Problem:

Theresa died in the year of 1999. By her will she settled a trust of Rs2,000,000 cash on trustees for benefit of her nephew Bill and her niece Barbara, ‘in equal shares on their attaining the age of 21’. At the date of Theresa’s death Bill was 13 and Barbara was 14.  The trustees are Tricia, Tracy and Barry. Tricia is solicitor.

In 2002 Tricia urged Tracy and Barry to join her in investing in private limited company which, she said, promised to be a very profitable investment.  She describeed to trustees that although the investment was ‘technically unauthorised’ (the trust instrument prohibited investment in private companies) it was extremely secure. In the event the trustees went ahead with the investment in company, having first obtained the consent of Bill and Barbara, who had been told that the investment was a ‘secure one’.

Shortly after making the investment shares rose in value and yielded large dividends to trust, but later they fell in value and today they are practically worthless.

It is now April 2009 and Bill and Barbara have issued proceedings against the trustees.

Required:

problem 1: Give advice to the trustees as to the possible extent of their liability to trust.

problem 2: Describe any defences which may be open to the trustees.