The conclusion from the foregoing discussion is that the trustee and the manager are not in partnership or in a general agency relationship. They are independent contracting parties to the unit trust deed. An examination of the terms of a typical trust deed of a non-authorized unit trust in detail reveals that the majority of the provisions are covenants made by either of them with unitholders or are provisions conferring powers or discretions on them by unitholders. When the regulations of the Financial Services (Regulated Schemes) Regulations 1991 are incorporated expressly into the trust deed of an authorized unit trust, it appears that they may be construed in the same manner. There are not many provisions that can operate as promises between these two parties. Read the rest of this entry »
In respect of the investment of the property of the unit trust, regulation 7.02.2 spells out clearly that it is not only a duty but also ‘a right’ of the manager to make decisions. Correspondingly, regulation 7.09 is drafted in negative terms so as to leave no doubt that the trustee’s obligation does not extend to a positive consideration on the merits of particular investments. In other words, the trustee has no ‘right’ to make an investment decision as its counterpart in an ordinary private trust. This is also echoed by regulation 7.03.1 which provides that ‘Nile manager may without the specific authority of the trustee give instructions to agents as to the acquisition or disposal of property of the scheme‘. But at the same time, regulation 7.03 requires the manager to restore the trust portfolio to its status quo if the trustee forms the opinion that the manager exceeds its power in a particular transaction. Read the rest of this entry »
It cannot be denied that by entering into the trust deed, both the manager and the trustee are entering into a venture that provides services to their `customers’ and that produces their income. This is cooperation in business, but is unlikely to constitute them a partnership. Basically, the test of the existence of a partnership is by reference to the definition of a partnership discussed and also by reference to the statutory rules regarding co-ownership of assets, sharing of gross return, and also sharing of profit.
There is no business in common. The demarcation of functions under the unit trust deed draws the line of business between them. In essence, the trustee is carrying on the business as a professional trustee and the manager is carrying on the business of investment management. Read the rest of this entry »
The conclusion from the foregoing discussion is that the trustee and the manager are not in partnership or in a general agency relationship. They are independent contracting parties to the unit trust deed. An examination of the terms of a typical trust deed of a non-authorized unit trust in detail reveals that the majority of the provisions are covenants made by either of them with unitholders or are provisions conferring powers or discretions on them by unitholders. When the regulations of the Financial Services (Regulated Schemes) Regulations 1991 are incorporated expressly into the trust deed of an authorized unit trust, it appears that they may be construed in the same manner. There are not many provisions that can operate as promises between these two parties. Read the rest of this entry »
It is important, first of all, to define a fiduciary. Despite voluminous literature, there is no ready answer and the fiduciary relationship remains ‘a concept in search of a principle’. In general terms, it is possible to divide fiduciaries into two categories, status-based fiduciaries and fact-based fiduciaries.
The status-based category includes a core of well established relationships such as trustee-beneficiary, guardian-ward, director-company, principal- agent, solicitor-client, employer-employee, and partner-partner. They are relationships which are regarded by equity as fiduciary per se. It is debatable as to what is the common denominator behind these relationships but it is not a matter of concern here. Read the rest of this entry »
In Parkes Management Ltd. v. Perpetual Trustee Co. Ltd. , the manager of a unit trust was aggrieved by the trustee’s issue of a certificate that it was in the interest of the unitholders that the manager should be dismissed. On the question of the manager’s locus standi, Hope JA said:
It is submitted for the Trustee that it is only a beneficiary who can challenge the exercise by a trustee of a power . . . There would appear to be three answers to this submission. Firstly, that the Manager was a beneficiary; secondly, that the provisions of cl. 20(1) of the Deed entitled the Manager to ensure that the Trustee exercised any power under the Deed bona fide without indirect motive, and with a fair consideration of the issues; and thirdly that being a party to the Deed the Manager was entitled to challenge the certificate . . . Read the rest of this entry »
By now, the law must have developed a distinct body of company law. The fact that two institutions have the same origin should not per se lead to the conclusion that the same body of principles applies. Brothers, despite their common parents, are not twins automatically. Directors’ duties, despite their origin in the trust, are not trustees’ duties. Latham CJ stated that ‘the power [to alter articles] must be exercised bona fide for the benefit of the company as a whole‘. Malcom CJ said: ‘It cannot be said that the alteration was made otherwise than bona fide for the benefit of the unitholders as a whole.’ The apparent similarity of these two formulations is deceptive. If the unitholders are not associating, as Smith v. Anderson has suggested, is it right to look at all unitholders as a whole? Read the rest of this entry »
Unitholders cannot be characterized as partners. Actions done and decisions made by them through meetings can be regarded as the acts of owners of the rights constituted by the units. They are analogous to assents by beneficiaries of trusts.
Of course, as in companies, in order for actions to be taken by a large aggregate of individuals, meetings and rules for majority decisions are necessary. Voting rights simply are parts of the rights constituting units. Once the majority in a meeting is given the power to bind the minority, there emerges the tension between voting powers as property rights and the notion of fairness in the exercise of those powers. Read the rest of this entry »
In crude terms, in a unit trust, the manager performs all the functions of management of the trust assets that would have been carried out by the trustee if the trust were a private trust used as a means of disposition of properties. This leads to the question whether the manager can be considered as a trustee, by analogy to the statutory scheme contained in the Public Trustee Act 1906 that allows the simultaneous appointment of a custodian trustee and a managing trustee. A custodian trustee under this Act is one who gets in and holds the title to the trust property. The management of the trust property and the exercise of any power or discretion are vested in the managing trustee. As between the custodian trustee and the managing trustee, a custodian trustee has the custody of all securities and documents of title relating to the trust property, but the managing trustee is permitted free access to them and is entitled to take copies or extracts. A custodian has to concur in and perform all acts.’” Read the rest of this entry »
A unit trust deed typically has provisions for (a) a primary trust to the effect that whilst the unit trust is a going concern the trustee will hold the unit trust assets for the unitholders ’subject to the terms and conditions of the trust deed‘ and, in the case of an authorized unit trust, ‘all regulations made under section 81 of the Financial Services Act 1986′ and (b) a secondary trust for realization of assets and division of its proceeds upon the termination of the trust by the trustee.There is thus no question that the trustee holds the assets in the capacity as a trustee of an express trust. However, it has often been said that the trustee’s function in a unit trust is merely to hold the trust assets for the unitholders and that it does not actively manage them like ordinary trustees. The question therefore is in what character does the trustee hold assets: a custodial agent, a bare trustee or an active trustee?”‘ Read the rest of this entry »
The trust has achieved a separation of the legal and equitable ownership by imposing on the legal owner, the trustee, an obligation to hold the trust properties for the benefit of the beneficiaries. That obligation is a characteristic feature of the trust. The unit trust involves a split of that trust obligation into the custody of the trust corpus and the management of that corpus. If the trust is a manipulation of the facets of ownership’ resulting in a two-party relationship, the unit trust is a furtherance of that manipulation which results in a tripartite relationship. Read the rest of this entry »
In respect of the manager, the following functions and duties are conferred explicitly or implicitly by the statutory provisions or trust deeds:
(1) Dealer in units.
One of the attractions of a unit trust is liquidity. The manager has since the early days of the unit trust been the provider of a ready market for the acquisition and disposal of units of schemes under its management. Under the Financial Services (Regulated Schemes) Regulations 1991, the manager must at all times during the dealing day be willing to issue units and be willing to redeem units. Similar provisions may also be found in trust deeds of non-authorized unit trusts. Read the rest of this entry »
(1) Statutory Allocation of Powers and Duties
Against this background, a structure of dual administration in the unit trust is a logical step in the functional specialization of the powers and responsibilities previously found in the single person of the trustee. The unit trust was in the forefront of this development. The first regulation of unit trusts in the United Kingdom in 1939 made the trustee-manager structure a model for the management of unit trusts. This model was adopted by many statutes of common law countries and was followed closely by unregulated schemes. Read the rest of this entry »
There is no question that the distinction between this case and those cases where the retirement of trustees was with a view to purchase is a valid one. Implicit in this judgment is the recognition that there is no absolute rule against self-dealing. The willingness of his Lordship to look at the reality is consistent with the approach of the court in Holder and the recent application of the no-conflict rule in other contexts.
If the broader approach of Holder is adopted, it must be a question of fact whether a trustee in a unit trust can purchase. The court may take into account the fact the trustee does not participate in the decision to make the sale. Read the rest of this entry »
`It is a rule of universal application that no one having [fiduciary] duties to discharge shall be allowed to enter into engagements in which he has or can have a personal interest conflicting or which possibly may conflict with interests of those to whom he is bound to protect. Thus, the trustee or the manager is under a duty not to place itself in a position where there is an actual conflict of interests or where such conflict may potentially exist.
It follows from this general rule that a trustee or a manager must not enter into ’self-dealing’ transactions.” Except where market usage permits, the courts have never permitted a fiduciary, in the course of the same transaction, to approbate and reprobate on its undertaking by acting as a fiduciary on the one side, and as an undisclosed principal in its private capacity on the other. Read the rest of this entry »
Under section 83 of the Financial Services Act 1986, a manager of an authorized unit trust is not permitted to engage in activities other than acting as a manager of a unit trust, an open-ended investment company, a `body corporate whose business consists of investing its funds with the aim of spreading investment risk and giving its members the benefit of the results of the management of its funds‘,” or a collective investment scheme. The Act does not restrict the activities of the trustee of a unit trust and its position is governed by equitable principles above discussed.
As noted earlier, dealing in units is the contractual right of the manager. Any gain by the manager from issuing and redeeming units is not a secret profit and therefore is not accountable to anyone. This is the position of the manager of an authorized unit trust if it discloses prominently in the scheme particulars a statement to this effect. Read the rest of this entry »
The trust in a unit trust is a trust with two limbs, a primary trust and a secondary trust. The primary trust is a trust whilst the scheme is a going concern. It may be interpreted as a trust of the Re Denley’s type or as a trust subject to the contractual provisions of the trust deed and, in the case of an authorized unit trust, the regulations made under section 81 of the Financial Services Act 1986. The secondary trustonly arises at the very moment when the trust scheme is terminated. It is a trust for sale and distribution.
The provisions to which the primary trust is subject depend on whether the unit trust is an authorized unit trust or non-authorized unit trust. The most important of these provisions will be those along the line of regulation 7.02.2 and regulation 7.09.1. Regulation 7.02.2 provides: Read the rest of this entry »
Given that the primary obligation of a trustee is to hold properties belonging to others and to preserve them for the benefit of the beneficiaries, it is no surprise that trustees are generally expected ‘to use such due diligence and care as men of ordinary prudence and vigilance would use in the management of their own affairs’. When investing, they are expected ‘to take such care as an ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide’. This focus on integrity rather than ability ties in with the conventional wisdom that `[t]he importance of preservation of a trust fund will always outweigh success in its advancement’ . Read the rest of this entry »
Although the manager has extensive control over the ways that the trust assets are to be invested or dealt with, it is not a trustee. This is because the title to assets does not vest in it.
The first question is whether the manager’s power is a fiduciary power or a beneficial power for its own benefit. Scott and the American Restatement draw a clear distinction between such powers in the discussion of a private trustee being subject to directory or veto powers of others. It has been questioned if such a distinction exists in English cases. Indeed, judges in early English cases did not appear to be particularly concerned with enunciating such a principle. However, there is no reason to doubt that Scott’s position represents the English position as well. The early case Discconson v. Talbot supports such a proposition. So do cases on veto powers and some cases on powers of appointment. Read the rest of this entry »
Under this rule, a fiduciary has to account for all gains obtained by reason of its position, or through an opportunity or information resulting from it.
A fiduciary may not obtain and retain secret gains. Thus, in a transaction that would be effected between a unit trust and a third party, the manager cannot interpose a nominee to deal with the trust first and arrange for this nominee to consummate the transaction with the third party at a profit. Any such profits must be accounted for. A fiduciary also cannot take any bribe or secret commission. Read the rest of this entry »