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 »
In respect of the manager, the following functions and duties are conferred explicitly or implicitly by the statutory provisions or trust deeds:
(1) Dealer in units.
One of the attractions of a unit trust is liquidity. The manager has since the early days of the unit trust been the provider of a ready market for the acquisition and disposal of units of schemes under its management. Under the Financial Services (Regulated Schemes) Regulations 1991, the manager must at all times during the dealing day be willing to issue units and be willing to redeem units. Similar provisions may also be found in trust deeds of non-authorized unit trusts. Read the rest of this entry »
(1) Statutory Allocation of Powers and Duties
Against this background, a structure of dual administration in the unit trust is a logical step in the functional specialization of the powers and responsibilities previously found in the single person of the trustee. The unit trust was in the forefront of this development. The first regulation of unit trusts in the United Kingdom in 1939 made the trustee-manager structure a model for the management of unit trusts. This model was adopted by many statutes of common law countries and was followed closely by unregulated schemes. Read the rest of this entry »
Given that the primary obligation of a trustee is to hold properties belonging to others and to preserve them for the benefit of the beneficiaries, it is no surprise that trustees are generally expected ‘to use such due diligence and care as men of ordinary prudence and vigilance would use in the management of their own affairs’. When investing, they are expected ‘to take such care as an ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide’. This focus on integrity rather than ability ties in with the conventional wisdom that `[t]he importance of preservation of a trust fund will always outweigh success in its advancement’ . 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 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 »
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 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 »
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 »
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 »
