Section 84 of the Financial Services Act 1984 provides:

Any provision of the trust deed of an authorised unit trust scheme shall be void in so far as it would have the effect of exempting the manager or trustee from liability for any failure to exercise due care and diligence in the discharge of his functions in respect of the scheme.

This section only applies to authorized unit trusts. Exemption clauses in non-authorized unit trusts are not affected.

Under this section, an exemption clause is not void in its entirety. It is only void ‘in so far as’ it would have the effect of exempting the manager or the trustee from liability for any failure to exercise due care and diligence. Thus, this statutory provision itself does not render void a clause excluding or modifying the fiduciary duties of a manager or a trustee. Whether such a clause is effective or the extent of its effectiveness will be governed by the case-law discussed above. It seems clear that such a clause will be construed strictly and it may not be effective if it purports to exclude liability for wilful default or fraud.

FundsFurther, in respect of a clause that does not exclude fraud or wilful default but excludes some fiduciary duties, it would seem that such a clause cannot conflict or be inconsistent with any provision of the Financial Services (Regulated Schemes) Regulations 1991, in particular, Part 7 which provides for the duties of the manager and the trustee. This is because such provisions are ‘binding on the manager, trustee and participants independently of the contents of the deed‘ 182 and any breach on the part of the manager or the trustee shall be deemed a breach by it ofthe rules of the recognized self-regulating organization. The consequence is that civil actions may lie against the manager or the trustee.

This section does not preclude the trust deed from defining the `functions’ of the manager or the trustee so that it may not have responsibility in particular matters. The line between a provision that defines responsibility and one that has the ‘effect’ of exempting liability is not easy to draw. Any possibility to define responsibility of a manager or a trustee of an authorized unit trust is circumscribed by the extensive provisions of the Financial Services (Regulated Schemes) Regulations 1991.

This section only applies to a ‘provision in the trust deed‘. It does not stop the unitholders holding a meeting to pass a resolution to sanction or waive a breach of duty on the part of the manager or the trustee. However, it is doubtful if such an avenue is open to unitholders of an authorized unit trust. This is because such a resolution is beyond the power of such a meeting. Under regulation 11.08 of the Financial Services (Regulated Schemes) Regulations 1991, a ‘meeting of holders duly convened and held’ shall be ‘competent . . . to . . . approve any act . . . in respect of which any such resolution is . . . expressly contemplated by these regulations, but shall not have any other powers’ [emphasis supplied]. Relieving a manager or a trustee from breach is not a matter expressly contemplated by theRegulations.

It also appears that enlarging the power of a unitholders‘ meeting in the trust deed would not be possible. Regulation 2.02.1 provides that `[a] unit trust scheme does not qualify to be authorised . . . unless the scheme is constituted by a deed which . . . (a) conforms with Schedule 1 below, and (b) (subject to (a) above) makes no provision for matters which are dealt with elsewhere in these regulation‘. Powers of a meeting of unitholders are matters dealt with by Part 11 of the Regulations—regulation 11.08 of which spells out clearly that such a meeting shall not have any powers other than those provided by regulation 11.08. The Regulations do not provide for the consequence if a scheme were able to obtain authorization despite the trust deed containing provisions contravening regulation 2.02.1. The authorization order may be revoked.185 Until revocation, arguably, those terms are overridden by regulation 2.02.1—which by virtue of section 81(3) of the Act is binding on the parties ‘independently of the contents of the deed‘.

As this section only applies to provisions in a trust deed, it does not override any provisions in other statutes. Under section 61 of the Trustee Act 1925, the court may on an application by the trustee relieve it from liability for any breach of trust on the ground that the trustee acted honestly and reasonably and ought fairly to be excused. This statutory relief is available to any trustee, whether it is a trustee of an authorized unittrust or a non-authorized unit trust. However, it is not available to the manager.

Possibly related posts: (automatically generated)
Statutory Position of Authorized Unit Trusts