Learoyd v Whiteley (1886) 33 Ch D 347 (CA) [1887] 12 App Cas...

Facts

• The case concerned the duty of care required of trustees in relation to trust investments.
• Trustees were challenged on whether they had acted with appropriate care when selecting and managing the trust’s assets.
• The matter proceeded through both the Court of Appeal and the House of Lords due to its significance in trust law.
• The case arose during a time when economic and legal standards for trustees’ management of assets were under increased scrutiny.
• Prior to this case, there was limited judicial guidance on the investment standards trustees should uphold.

Issues

1. Whether the trustees had exercised an appropriate level of care, skill, and diligence in making and managing trust investments.
2. Whether trustees are required to avoid risky investments and prioritize the protection of trust capital over seeking higher returns.
3. Whether trustees are personally liable for loss if they have acted with proper care in line with their fiduciary duties.

Decision

• The court set out the "prudent man test," holding that trustees must act with the care, skill, and diligence that an ordinary careful person would apply to their own investments.
• Trustees were required to avoid investments carrying undue risk and to prioritize the preservation of trust capital.
• The court recognized that trustees are not liable for losses resulting from unforeseen market events if they have acted prudently and in accordance with their duties.
• Trustees should seek professional advice and stay informed about market conditions as part of proper management.

Legal Principles

• Introduced the prudent man test: trustees must act with care, skill, and diligence of an ordinary prudent person managing their own affairs.
• Trustees must avoid risky investments and place the protection of trust capital above the pursuit of higher returns.
• Trustees should seek professional advice when necessary and review investment strategies in light of changing market conditions.
• Trustees are not liable for losses due to unforeseen market changes if they have acted in accordance with fiduciary standards.

Conclusion

Learoyd v Whiteley set out the prudent man test as the governing standard for trustee investment duties, cementing the requirement that trustees manage trust assets with the care and skill of an ordinary prudent person, thereby shaping the fiduciary obligations and standards that continue to guide modern trust law.