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 »
The Midland Bank Trustee case therefore is a clear rejection of the wider proposition that intentional wrong, gross negligence, and fraud of a trustee cannot be excluded or modified. Before accepting this narrower formulation or the wider proposition or indeed either of the two propositions one must question the theoretical basis of each of these propositions.
It seems that even under the narrower view, an exemption clause cannot effectively exclude wilful default. Read the rest of this entry »
There is as yet no judicial pronouncement in England that an exculpatory clause in a trust is to be interpreted in the same manner as a contract. Instead, it has been assumed in all trusts texts that there are trust obligations which can never be excluded as a matter of law. This will be the position of a trustee of a non-authorized unit trust. A trustee of an authorized unit trust will also be subject to section 84 of the Financial Services Act 1986. Read the rest of this entry »
As the manager is in a contractual relationship with the unitholders, it may have a contractual duty of care under the express or implied terms of the contract as contained in the unit trust deed. Historically, the court has chosen the contract as a medium of control over the conduct of people giving professional services. Invariably, the court will imply a duty of skill and care into a contract for professional services. However, as Deane J in Hawkins v. Clayton has reminded us, the preconditions for implying a term into a contract include that the term must be necessary for the efficacy of the contract, and the term must have been intended by the parties to form part of the contract. Read the rest of this entry »
- The trustee must not follow a direction of the manager if such direction is in breach of the express provisions of the unit trust. This is so irrespective of whether the power in question is beneficial or fiduciary. If it were otherwise, the duty of supervision would be completely hollow.
In respect of every investment proposed by the manager, this means that the trustee has to check each proposal against the letter of the unit trust deed. Read the rest of this entry »
The power is to direct the investment of the capital in such investments as the testatrix’s son may from time to time direct. Upon the language of the power as a whole, in my judgment, provided he acts in good faith, [the son] is entitled to give directions to the trustees to realise any investments constituting the trust fund which they from time to time may hold. In my judgment, upon the language of the clause, the trustees are bound to comply with those directions save that they are to satisfy themselves, the shares not being shares in which there is a free and open market, that the price which they pay for them is a reasonable and proper price at the time they make the purchase. Read the rest of this entry »
As a general rule, directions given in a trust deed must be followed by the trustee. It follows that if the unit trust deed directs the trustee to follow the decision of the manager in the making or disposal of investments, the direction is imperative. But is this always the case?
Several cases in which third parties were given powers to direct the trustees have bearing on this point. Three aspects emerged. First, in all these cases, the courts approached this as a question of construction of the particular power involved. Read the rest of this entry »
