A. Is the Manager a Trustee?

In crude terms, in a unit trust, the manager performs all the functions of management of the trust assets that would have been carried out by the trustee if the trust were a private trust used as a means of disposition of properties. This leads to the question whether the manager can be considered as a trustee, by analogy to the statutory scheme contained in the Public Trustee Act 1906 that allows the simultaneous appointment of a custodian trustee and a managing trustee. A custodian trustee under this Act is one who gets in and holds the title to the trust property. The management of the trust property and the exercise of any power or discretion are vested in the managing trustee. As between the custodian trustee and the managing trustee, a custodian trustee has the custody of all securities and documents of title relating to the trust property, but the managing trustee is permitted free access to them and is entitled to take copies or extracts. A custodian has to concur in and perform all acts.’”

One is therefore tempted to conclude that the manager is a managing trustee as it resembles the managing trustee created by the statute. But one has to recognize that a trust with a custodian and a managing trustee is a statutory class of its own. The office of a managing trustee is a creature of an enabling statute. In order to be so considered all the requirements of the relevant statute have to be complied with. What a private trust instrument can achieve depends on equitable principles, not on an inapplicable statute. Furthermore, law reports do contain examples of powers of investment being reserved to the settlor, to one of the beneficiaries or to a third party. None suggests that power, without more, can make a person a trustee. This is because trusts are fastened upon the property of legal owners, the trustees. There is no trust without property. Powers may be fiduciary in nature but it does not follow that their holder is a trustee. Moreover, in a unit trust, the manager may have powers that are not fiduciary in nature.

FundsIt follows from the above analysis that a manager is not a trustee in the strict sense of the word.

B. The Manager as a Fiduciary

When the first unit trust schemes appeared in the 1860s, they were used as alternatives to the registered company. It is not surprising that they were marketed in the same manner as shares. The manager, as the entrepreneur of the unit trust, inevitably involved itself in the promotion of the unit trust. Such activities accord the manager the status of a promoter for ‘the term promoter is a term not of law, but of business’. It has been held to cover not only persons who get up a company but also persons inviting people to join in partnerships.

In Elders Trustee and Executor Co. Ltd. v. EG Reeves Pty. Ltd. ,Gummow J held that a manager of a unit trust was also a promoter and, as such, fell into the status-based category of fiduciary. He also held that as a consequence the manager owed fiduciary duties to unitholders. It ought to be stressed, however, that this fiduciary status should be confined to promotional activities such as issuing the prospectus or scheme particulars and contracting to purchase properties on the unit trust’s behalf. Beyond that, the question whether the manager is a fiduciary or not depends on the nature of activities in which it may engage. In considering the significance of the Elders Trustee case, it should be noted that in cases involving company promoters, the duties recognized are owed to the company to be formed, not to the shareholders in it. In a unit trust situation, it is the relationship with the unitholders that is in issue.

When the manager manages the investment of the unit trust, it assumes functions analogous to that of a managing trustee under statute. Whilst it cannot be characterized as a trustee, its activities as a fund manager are most likely to be accepted by the court as establishing a fact-based fiduciary. The manager has control of properties belonging to others, although it does not hold their title. It is undertaking activities in the interest of other persons, the unitholders. It is a holder of power that can unilaterally affect the interest of the unitholders. In a commercial sense, the unitholders are in a vulnerable position for they have no right to interfere with the management of their own money. In most cases, the speed with which transactions have to be done preclude them from having any knowledge at all. Moreover, it is their confidence in the manager’s investment expertise that attracts investors to become unitholders. These common factors alone should satisfy all tests for establishing a fiduciary relationship in the management activities of the manager.

Apart from investment management, however, there are businesses of the unit trust that cannot be regarded as undertaken by the manager in the interests of unitholders. In the majority of unit trusts, for example, the manager acts as a dealer of the units. In deciding whether to cancel units redeemed from unitholders, the manager can hardly be regarded as a fiduciary. The manager is entitled to retain units purchased from an outgoing unitholder if it considers profitable to do so. Likewise, the manager is not accountable to unitholders as a whole or any particular unitholder for the profits the manager makes through buying and selling units.

In conclusion, in a unit trust, the manager does not have title to the trust property but has control over its investment. Without title, it cannot be a trustee. However, its control over the trust assets and the management duties it has undertaken are major factors which may lead the court to characterize it as a fiduciary of the unitholders.

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The Manager-Unitholders Relationship