The Midland Bank Trustee case therefore is a clear rejection of the wider proposition that intentional wrong, gross negligence, and fraud of a trustee cannot be excluded or modified. Before accepting this narrower formulation or the wider proposition or indeed either of the two propositions one must question the theoretical basis of each of these propositions.
It seems that even under the narrower view, an exemption clause cannot effectively exclude wilful default. Read the rest of this entry »
There is as yet no judicial pronouncement in England that an exculpatory clause in a trust is to be interpreted in the same manner as a contract. Instead, it has been assumed in all trusts texts that there are trust obligations which can never be excluded as a matter of law. This will be the position of a trustee of a non-authorized unit trust. A trustee of an authorized unit trust will also be subject to section 84 of the Financial Services Act 1986. Read the rest of this entry »
As the manager is in a contractual relationship with the unitholders, it may have a contractual duty of care under the express or implied terms of the contract as contained in the unit trust deed. Historically, the court has chosen the contract as a medium of control over the conduct of people giving professional services. Invariably, the court will imply a duty of skill and care into a contract for professional services. However, as Deane J in Hawkins v. Clayton has reminded us, the preconditions for implying a term into a contract include that the term must be necessary for the efficacy of the contract, and the term must have been intended by the parties to form part of the contract. Read the rest of this entry »
- The trustee must not follow a direction of the manager if such direction is in breach of the express provisions of the unit trust. This is so irrespective of whether the power in question is beneficial or fiduciary. If it were otherwise, the duty of supervision would be completely hollow.
In respect of every investment proposed by the manager, this means that the trustee has to check each proposal against the letter of the unit trust deed. Read the rest of this entry »
The power is to direct the investment of the capital in such investments as the testatrix’s son may from time to time direct. Upon the language of the power as a whole, in my judgment, provided he acts in good faith, [the son] is entitled to give directions to the trustees to realise any investments constituting the trust fund which they from time to time may hold. In my judgment, upon the language of the clause, the trustees are bound to comply with those directions save that they are to satisfy themselves, the shares not being shares in which there is a free and open market, that the price which they pay for them is a reasonable and proper price at the time they make the purchase. Read the rest of this entry »
As a general rule, directions given in a trust deed must be followed by the trustee. It follows that if the unit trust deed directs the trustee to follow the decision of the manager in the making or disposal of investments, the direction is imperative. But is this always the case?
Several cases in which third parties were given powers to direct the trustees have bearing on this point. Three aspects emerged. First, in all these cases, the courts approached this as a question of construction of the particular power involved. Read the rest of this entry »
Section 84 of the Financial Services Act 1984 provides:
Any provision of the trust deed of an authorised unit trust scheme shall be void in so far as it would have the effect of exempting the manager or trustee from liability for any failure to exercise due care and diligence in the discharge of his functions in respect of the scheme.
This section only applies to authorized unit trusts. Exemption clauses in non-authorized unit trusts are not affected. Read the rest of this entry »
Secondly, the holder of a directory power is under a positive duty to initiate a decision on matters covered by the power. In making that decision, the power holder is under a duty of skill and care. A veto power, however, is a power of review that only arises when the holder of the substantive power makes a decision. From the standpoint of the substantive power holder, the seeking of consent is only a condition of an exercise of the power. As a consequence, a veto power holder is not under a primary duty to initiate a decision. For example, if the unit trust deed requires the manager to seek the consent of the trustee in any investment in a single asset that exceeds 5 per cent of the value of the portfolio, there is no dutyon the trustee to initiate the investment. The initiating obligation remains with the manager. In principle, responsibilities for decision making and for reviewing a decision are different in scope. Read the rest of this entry »
Under the Financial Services (Regulated Schemes) Regulations 1991, there are many situations where the trustee has to obtain the ‘consent‘, `approval’ or ‘agreement‘ of the manager, and vice versa. There are also provisions that require a party not to act without ‘consulting’ the other party.
For example, the manager ‘may instruct’ the trustee to create and to cancel units but the trustee may refuse to follow these instructions `[w]here . . . the trustee is of the opinion that it is not in the interests of participants‘. Similarly, the trustee may refuse to comply with the manager’s instructions to create units in exchange for assets if the trustee is not satisfied that there is no ‘material prejudice to the interests of participants or potential participants’. Read the rest of this entry »
This covers the situation where the unit trust deed directs the appointment of agents or delegates in certain circumstances and the trustee or the manager is given no discretion. In some offshore unit trusts, the appointment of a custodian or investment adviser in certain markets or abroad may be made mandatory by the trust deed. Sometimes, an investment adviser’s contract may have been entered into prior to units being offered to the public. Thus, a property manager may have been appointed for a property trust. It is also very common for advisers to be appointed for futures and options funds, country funds, and trusts of specialized sectors. Read the rest of this entry »
This covers the situation where the trustee or the manager is given the discretion to delegate all or some of the duties and powers to a third party if it so wishes. In this sense, delegation permitted in equity or under the Trustee Act 1925 is permissive in nature.
For an authorized unit trust, the position is governed by regulation 7.15 of the Financial Services (Regulated Schemes) Regulations 1991. In general, subject to two broader categories of restrictions, and also subject to any restriction in the trust deed, both the trustee and the manager are permitted to delegate any of their functions to any person, including the trustee and the manager themselves. The delegation permitted by this regulation is not confined to ministerial acts but extends to any discretion. Read the rest of this entry »
A. Delegation Without Express Provisions
The contractual nature of the unit trust means that there are matters in which the trustee and the manager have interests as contracting parties. Thus, the distinction drawn by the law between beneficial and fiduciary powers is important. In relation to beneficial powers, the trustee can delegate without express authorization in the unit trust deed. I For fiduciary powers, the trustee will be in the same position as the trustees of private trusts. Read the rest of this entry »
Trust cases have demonstrated that the court is very reluctant to make an agent of a trustee liable to the beneficiaries directly on the basis of constructive trust. The agent will not be liable for merely carrying out the instructions of the trustee, even when it knows that the property is trust property. There must be a want of probity on its part.” One cannot expect an agent to make detailed investigations to see whether or not its principal is validly appointed or whether or not its principal is properly exercising its power. After the decision in Royal Brunei Airlines v. Read the rest of this entry »
There are several ways in which the court may hold that delegates or agents owe duties directly to the unitholders.
In the first place, a custodian having the title of the unit trust property registered in its name is a trustee in equity. If it does not have any power to deal with the property or any other responsibility, it will be a bare trusteeof the property obliged to deal with it as the trustee or the manager may direct. Read the rest of this entry »
If the unit trust deed directs the trustee or the manager to obtain the advice of a certain person on certain matters, such advice will often be construed as a condition precedent to the exercise of the substantive power in question. Obvious examples are the requirements of legal advice, valuation, and actuarial advice.
The powers of appointment of such advisers are fiduciary powers and therefore not delegable. However, this does not preclude the trustee from making enquiries, seeking information or asking for a character reference about a potential adviser so long as the ultimate decision is its own. In making this selection, the trustee or the manager must exercise due care and diligence. Read the rest of this entry »
It is established that the powers of the manager are not delegated powers derived from the trustee; the manager is a primary source of authority, having been responsible for the set up of the unit trust. However, despite this stated position, it is submitted that the trustee has reserve powers incidental to its status as a trustee by reason of its legal ownership of the properties and equity’s imposition of duties on such an owner. The position appears to be that if the manager cannot find authority for a particular act in the express or implied powers of the unit trust deed, the manager cannot do the act. The unit trust deed is the source of the manager’s authority. Read the rest of this entry »
Shortly after Charles was decided by the High Court of Australia, another fixed investment trust was the subject of taxation proceedings. This time, it was before the Supreme Court of Canada in MNR v. TransCanada Investment Corporation Ltd. The trust was a typical fixed investment trust. Under the trust deed, an administrator (i.e. the manager) was to purchase a fixed number of predetermined shares of common stock of companies to constitute a trust unit. Upon all the shares of underlying companies of a unit being vested in the trustee, the trustee would issue shares of a trust unit. Each share of a trust unit represented an undivided equal interest in the unit. Read the rest of this entry »
B. Baker v. Archer-Shee in Unit Trusts
So far, the position is this. With regard to the number of beneficiaries, the effect of Nelson v. Adamson and New Zealand Insurance Co. Ltd. v. CPD is that Baker is not limited to trusts with one beneficiary and the existence of a number of beneficiaries, whether in successionor concurrently, does not affect their respective claims to proprietary interests in the subject matter of a trust. Ironically, the expansive application of Baker was achieved in New Zealand Insurance only at the price of admitting that a beneficiary may not have a proprietary interest in the trust assets in some fixed trust situations, such as where the beneficial interest is ‘a specified sum to be provided out of an unidentified part of a body of assets‘. Read the rest of this entry »
It is true that where, as here, neither interest is in any way hypothecated or charged, the function of the trustees is simple, but that does not change the inherent character of the function, for the functional possibilities are present, and might at any time be invoked.
Nelson v. Adamson was distinguished as a decision as to what the income arose from, within the meaning of the Income Tax Acts of the United Kingdom. This is the same interpretation of Baker as that by Lord Morison in Reid’s Trustees.59 Read the rest of this entry »
The question before the court was the liability of the trustee to income tax on the interest. The relevant tax legislation made no provision for the deduction of tax from payments of income out of trust estates. The trustee argued, relying on Baker, that the liability to tax of income received by trustees depended upon the position as regards liability of the beneficiary; that in this case the interest received was treated as capital as a matter of ordinary principles of accounting between trustees and income- beneficiaries; that the beneficiaries would never receive the interest as income and therefore no liability to tax was possible. It was held by the Scottish Court of Session that on construction of the statute the interest was income and the trustees were the persons receiving or entitled to the income. Read the rest of this entry »
