In respect of the manager, the following functions and duties are conferred explicitly or implicitly by the statutory provisions or trust deeds:

(1) Dealer in units.

One of the attractions of a unit trust is liquidity. The manager has since the early days of the unit trust been the provider of a ready market for the acquisition and disposal of units of schemes under its management. Under the Financial Services (Regulated Schemes) Regulations 1991, the manager must at all times during the dealing day be willing to issue units and be willing to redeem units. Similar provisions may also be found in trust deeds of non-authorized unit trusts.

(2) Trust fund manager.

This is the most important function for the manager. It would be the responsibility of the trustee if the trust were a private trust. Under the Financial Services (Regulated Schemes) Regulations 1991, it is the duty of the manager of an authorized unit trust to manage the scheme in accordance with the regulations, the trust deed, and the most recently published scheme particulars. The Regulations also state clearly that it is the manager who has ‘the right’ to decide the composition of the unit trust portfolio. Of course, the range of investments, investment objectives and restrictions will be prescribed by the trust deed and the scheme particulars. The same management function will be allocated to the manager by the trust deed of a non- authorized unit trust. However, it is not difficult to find trust deeds which fail to demarcate clearly supervisory and management powers between the trustee and the manager.

Funds

(2) Types of Shared Powers

It is clear that the Financial Services Act 1986 and its regulations lay down a dual management structure and specify the respective duties of the manager and the trustee. Within this broad framework, under the Financial Services (Regulated Schemes) Regulations 1991, there will be matters that require their joint decisions or matters where a party’s decision is subject to the approval or consent of the other. Below this dual structure of trust management, registrar, investment adviser, custodian or property manager may be appointed to share some of the functions through a series of contractual or trust arrangements. For the purpose of analysis, shared powers can be divided into four categories.

(1) Directory power.

This is the power given to a person to direct another person to perform some of the duties of that other person. The basic tenet of the unit trust concept is that investment decisions will be made by the manager. Once a decision is made as to acquisition or disposal of trust assets, it is the trustee that will carry out that decision. The trustee is therefore subject to the directions of the manager. Directory powers in the hands of the manager are thus a prominent characteristic of unit trusts.

(2) Veto power.

A person exercising a particular power may by the terms of the trust deed be required to obtain the consent or approval of another person. In this sense, that other person has a power to veto a particular decision. In the unit trust, it is very common to specify matters that require the manager to obtain the consent or approval of the trustee or vice versa.

(3) Delegation.

A unit trust deed may require the trustee or the manager to delegate some of its responsibilities in certain circumstances. Such a requirement is power sharing in effect. Delegation will be mandatory if the trustee or the manager has no discretion in deciding whether to delegate or not. Common examples include the appointment of a custodian of foreign assets and the appointment of an investment adviser in some markets, such as the options or futures market.

Delegation by the trustee or the manager may, however, be permissive. This is delegation in the conventional sense.

(4) Advisory power.

Valuers, investment advisers, lawyers, and other experts may be appointed by the trustee or the manager to provide advice or opinion which the trustee or the manager has to consider but is not obliged to follow. Again, appointments may be mandatory or permissive.

These power splits in unit trusts are less common in private trusts. Despite the view that a dual structure of management ‘contains fundamental legal and commercial contradictions’ and [t]he fact of split responsibility is a problem’, it is submitted that serious contradictions have not been proved to exist. Existing case-law is capable of producing a logical and coherent analysis of the consequence of the split of trusteeship. Of course, like any other legal principles, its actual application depends on particular factual situations.

(3) Duties, Rights, and Powers

In a conventional analysis, not only has the trust been defined in terms of the trustee’s obligations, but a trustee’s exercise of powers is treated by equity as circumscribed by the duties of trustees.

In the unit trust, the contract is the medium through which duties and powers are carved out of conventional trusteeship. The contract inevitably involves mutuality of promises and gives rise to contractual rights on the part of the trustee, the manager, and other parties. Powers may be given to a party for the furtherance or protection of its own rights as well as for the carrying out of duties of that party. Whilst cases are relatively few, it is established in our trust jurisprudence that a distinction can be drawn between a beneficial power and a fiduciary power, with the former being exercisable for the interest of the power holder. Because of the element of contractual rights in unit trusts, it is submitted that this distinction assumes prime importance in the interpretation of any particular power. The presence of parties other than the trustee calls into question the status of a party exercising a particular power. The manager is a fiduciary in respect of most but not necessarily all aspects of the administration of the unit trust; there are matters in which it does not stand in the position of a fiduciary. Thus, a manager is not accountable to unitholders for profits made through buying and selling units because it is the manager’s right and it is not dependent on any term of the trust deed or regulation excluding fiduciary duty in this regard. Parties such as investment advisers and valuers are in the same position. The status of each in a particular context is relevant to the determinationg whether a particular power is beneficial or fiduciary.

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