Secondly, the holder of a directory power is under a positive duty to initiate a decision on matters covered by the power. In making that decision, the power holder is under a duty of skill and care. A veto power, however, is a power of review that only arises when the holder of the substantive power makes a decision. From the standpoint of the substantive power holder, the seeking of consent is only a condition of an exercise of the power. As a consequence, a veto power holder is not under a primary duty to initiate a decision. For example, if the unit trust deed requires the manager to seek the consent of the trustee in any investment in a single asset that exceeds 5 per cent of the value of the portfolio, there is no dutyon the trustee to initiate the investment. The initiating obligation remains with the manager. In principle, responsibilities for decision making and for reviewing a decision are different in scope. The former is positive in nature and the power holder has greater scope of freedom. The latter is relatively negative, in the sense that the decision of another person is vetoed only if there are good reasons.

A third possible distinction between a directory power and a veto power flows from the second. If the duty of making an investment decision is in the hand of the holder of the directory power, i.e. the manager, the trustee who invests at its own initiative will be in breach of trust. It is not possible for the manager to give the direction subsequently because at the time when that direction is sought, there is a breach already. It is for the beneficiaries of that power to waive that breach. The manager could only waive the breach if it had an express power to do so on behalf of unitholders.

By contrast, cases indicate that the consent of a particular person in relation to a particular exercise of power may be construed as a condition precedent or a condition which may be satisfied either before or after the decision is made. If it is a condition precedent, it must be satisfied before the power is exercisable and there is no power in the court to dispense with that consent. In deciding whether a particular consent is a condition precedent or not, there is no fixed and firm rule; it is acknowledged to be a question of construction. In Greenham v. Gibbeson, Tindal CJ said:

FundsWhether in all cases a consent, where necessary, must be given before the execution of a power, or whether it will in some cases be sufficient to ratify the execution of the power by a subsequent consent, it is unnecessary at present to determine. It is sufficient to lay it down, that where the nature and object of the power, and the circumstances of the case point to a previous consent, then such previous consent is necessary, although not required by the terms of the power.

It can easily be understood that where the power is a fiduciary power, the prima facie construction is that it is a condition precedent. The reason is that the fiduciary’s consent should be a free consent after full consideration of the interests of the beneficiaries and should not be influenced by the pressure of subsequent events. In Bateman v. Davis, trustees were given power to advance money, with consent of A, to A’s husband. Money wasadvanced and consent was given subsequently by a deed. It was held by Leach VC that the consent was invalid because:

[t]he actual advance of the money to the husband, who perhaps had spent it, created a pressure upon the plaintiff, which gave to her subsequent approbation a very different character from the free consent required by the settlement.

As Stuart VC in Stevens v. Robertson observed:

A consent which is not a free one is no consent at all, and if the Court thinks that the consent actually given is not free, it holds that no consent has been given. That was the principle on which Bateman v. Davis was decided, and it was in no sense determined on the footing that the consent ought to have been given previous to the advance.

Speaking of a fiduciary power of consent of a trustee, Kekewich J also saidin Gilbey v. Rush:

What consent is necessary? Now, in the first place, it must be a consent at the time; nothing retrospective will do. There was a passage cited from Greenham v. Gibbeson, which expresses that well. It must be a consent at the time and it must be a consent ad hoc, with reference to the particular transaction, not given without deliberation, not given without reference to what was proposed at the moment; but given with direct responsibility.

These considerations suggest that it would be difficult not to construe a fiduciary veto power as a condition precedent. In a unit trust, the deed may, for example, provide that the manager shall not invest more than 5 per cent of the portfolio assets in futures contracts without the consent of the trustee. If the manager invests more than 5 per cent and seeks consent subsequently the trustee will be in a dilemma. If a gain is shown at the time of consent, there is no reason to disapprove. If a loss is made at the time of consent, the worry of the trustee is the extent of loss when the futures positions are liquidated in the market. Any refusal to give consent may cause a dispute or, indeed, litigation by the manager as to whether the trustee has exercised its power of consent properly. In such event, the manager may hold onto the investment and there may be further losses as a result. Perhaps, the manager may be an effective manager in the overallperformance of the trust; it may also be on good terms with the trustee. The trustee may consider the implications of refusing to give consent on the manager and on the future of the trust. It may be tempted not to jeopardize its relationship with the manager. Thus, subsequent consent is not true consent at all; the trustee is instead giving its approbation ex post facto to a particular conduct. In doing so, the trustee has to take into account factors extraneous to the subject matter for which a consent is sought. The consent given is ‘not free‘; the subsequent circumstances have ‘created a pressure . . . which gave [the] subsequent approbation a very different character from the free consent required‘. A consent cannot be equated with a ratification. Therefore, a fiduciary consent has to be regarded as a condition precedent.

Where the power is a beneficial power, it is unlikely that the giving of subsequent consent will be invalid. In the first place, in the absence of any express indication, the court will not construe the consent as a condition precedent. Stevens v. Robertson illustrates the point. By a settlement the trustees were authorized, with the consent in writing of the tenant for life, to alter, vary or transpose the trust fund from time to time. The trustees varied the investments without such consent but the life tenant signed receipts of income from the varied investment. It was held that the trustees had the relevant consent. Similarly, in Perkins v. Permanent Trustee Co. Ltd. a settlor made a settlement of his undivided share under the will of his father. He himself was a life tenant of the settlement. The settlement provided that the trustees might with his consent in writing during his life and after his death at the discretion of the trustees make or concur in any arrangement with the executors of the will for the realization or partition of the estate of the father. Proceedings were instituted by the trustees for the partition. No formal consent was obtained from the life tenant beforehand but he was kept fully informed of the proceedings. He also expressed his satisfaction in correspondence with the trustees. Street CJ in Equity held that consent was given within the meaning of the settlement.

Where the consent is a condition precedent, the giving of a subsequent consent by the beneficiary of the power is treated by the court to be a ratification or an acquiescence which precludes any action. This was clear from the judgment of Macrossan CJ in Re Williams, deceased where he said in relation to a power to make advances with the consent of all life tenants in a settlement:

If, as I think, the advances were not a proper exercise of the powers of the trustee when made, no subsequent consents can alter that fact. . . . Nevertheless, as the provision for consent in writing is a provision for the benefit of the persons having any prior life interest existent or contingent, I think that if all such persons consented to the advances ex post facto the trustee would be freed from liability for having made the advance.

Thus, it may be concluded that if the power to give consent is a beneficial power, a subsequent consent is effective as a ratification or an acquiescence. This may be contrasted with the fiduciary consent required by the trust deed as a condition precedent, which cannot be given post facto.

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