(1) Statutory Allocation of Powers and Duties

Against this background, a structure of dual administration in the unit trust is a logical step in the functional specialization of the powers and responsibilities previously found in the single person of the trustee. The unit trust was in the forefront of this development. The first regulation of unit trusts in the United Kingdom in 1939 made the trustee-manager structure a model for the management of unit trusts. This model was adopted by many statutes of common law countries and was followed closely by unregulated schemes.

Under the Financial Services Act regime, the distribution of management powers of an authorized unit trust is regulated by regulations under the Act and supplemented to a lesser extent by the trust deed. Any provision in the trust deed that is inconsistent with the regulations will not be valid. For a non-authorized unit trust, the power distribution is determined by the trust deed.

The statute itself is silent as to whether the manager is subordinate to the trustee. Similarly, a trust deed of a non-authorized unit trust is also silent as to this position. In the ordinary case, one is not the subordinate or agent of the other.

FundsIn respect of the trustee, the following functions and duties are conferred expressly or implicitly by the statutory provisions or trust deeds:

(1) Custody of title.

Under the Financial Services (Regulated Schemes) Regulations 1991, the trustee must take into its custody or under its control all the capital property of the scheme, collect any income thereof and hold the same in trust for the unitholders in accordance with the trust deed and the Regulations. It is a function not delegable to the manager or its associate. For every unit trust deed, there is always a declaration of trust clause that the trustee will hold upon trust all properties for the unitholders. Trustees’ obligations necessarily follow from this very fact of holding properties belonging to others. In Bank of New South Wales v. Vale Corporation (Management) Ltd. (in liq.), it was said that the trustee of a unit trust has the fundamental duty of getting in and holding the moneys constituting the trust fund.

(2) Oversight of the manager.

Regulation 7.09.1 of the Financial Services (Regulated Schemes) Regulations 1991 imposes a general duty on the trustee to use reasonable care to oversee the management of an authorized unit trust and a specific duty to use such care to ensure that the manager will not exceed its investment power. That specific duty does not extend to second-guessing the merit of an investment decision. The trustee also has the duty to oversee the ‘procedures and methods for the calculation of prices at which units are issued and redeemed’. These oversight functions are again’ not delegable to the manager.This oversight duty is a new kind of trustees’ duties not encountered by a trustee of a private trust. In a private trust, a trustee is under an obligation to supervise its agents or delegates, but not someone who is not its delegate.

For a non-authorized unit trust, arguably, this oversight duty is part of the equitable fiduciary duties of skill, care, prudence, and diligence applicable to all trustees. The general duty of supervision may be said to be implied from a common trustee’s covenant that it will take reasonable steps to become informed by the exercise by the manager of its powers, and the performance of its functions, under the deed and also from some common manager’s covenants to inform the trustee about any proposal to vary its investment policy, to make available to the trustee such details as it requires relating to the unit trust, to give the trustee statements by the manager’s auditor as to whether the manager’s accounting and other records for the scheme comply with the trust deed, to make available to the trustee records of the unit trust for inspection, to advise the trustee if an associate is a party to a disposal or acquisition of trust assets, and to retire from office at the request of the trustee in the event of insolvency or if in the reasonable opinion of the trustee the manager has not remedied a breach or if the trustee reasonably believes that it is in the best interests of the unitholders. It is a question of construction for each trust deed but such duty of supervision has been recognized by case-law.

(3) Registrar of units.

This is provided by regulation 6.02 of the Financial Services (Regulated Schemes) Regulations 1991 which requires the trustee of an authorized unit trust to establish and maintain a register of holders. As a general principle, any trustee of a fixed trust is under an obligation to hold trust assets for the benefit of beneficiaries and to distribute to them their respective shares. Such an obligation cannot be performed unless a list of them can be drawn up. In a unit trust, the allocation of this registrar function to the trustee is therefore a natural step. However, if the manager is buying and selling units, the trustee may not have the information necessary for the keeping of a register of unitholders. Consequently, the Financial Services (Regulated Schemes) Regulations 1991 impose on the manager the obligation to ensure that the information on the register is at all times complete and up to date, and to supply information to the trustee on new unitholders and on changes of particulars of existing unitholders. In practice, it is simpler for the manager to maintain the register and the trustee’s duty of maintaining the register is often delegated to the manager. Alternatively, a separate registrar may also be appointed by the trustee. For a non-authorized unit trust, it is common practice for the manager to be allocated with the registrar’s function by the trust deed.

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