By now, the law must have developed a distinct body of company law. The fact that two institutions have the same origin should not per se lead to the conclusion that the same body of principles applies. Brothers, despite their common parents, are not twins automatically. Directors’ duties, despite their origin in the trust, are not trustees’ duties. Latham CJ stated that ‘the power [to alter articles] must be exercised bona fide for the benefit of the company as a whole‘. Malcom CJ said: ‘It cannot be said that the alteration was made otherwise than bona fide for the benefit of the unitholders as a whole.’ The apparent similarity of these two formulations is deceptive. If the unitholders are not associating, as Smith v. Anderson has suggested, is it right to look at all unitholders as a whole? The very notion of units, as investments, has strong connection with underlying assets. Unlike shareholders, unitholders are acquiring rights rather than participating in a business, which, even if there is any in a particular unit trust, is conducted by the trustee, as trustee. A company is a separate legal entity whilst a unit trust is not. ‘The company as a whole‘, even in the commercial sense rather than in the legal sense, connotes a body with perpetual existence and limited liability. As a result, the term ‘the company as a whole‘ has almost attained the status as a term of art of company law. For example, it has been suggested that the term covers not only present members but also future members of a company. Although this is explained in textbooks as a balancing of the short-term and long-term interests of the company (as a whole), the inclusion of future members into the concept is probably attributable to the fact that the company is a continuing body. Recently, in the context of directors’ duty to act in good faith for the benefit of the company as a whole, the term has also been said to include present and future creditors. The justification is ‘the enjoyment by members of limited liability and the inability of creditors to look beyond the assets of the company in the normal case‘. Therefore, ‘the company as a whole‘ is a concept evolving around characteristics of registered companies which may not be shared by unit trusts.

FundsIf the above arguments are valid, it is submitted that the direct import of the company law formula on the power to alter articles is not justified. Does it then follow that there is no limitation on the exercise of voting powers by the majority in a unit trust? The answer is probably no. It is most likely that the court will intervene if a majority of unitholders votes for a purpose outside the scope of purposes for which the voting power is conferred. This can be justified on either or both of the following grounds.

The first ground is the equitable doctrine of fraud on a power. The company law formulation that the power must be exercised bona fide for the benefit of the company as a whole is best to be regarded as a specific application of the broader doctrine of fraud on a power. Dixon J in Peters’ case itself saw the company law rule as a formula to invalidate any apparently regular exercise of voting power which is really ‘a means of securing some personal or particular gain, whether pecuniary or otherwise, which does not fairly arise out of the subjects dealt with by the power and is outside and even inconsistent with the contemplated objects of the power‘ .

If a specific formula cannot be applied, it is most likely that the court will resort to first principles.

The doctrine is a broad one. It applies not only to voting powers but also to other powers as wel1. It guards against any abuse of power and not merely fraud in the narrow sense of dishonesty. In Duke of Portland v. Topham, Lord Westbury said:

The settled principles of the law upon this subject must be upheld, namely, that the donee, the appointor under the power, shall at the time of the exercise of that power, and for any purpose for which it is used, act with good faith and sincerity, and with an entire and single view to the real purpose and object of the power, and not for the purpose of accomplishing or carrying into effect any bye or sinister object (I mean sinister in the sense of its going beyond the purpose and intent of the power) which he may desire to effect in the exercise of the power.

As emphasized by Lord Parker in a later case, Vatcher v. Paull,term fraud in connection with frauds on a power does not necessarily denote . . . any conduct which could be termed dishonest or immoral. It merely means that the power has been exercised for a purpose, or with an intention, beyond the scope of or not justified by the instrument creating the power.’

Thus, the width of the doctrine should enable the court to set aside a majority resolution where there is any abuse. An apparent difference of this approach is that there is no ‘for the benefit of the unitholders as a whole‘ requirement suggested by Malcom CJ. Another possible difference, which may not be immediately apparent, is that the equitable doctrine is operating in a negative manner by ‘negativing’ an exercise of a power which may otherwise be valid but the company law formulation is more in the nature of a positive duty.

The second ground is that the majority in particular circumstances is a fact-based fiduciary of the minority. This may sound novel. But if the ‘trust and confidence’, ‘undertaking’ or ‘vulnerability’ test is satisfied, there is no reason why fiduciary duties may not be imposed. Indeed, the departure from the ruling in Percival v. Wright in the leading company law case of Coleman v. Myers must suggest that such a possibility cannot be precluded. Thus, where the court establishes that a majority of unitholders in a particular unit trust is a fiduciary of the minority on the facts, the majority may be under a duty to act in good faith in its exercise of its voting power.

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