Under the Financial Services (Regulated Schemes) Regulations 1991, there are many situations where the trustee has to obtain the ‘consent‘, `approval’ or ‘agreement‘ of the manager, and vice versa. There are also provisions that require a party not to act without ‘consulting’ the other party.

For example, the manager ‘may instruct’ the trustee to create and to cancel units but the trustee may refuse to follow these instructions `[w]here . . . the trustee is of the opinion that it is not in the interests of participants‘. Similarly, the trustee may refuse to comply with the manager’s instructions to create units in exchange for assets if the trustee is not satisfied that there is no ‘material prejudice to the interests of participants or potential participants’. The manager may, ‘with the prior agreement of the trustee‘, suspend dealing in units for a period not exceeding twenty-eight days. For the valuation of units, if the manager wishes to adopt an exchange rate other than the average rate provided by the Regulations, the trustee’s agreement is required.

FundsThe manager may only invest in a market other than an eligible market under regulation 5.07A.1 after ‘consultation’ with the trustee. Presumably, the trustee may veto the manager’s decision if the trustee has difficulty in appointing a custodian in that market or if the trustee considers that it is not in a position to discharge its oversight obligation under regulation 7.09. When the manager enters into a derivativetransaction or a forward transaction in currency for the purpose of efficient portfolio management, the trustee may veto it ‘if its purpose could reasonably he regarded as speculative’. The manager may invest in contravention of Part 5 of the Regulations if the ‘reason for the contravention is beyond the control of the manager and trustee‘ provided the manager ‘has obtained the consent of the trustee‘.

In respect of the accounts of the scheme, the manager is given the power to elect a particular accounting period to end seven days earlier or later than the previous accounting period chosen but the ‘agreement‘ of the trustee is required.

The manager has the powers to appoint an auditor and a standing independent valuer of a property fund and to remove them but in all cases the exercise of power has to be ‘with the approval of the trustee‘.

In respect of the trustee, some of its powers under the Regulations are also subject to veto by the manager. Where an in specie redemption is to be effected under regulation 4.28, the trustee is given the power to select the property to be transferred to the redeeming unitholder but such selection has to be made ‘after consultation with the manager‘. If the trustee wants to distribute income of less than £1, the manager has to be ‘consulted’ before the distribution. The trustee has the power to convene a unitholders’ meeting at such time and place as it thinks fit but, again, the trustee is required to consult the manager as to the time and place of the meeting.

Similar examples can also be found in unit trust deeds of other unit trusts. In fact, in the negotiation stage, each will seek to protect its own interests as well as to protect against possible liabilities to unitholders.

Because the manager has assumed wide substantive powers in modern unit trusts, it is the trustee which often seeks to put a check on such powers at the negotiation stage. Consequently, it is usual for a trust deed to give more veto powers to the trustee than to the manager.

In principle, the relative positions of the holder of the veto power and the holder of the substantive power should be the same as in the case of the manager giving directions and the trustee being subject to directions. Thus, a distinction has to be made between fiduciary and beneficial powers, the exercise of the latter not being subject to fiduciary responsibilities. A fiduciary power will be subject to fiduciary duties towards the unitholders.

There are however two important differences between these two types of power. First, the status of the veto power holder is important in ascertaining both the powers and the duties that may be involved. A particular veto power in the hand of the trustee is not necessarily the same as it is in the hand of the manager. The trustee is a trustee but the manager is a contractual fiduciary. In the exercise of any power, a trustee is subject to trustees‘ duties but a manager is subject to contractual duties and, in matters where it is a fiduciary, fiduciary duties. This difference in status may have remedial implications as well. Trustees have powers to invoke the court’s inherent and statutory jurisdictions over trustees such as asking the court to give advice and direction, to vary the trustees‘ powers, and to obtain the court’s sanction for departure from the terms of the trust. In Harrison v. Thexton, the court authorized the exercise of a power which was subject to consent, despite the refusal of the person with consent power. By contrast, a manager cannot invoke the court’s jurisdiction to vary trust powers.

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