In Parkes Management Ltd. v. Perpetual Trustee Co. Ltd. , the manager of a unit trust was aggrieved by the trustee’s issue of a certificate that it was in the interest of the unitholders that the manager should be dismissed. On the question of the manager’s locus standi, Hope JA said:
It is submitted for the Trustee that it is only a beneficiary who can challenge the exercise by a trustee of a power . . . There would appear to be three answers to this submission. Firstly, that the Manager was a beneficiary; secondly, that the provisions of cl. 20(1) of the Deed entitled the Manager to ensure that the Trustee exercised any power under the Deed bona fide without indirect motive, and with a fair consideration of the issues; and thirdly that being a party to the Deed the Manager was entitled to challenge the certificate . . . Read the rest of this entry »
A unit trust deed typically has provisions for (a) a primary trust to the effect that whilst the unit trust is a going concern the trustee will hold the unit trust assets for the unitholders ’subject to the terms and conditions of the trust deed‘ and, in the case of an authorized unit trust, ‘all regulations made under section 81 of the Financial Services Act 1986′ and (b) a secondary trust for realization of assets and division of its proceeds upon the termination of the trust by the trustee.There is thus no question that the trustee holds the assets in the capacity as a trustee of an express trust. However, it has often been said that the trustee’s function in a unit trust is merely to hold the trust assets for the unitholders and that it does not actively manage them like ordinary trustees. The question therefore is in what character does the trustee hold assets: a custodial agent, a bare trustee or an active trustee?”‘ Read the rest of this entry »
Although the manager has extensive control over the ways that the trust assets are to be invested or dealt with, it is not a trustee. This is because the title to assets does not vest in it.
The first question is whether the manager’s power is a fiduciary power or a beneficial power for its own benefit. Scott and the American Restatement draw a clear distinction between such powers in the discussion of a private trustee being subject to directory or veto powers of others. It has been questioned if such a distinction exists in English cases. Indeed, judges in early English cases did not appear to be particularly concerned with enunciating such a principle. However, there is no reason to doubt that Scott’s position represents the English position as well. The early case Discconson v. Talbot supports such a proposition. So do cases on veto powers and some cases on powers of appointment. 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 »
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 »
Traditional finance theory is based on actions of rational investors who can process information efficiently in a timely, unbiased manner and consistently make informed, value-maximizing decisions. However, as mentioned above traditional finance does not assume that all, or even most, investors are rational. But it does assume that irrational investors will be driven out of the market by smart, rational investors.
Behavioral finance theorists question the primary assumption of rational investor behavior. Based on concepts and models developed by cognitive psychologists, they claim that psychological forces prevent decision makers from acting in a rational manner. There are two basic themes of behavioral finance: heuristic-driven bias and frame dependence. Other characteristics of irrational behavior can usually be deduced from these themes.
The term heuristic refers to a rule of thumb that is developed by an individual based on trial and error. Note that the rule of thumb is developed not by scientific reasoning but simply on the basis of one’s own experience or knowledge. Read the rest of this entry »
