A. Partnership

It cannot be denied that by entering into the trust deed, both the manager and the trustee are entering into a venture that provides services to their `customers’ and that produces their income. This is cooperation in business, but is unlikely to constitute them a partnership. Basically, the test of the existence of a partnership is by reference to the definition of a partnership discussed and also by reference to the statutory rules regarding co-ownership of assets, sharing of gross return, and also sharing of profit.

There is no business in common. The demarcation of functions under the unit trust deed draws the line of business between them. In essence, the trustee is carrying on the business as a professional trustee and the manager is carrying on the business of investment management. They have different contractual obligations under the unit trust deed, the trustee as a trustee of properties, a registrar of unitholders, and also as a supervisor of the manager and the manager as a dealer in units and as a fund manager. In the unit trust deed, the trustee and the manager are making covenants severally rather than jointly and severally. There is clearly no intention to constitute themselves mutual agents so as to give rise to any inference of a business ‘in common’.

FundsSharing of profit provides prima facie evidence of the existence of a partnership. Sharing of gross return is also a factor. Each party receives its service fees for the services rendered to the unit trust. The manager may receive additional income in the process of buying and selling units. These are gross returns rather than profits. Whether the manager or the trustee makes any profit will depend on whether there is any amount remaining after payment out of this income of all the expenses incurred by it as a separate business unit. In any event, there is no sharing of these returns between the trustee and the manager. There is also no sharing of profit between them.

Both therefore are acting as principals on their own account.

B. Agency

The manager and the trustee are not in any relationship of agency at a general leve1. Agency is the result of a grant of power by the principal and the assumption of obligations by the agent. At the inception of a unit trust, the manager and the trustee are contracting as principals to constitute the unit trust that enables both to act for investors according to their divided responsibilities.

The trustee cannot be regarded as the agent of the manager. It is not an agent holding properties for its principal; the properties in a unit trust do not belong to the manager. If it is an agent of the manager, it will be under an obligation to obey the order and directions of the principal. It is true that, in the majority of cases, the manager’s management powers are to be exercised in the form of directions to the trustee as regards the buying and selling of assets in the portfolio.”) This does not mean that the trustee has to obey every direction. The trustee owes the unitholders a duty to supervise the manager. As part of this duty, the trustee is not bound to follow the direction if the directed exercise is a matter within the trustee’s discretion or if the direction involves a breach of the manager’s fiduciary duty, the terms of the trust deed, or the provisions of any statute.

Equally, the manager cannot be regarded as the agent of the trustee. If the manager can direct the trustee as to investments, it can hardly be regarded as the agent of the person that is subject to its direction. Moreover, in a commercial sense, the unit trust is a financial product of the manager and is often only a part of the manager’s financial services. The manager is in truth ‘the source and origin of the trust‘ and also ‘the entrepreneur of an investment scheme‘. The manager has interests in its own right and not merely subordinate interests as an agent.

This position is recognized by the Financial Services (Regulated Schemes) Regulations 1991. A juxtaposition of regulation 7.02 and regulation 7.09 reveals this. Regulation 7.02 provides:

  1. It is the duty of the manager to manage the scheme in accordance with: (a) the trust deed, and (b) these regulations, and (c) the most recently published scheme particulars.
  2.  . . . it is the manager’s right and duty to make decisions as to the constituents of the property of the scheme in such a way as appears to him likely to secure that the objectives of the scheme are attained . . .

And regulation 7.09 provides:

  1. It is the duty of the trustee to take reasonable care to ensure—(a) except in relation to Part 5, that the scheme is managed by the manager in accordance with regulation 7.02.1, and (b) in relation to Part 5, that decisions about the constituents of the property of the scheme do not exceed the powers conferred on the manager.

Regulation 7.02 applies to the manager. It has two limbs, one dealing with the management of the scheme in general and the other dealing with investment of scheme property in particular. The duty of supervision of the trustee specified in regulation 7.09 mirrors this two-limb structure.

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The Trustee-Manager Relationship