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.

Thus, despite the imperative nature of some directions, the courts are prepared to say that trustees retain some discretion as to price, title, or the value of security. Apart from that, no general principle can be discerned. At best, Beauclerk, Re Hill, Re Hotham, and Re Hart’s Will Trusts can be regarded as putting a strict construction on directing clauses so that in respect of matters not expressly mentioned the discretion remains with the trustee. Re Hart’s Will Trusts is an attempt to further introduce a ‘good faith’ requirement. But the basis was not explained. Nor was there any clarification of the relationship between this requirement and the distinction between beneficial and fiduciary powers, which was regarded as determinative in other cases discussed above.

FundsAgainst this state of the case-law, several observations can be made in the unit trust context.

(1) It was recognized in The Application of Permanent Trustee Nominees (Canberra) Ltd. and Telford Property Trust v. Permanent Trustee Co.

Ltd. that the trustee of a unit trust has a duty to supervise the manager. The Financial Services (Regulated Schemes) Regulations 1991 expressly require the trustee of an authorized unit trust to take reasonable steps to ensure that the manager manages the scheme in accordance with the Regulations, the trust deed, and the scheme particulars. They also require the trustee to take similar steps to ensure that the manager’s investment decisions do not exceed its powers. It is also clear that the manager’s `right’ to make investment decisions is subject to its duty to manage the scheme and for the purpose of securing that ‘the objectives of the scheme are attained and that any particular objectives specified in the scheme particulars are achieved’. Thus, whether a unit trust is authorized or not, the trustee has a duty of oversight or supervision. The subject matters of supervision are clearly various decisions of the manager (made pursuant to the powers given to the manager). Any so-called directions are decisions which, subject to the terms of the trust deed, the trustee has to supervise. It follows from Beauclerk, Re Hill, Re Hotham, and Re Hart’s Will Trusts that any direction will not by itself be regarded as absolute.

(2) In determining whether a direction ought to be followed, it is submitted that the trustee should draw a distinction between the fiduciary and the beneficial powers of the manager. This is supported by Discconsonv. Talbot, Re Massingberd’s Settlement, and Re Wise’s Settlement,which are cases of private trusts where the distinction was drawn in relation to powers of direction.

If the power is beneficial, the manager can act in its best interest. The manager is not subject to any fiduciary duties. The trustee must observe the direction of the manager unless the manager is in breach of some contractual, tortious or statutory duties. The life tenant in Re Hart’s Will Trusts clearly was in such a position. Otherwise, the life tenant cannot direct the trustee to purchase from the life tenant himself. In a unit trust, a manager is given the duty and power to redeem units from unitholders. After redemption, it may not exercise its power to direct the trustee to cancel the units so redeemed. It may hold them in the ‘box’ and sell them to new participants. These powers to direct the trustee to create and cancel units are beneficial powers as they are intended to enable the manager to deal in units as a principal.

If a power given to the manager is a fiduciary power, as with most powers relating to investment decisions, the trustee must not comply with the manager’s direction if the trustee knows or ought to have known that the manager is in breach of its fiduciary duties. Examples of possible breaches of fiduciary duties include self-dealing, scalping, churning, competing with the unit trust, secret commissions, bribes, using unit trust properties or confidential information. They have been discussed. In case of doubt, the trustee should apply to court for directions.

An unresolved question is the extent of investigation and enquiry which a trustee is required to make in respect of every direction given by the manager. It is submitted that the trustee has no positive duty to actively investigate into the fiduciary position of the manager in the absence of any express provision in the trust deed. The trustee should only be required not to turn a blind eye to what it knows or ought to have known having regard to the facts known to it. The reason is that under the trust constituted by a typical unit trust, the manager occupies a central position and its powers are not delegated powers. The respective powers and responsibilities of the trustee and the manager are compartmentalized. That compartmentalization is achieved through the unit trust deed, which is a contract between the trustee, the manager, and the unitholders. Contract law implies nothing more than is required for the business efficacy of the transaction.

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