees applied to the High Court for guidance on whether ethical or political criteria could lawfully influence trustees’ investment decisions in preference to financial considerations for beneficiaries.

Issues

1. Whether trustees may give priority to their own ethical, political, or social views over the financial interests of trust beneficiaries in making investment decisions.
2. Whether trustees can lawfully restrict investment opportunities—such as excluding overseas or competing energy investments—on the basis of political or ethical objections.
3. To what extent trustees are required to diversify investments when managing trust assets.

Decision

• The High Court ruled that the NUM trustees breached their duties by prioritizing ethical and political considerations above the beneficiaries’ financial interests.
• Trustees have an overriding duty to act solely in the financial interests of beneficiaries, irrespective of their own personal beliefs or union policies.
• The judgment stated that trustees' investment decisions must maximize the financial returns of the trust, and they must set aside personal, political, or ethical beliefs.
• The court found no justification for refusing overseas investments or limiting portfolios to industries aligned with union policy, where such limitations could prejudice the fund’s financial security and growth.
• The need for prudent investment, including appropriate diversification, was emphasized.

Legal Principles

• Trustees’ fiduciary duty requires acting exclusively in beneficiaries’ best financial interests.
• Trustees must not use their powers for collateral objectives such as advancing personal, political, or ethical views.
• The standard of care for trustees in investment matters is that of the ordinary prudent person investing on behalf of another for whom they feel morally bound to provide.
• Diversification is necessary to reduce risk and is essential to prudent trust management.
• Restrictions on investment not justified by financial benefit to beneficiaries may amount to a breach of trust.

Conclusion

Cowan v Scargill [1985] Ch 270 established that trustees must prioritize the financial interests of beneficiaries and cannot permit personal, political, or ethical views to restrict prudent investment decisions, particularly where diversification and maximization of financial returns are at stake.