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.

(1) Fiduciary or Beneficial Power Distinction

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.

In practice such a distinction may not be easy to draw For example, it is not easy to decide if an express power to invest in other unit trusts managed by the same manager is a beneficial power or a fiduciary power. It may be a beneficial power because it enables the manager to generate income as a manager selling the units of the unit trust to be invested and also because cross-investment can boost fund sizes of the manager’s funds and hence its goodwill in the industry. It may be fiduciary in nature because all investment powers are to be exercised for the benefit of unitholders.

FundsIf a particular manager’s power is held to be fiduciary in nature, a consequence is that the court will impose fiduciary duties. In the absence of an express power, the manager cannot place itself in a position where its duties conflict with its own interests or duties owed to other unit trusts under its management. Thus, the manager must not obtain financial benefit from a third party in return for a particular direction to the trustee.

Another consequence of the fiduciary characterization is that the manager, as a fiduciary, is not entitled to delegate any investment decisions in the absence of any express provision to the contrary. If the power is beneficial, it is delegable without any express provision. Thus, any draftsman must consider an express provision in a unit trust deed if it is intended that the manager may delegate some part of its management power—which by nature will be fiduciary. In the case of an authorized unit trust, the manager is given the power to delegate all its functions to any person, including the trustee. However, if the delegate is the trustee or an associate of the manager or the trustee, the manager will be vicariously liable for all acts and omissions of the delegates. For other delegates, the manager can avoid liability by showing that it was reasonable for the agent to be employed for the function delegated, the agent was and remained competent, and the manager had taken reasonable care to ensure the function was undertaken by the agent in a competent manner.

(2) Contractual and Tortious Duties

If a power is not fiduciary in nature, it legally follows that the manager holds no fiduciary duty in respect of its exercise. But, it does not necessarily follow that it may not be in breach of its contractual duties or tortious duties. Thus, if a non-authorized property trust is formed for the purpose of, and authorizes, the acquisition of two buildings previouslyowned by an associated company of the manager, the manager is not in breach of its fiduciary duties in the acquisition, but it is still bound by the provisions on borrowing limits if the acquisition requires any finance.

A manager assumes overall investment responsibility of a unit trust under some express provisions of a trust deed. For an authorized unit trust, this is provided by regulation 7.02 of the Financial Services (Regulated Schemes) Regulations 1991. As the trust deed is a contract constituting the scheme, whether a particular exercise of power is fiduciary or not, the manager has to fulfil the contractual duty of management expressly provided in it. This duty, it is submitted, is positive in nature and requires the manager to take actions to initiate investment decisions. For the trustee, this positive duty on the part of the manager means that the trustee is not under any obligation to initiate a decision.

(3) Standard of Skill and Care

As to the standard of skill and care expected of a private trustee, it has been held that this depends on whether the trustee is a professional trustee or not. If it is not, the standard expected is no more than that of `businessmen of ordinary prudence’ so long as the trustee confines its investment to what is authorized and not attended with hazard. A professional trustee, on the other hand, will be ‘liable for breach of trust if loss is caused to the trust fund because it neglects to exercise the special care and skill which it professes to have’. These duties are equitable duties recognized in trust cases; they are not contractual in nature. If the analysis of Nocton is accepted, by analogy, managers will be subject to the same principle regarding standards of care of trustees. As professional managers, the higher of the two standards is expected of them. If a court holds that Nocton does not apply to managers in unit trusts, then as the office of the manager is contractually created, the court has to reason from the implied term theory. Any implied term has to be justified on the basis of business efficacy and the intention of the parties. Arguably, a professional standard of care may be implied from the investment expertise which managers usually profess to have.

In practice, at least for a non-authorized unit trust, these standards of care will be subject to express provisions in the unit trust deed that may lower such standard. Such express provisions are contractual in nature. However, a contractual analysis may not always work in favour of the manager. For example, if a statement is made in the scheme particulars regarding the future profitability of the unit trust, the court may construe this as a warranty given by the manager. Liability may arise for breach of warranty even though the manager has exercised a high degree of care. Alternatively, any such statement may be construed as a misrepresentation.

(4) Deviation, Variation, and Ratification

The court has both equitable and statutory jurisdictions to sanction variations of powers of trustees.If the office of the manager is contractual, it appears that any variation cannot be sanctioned by the court but must be sanctioned by other contracting parties. This is so notwithstanding that such a power could be fiduciary in nature, for the court has no jurisdiction to sanction variations of powers of fiduciaries.

If the manager does actually exceed its authority and directs the trustee to invest in unauthorized investments, it appears that it will be liable for all losses. In the case of an authorized unit trust, the trustee has the power to require the manager to reverse the transaction at the manager’s expense. Theoretically, breaches can be ratified by unitholders. In a non-authorized trust, this can often be done by a meeting of unitholders. In the case of an authorized unit trust, a unitholders‘ meeting does not have the power to ratify any breach on the part of the manager or the trustee. However, it does have the power to approve modification of the trust deed and the scheme particulars. It seems that a modification can take retrospective effect so as to ratify a breach. Further, all parties to acontract can waive a breach by a party. There is no reason why all unitholders cannot waive a breach if they are unanimous.

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