Power and Duties of Trustee

04/11/2304/11/23 Equity & Trust II (Dr. Zuraidah Ali)Equity & Trust II (Dr. Zuraidah Ali)

POWER & DUTIES OF POWER & DUTIES OF TRUSTEETRUSTEE


LEARNING OBJECTIVESLEARNING OBJECTIVES

Students will be able to know;Students will be able to know;1)1) What are power and dutiesWhat are power and duties2)2) Power to sell trust propertyPower to sell trust property3)3) Power to insure.Power to insure.4)4) Power to compound liabilitesPower to compound liabilites5)5) Power to maintenance and advancementPower to maintenance and advancement6)6) Duty to protect trust assets : investmentDuty to protect trust assets : investment7)7) Duties towards beneficiaries.Duties towards beneficiaries.8)8) Duty to distribute.Duty to distribute.


IntroductionIntroduction

Equity equips trustees with;Equity equips trustees with; i) numbers of powersi) numbers of powers ii) imposes a range of duties.ii) imposes a range of duties. All these may be modified or excluded by All these may be modified or excluded by

express terms in the instrument.express terms in the instrument. Need to know the differences between trust Need to know the differences between trust

and power as similar distinction exists relating and power as similar distinction exists relating to duties and power of trustee.to duties and power of trustee.


The general principle:The general principle: Trustees have discretion as to whether or not they Trustees have discretion as to whether or not they

will exercise a power.will exercise a power. If after a proper consideration they decide on good If after a proper consideration they decide on good

faith not to exercise, beneficiaries will not be allowed faith not to exercise, beneficiaries will not be allowed to complain.to complain.

Duties and powers vary according to the character of Duties and powers vary according to the character of the trust.the trust.

Some kinds of power are in principle widely available Some kinds of power are in principle widely available to trustee – most are now statutory and serve to to trustee – most are now statutory and serve to facilitate the management of trust.facilitate the management of trust.


PowerPower

Trustee is under an obligation to invest the Trustee is under an obligation to invest the funds in authorised securities according to the funds in authorised securities according to the powers given by the trustee instruments or powers given by the trustee instruments or under the Trustee Act under the Trustee Act

Other power; Other power;

- sale of trust propertysale of trust property

-provision for infant beneficiaries-provision for infant beneficiaries

-power of appointment-power of appointment


DutiesDuties Certain fundamental duties arising from fiduciary nature of Certain fundamental duties arising from fiduciary nature of

trustee, eg; duty of loyalty & duty not to make personal profit trustee, eg; duty of loyalty & duty not to make personal profit out of trust property.out of trust property.

Duties may also be modified by the trust instrumentDuties may also be modified by the trust instrument Other type of duties;Other type of duties;- Duty to maintain custody of documents titleDuty to maintain custody of documents title- Duty to investDuty to invest- Duties towards beneficiariesDuties towards beneficiaries- Duty to provide informationDuty to provide information- Duty to maintain equality between beneficiaries,Duty to maintain equality between beneficiaries,- Duty to make proper distribution.Duty to make proper distribution.


Sale of Trust propertySale of Trust property

Power to sell some or all trust property is Power to sell some or all trust property is usually given by the trust instrument .usually given by the trust instrument .

In exercising their power of sale, trustee duty In exercising their power of sale, trustee duty is obtain the best price on behalf of is obtain the best price on behalf of beneficiariesbeneficiaries

Fry v Fry (185() 28 LJ Ch 591Fry v Fry (185() 28 LJ Ch 591 The executors/trustees were liable to make up, The executors/trustees were liable to make up,

out of their own pocket money, the difference out of their own pocket money, the difference between selling price and the offer of between selling price and the offer of £900.£900.


Section 16 of Trustee Act 1049. Section 16 of Trustee Act 1049. Power of trustees for sale to sell by auction, etc.Power of trustees for sale to sell by auction, etc.

(1) Where a trust for sale or a power of sale of property is (1) Where a trust for sale or a power of sale of property is vested in a vested in a trusteetrustee, he may sell or concur with any other , he may sell or concur with any other person in selling all or any part of the property, either subject person in selling all or any part of the property, either subject to prior charges or not, and either together or in lots, to prior charges or not, and either together or in lots, by public by public auction or by private contractauction or by private contract, subject to any such conditions , subject to any such conditions respecting title or evidence of title or other matter as the respecting title or evidence of title or other matter as the trusteetrustee thinks fit, with power to vary any contract for sale, or thinks fit, with power to vary any contract for sale, or to rescind any contract for sale and to resell, without being to rescind any contract for sale and to resell, without being answerable for any loss.answerable for any loss.

(2) A trust or power to sell or dispose of land includes a trust (2) A trust or power to sell or dispose of land includes a trust or power to sell or dispose of part thereof, whether the division or power to sell or dispose of part thereof, whether the division is horizontal, vertical, or made in any other way.is horizontal, vertical, or made in any other way.


s17. of Trustee Act 1949.s17. of Trustee Act 1949. Power to sell subject to depreciatory conditions. Power to sell subject to depreciatory conditions.

(1) No sale made by a (1) No sale made by a trusteetrustee shall be impeached by any beneficiary upon shall be impeached by any beneficiary upon the ground that any of the conditions subject to which the sale was made the ground that any of the conditions subject to which the sale was made may have been unnecessarily depreciatory, unless it also appears that the may have been unnecessarily depreciatory, unless it also appears that the consideration for the sale was thereby rendered inadequate.consideration for the sale was thereby rendered inadequate.

(2) No sale made by a (2) No sale made by a trusteetrustee shall, after the execution of the conveyance, shall, after the execution of the conveyance, be impeached as against the purchaser upon the ground that any of the be impeached as against the purchaser upon the ground that any of the conditions subject to which the sale was made may have been conditions subject to which the sale was made may have been unnecessarily depreciatory, unless it appears that the purchaser was acting unnecessarily depreciatory, unless it appears that the purchaser was acting in collusion with the in collusion with the trusteetrustee at the time when the contract for sale was at the time when the contract for sale was made.made.

(3) No purchaser, upon any sale made by a (3) No purchaser, upon any sale made by a trusteetrustee, shall be at liberty to , shall be at liberty to make any objection against the title upon any of the grounds aforesaid.make any objection against the title upon any of the grounds aforesaid.

(4) This section applies to sales made before or after the commencement of (4) This section applies to sales made before or after the commencement of this this ActAct..


Power to InsurePower to Insure

Trustees are under no duty to insure the trust Trustees are under no duty to insure the trust property.property.

They will not be liable for failure to insure if They will not be liable for failure to insure if subsequent damage or loss occurs.subsequent damage or loss occurs.

Unless the power to insure is stated in any Unless the power to insure is stated in any express provision in the trust instrument.express provision in the trust instrument.


S24 of the Trustee Act 1949.S24 of the Trustee Act 1949. Power to insure. Power to insure.

(1) A (1) A trusteetrustee may insure against loss or damage by fire any may insure against loss or damage by fire any building or other insurable property to any amount, including building or other insurable property to any amount, including the amount of any insurance already on foot, up to the full the amount of any insurance already on foot, up to the full value of the building or property, and pay the premiums for value of the building or property, and pay the premiums for the insurance out of the income thereof or out of the income of the insurance out of the income thereof or out of the income of any other property subject to the same trusts without obtaining any other property subject to the same trusts without obtaining the consent of any person who may be entitled wholly or the consent of any person who may be entitled wholly or partly to the income.partly to the income.

(2) This section does not apply to any building or property (2) This section does not apply to any building or property which a which a trusteetrustee is bound forthwith to convey absolutely to any is bound forthwith to convey absolutely to any beneficiary upon being requested to do so.beneficiary upon being requested to do so.


Power to compound liabilitesPower to compound liabilites

A trustee is a legal owner.A trustee is a legal owner. A trustee has the right to maintain an action A trustee has the right to maintain an action

with regards to the trust property.with regards to the trust property. In the case of a legal claim, only the trustee In the case of a legal claim, only the trustee

will be able to suewill be able to sue In pursuit of legal claims trustee need to use its In pursuit of legal claims trustee need to use its

discretion : litigation is a risky businessdiscretion : litigation is a risky business Section 19 of the Trustee Act 1949.Section 19 of the Trustee Act 1949.


Power of Maintainance and Power of Maintainance and AdvancementAdvancement

Very appropriate to family type-investmentVery appropriate to family type-investment The object is usually meant for infant The object is usually meant for infant

beneficiaries (under 18) who are not yet beneficiaries (under 18) who are not yet entitled to income or capital BUT require entitled to income or capital BUT require financial support during their minorityfinancial support during their minority

Payment by way of maintenance are payments Payment by way of maintenance are payments out of income for necessities. Eg : educationout of income for necessities. Eg : education

Payment by way of advancement are sums Payment by way of advancement are sums advanced from the capitaladvanced from the capital


PART III of the Trustee Act 1949 deals withPART III of the Trustee Act 1949 deals with General powers of trustees and personal General powers of trustees and personal

representatives, maintenance, advancement representatives, maintenance, advancement and protective trusts.and protective trusts.

Section 36. Power to apply income for Section 36. Power to apply income for maintenance and to accumulate surplus maintenance and to accumulate surplus income during a minority .income during a minority .

Section 37 : Power of AdvancementSection 37 : Power of Advancement Permits the trustee to pay capital sums to Permits the trustee to pay capital sums to

beneficiary some time before he is entitled to beneficiary some time before he is entitled to claim : for the advancement and benefit of claim : for the advancement and benefit of beneficiarybeneficiary


Trustee and the investment of trust Trustee and the investment of trust funds in authorised investmentfunds in authorised investment

A trustee is under a duty to invest trust money A trustee is under a duty to invest trust money in his handsin his hands

To invest : to employ money in purchase of To invest : to employ money in purchase of anything from which interest or profit is anything from which interest or profit is expected.expected.


Matters to be considered in investing Matters to be considered in investing trust propertytrust property

The interest of life tenantThe interest of life tenant To act fairly between beneficiariesTo act fairly between beneficiaries Investments must produce income and Investments must produce income and

maintain capitalmaintain capital


Power to invest.Power to invest.

1) Trust instrument : incorporates wide power 1) Trust instrument : incorporates wide power of investmentof investment

2) Statutory Provisions : 2) Statutory Provisions : - range of investments is very restrictive- range of investments is very restrictive - Section 4 – 15 of the TA- Section 4 – 15 of the TA 3) By the court3) By the court


Although investment is considered as power but the Although investment is considered as power but the duty lies upon the trustee to continue protecting the duty lies upon the trustee to continue protecting the trust assets i.e through investment.trust assets i.e through investment.

Gen principle : Once assets are in, they must be Gen principle : Once assets are in, they must be protected and an important aspect is the selection of protected and an important aspect is the selection of proper investment.proper investment.

Divided to two:Divided to two:a)a) Trustee have a general duty to act fairly as between Trustee have a general duty to act fairly as between

beneficiaries beneficiaries b)b) Limitations on the making of risky investmentLimitations on the making of risky investment


i) Failure to invest amount to i) Failure to invest amount to breach of trustbreach of trust

Amounts to Breach of TrustAmounts to Breach of Trust Cases : Cases : 1) 1) Tan Soo Lock v Tan Ger Choo (1930 ) Tan Soo Lock v Tan Ger Choo (1930 )

SSLR 109SSLR 109 : It is a breach of trust to leave trust : It is a breach of trust to leave trust fund lying and was not invested.fund lying and was not invested.

2) 2) In Re Tan Tye Deceased (1963) 29 MLJ In Re Tan Tye Deceased (1963) 29 MLJ 373373 : The trustee fixed the trust fund in the : The trustee fixed the trust fund in the bank account. It is a breach of trustbank account. It is a breach of trust


ii) Discretion in matter of ii) Discretion in matter of investmentinvestment

Trustee can choose where to invest.Trustee can choose where to invest. They have to exercise the discretion as They have to exercise the discretion as “ “ an ordinary prudent man of business would an ordinary prudent man of business would

take in managing single affairs on its own. But take in managing single affairs on its own. But he can not choose speculative invstmenthe can not choose speculative invstment


Speight v Gaunt (1993) 9 AC 1Speight v Gaunt (1993) 9 AC 1 Act honestlyAct honestly Must take into account while managing the Must take into account while managing the

affairs ;affairs ; “ “ all those precautions which an ordinary all those precautions which an ordinary

prudence man of business would take in prudence man of business would take in managing similar affairs of businessmanaging similar affairs of business


Followed by Bartlett v Barclays bank Trust Followed by Bartlett v Barclays bank Trust Co Ltd (1980 ) Ch 515Co Ltd (1980 ) Ch 515

Bank is the trusteeBank is the trustee Beneficiaries : the settlor’s family and issueBeneficiaries : the settlor’s family and issue Bank on the advise of the merchant bankers Bank on the advise of the merchant bankers

invested into two projects : one was sucessful invested into two projects : one was sucessful and the other was not.and the other was not.

Held :Bank was liableHeld :Bank was liable


The bank as trustee was bound to act in The bank as trustee was bound to act in relation to the shares and to the controlling relation to the shares and to the controlling position which they conferred in the same position which they conferred in the same manner as a prudent man of business.manner as a prudent man of business.


2 ways:2 ways: If facts come to his knowledge which tell him If facts come to his knowledge which tell him

the company’s affairs are not conducted as the company’s affairs are not conducted as they should be, he will take appropriate actionthey should be, he will take appropriate action

What the prudent man of business will not do What the prudent man of business will not do is to content himself with the receipt of such is to content himself with the receipt of such information on the affairs of the company as a information on the affairs of the company as a shareholder ordinarily receives at annual shareholder ordinarily receives at annual meetingmeeting


Re Whitely (1886) 33 Ch. D 347Re Whitely (1886) 33 Ch. D 347 Lindley LJ : the standard required of a trustee in Lindley LJ : the standard required of a trustee in

exercising his power of investment is that he must “ exercising his power of investment is that he must “ take such care as an ordinary prudent man would take take such care as an ordinary prudent man would take if he were minded to make an investment for the if he were minded to make an investment for the benefit of other people for whom he felt morally benefit of other people for whom he felt morally bound to provide.”bound to provide.”


iii) Trustee’s personal views and iii) Trustee’s personal views and investmentinvestment

Trustee may have a strong health, social and Trustee may have a strong health, social and political view.political view.

What is important is the interest of the trust What is important is the interest of the trust property and beneficiaries. property and beneficiaries.

Trustee will have to invest although Trustee will have to invest although investment may contradict his personal viewsinvestment may contradict his personal views


COWAN V SCARGILL (1985) CH 270COWAN V SCARGILL (1985) CH 270 Megarry VC : they must exercise their powers in the Megarry VC : they must exercise their powers in the

best interest of present and future beneficiaries.best interest of present and future beneficiaries. If the purpose of the trust was the provision of If the purpose of the trust was the provision of

financial benefit, the best interest of the beneficiaries financial benefit, the best interest of the beneficiaries normally meant their best financial interest. The normally meant their best financial interest. The duties to the beneficiaries was paramount. The trustee duties to the beneficiaries was paramount. The trustee must exercise their powers so as to yield the best must exercise their powers so as to yield the best return, putting aside personal interest and social and return, putting aside personal interest and social and political viewspolitical views


DUTIES OF TRUSTEE AS DUTIES OF TRUSTEE AS FIDUCIARYFIDUCIARY

Not to take renumeration as trustee-directorNot to take renumeration as trustee-director Not to purchase trust propertyNot to purchase trust property Not to compete with trustNot to compete with trust


Duties towards beneficiaries.Duties towards beneficiaries.

1)1) Duty to maintain equalityDuty to maintain equality

2)2) Duty to render account and informationDuty to render account and information

3)3) Duty to distributeDuty to distribute


DUTY TO MAINTAIN EQUALITY DUTY TO MAINTAIN EQUALITY BETWEEN BENEFICIARIESBETWEEN BENEFICIARIES

There are 2 sets of beneficiaries:There are 2 sets of beneficiaries: 1) life tenant1) life tenant 2) remainderman : those who inherit after the 2) remainderman : those who inherit after the

death of tenant for lifedeath of tenant for life Need to strike a balance between the provision Need to strike a balance between the provision

of income for the life tenant and preservation of income for the life tenant and preservation of capital for the remainderman.of capital for the remainderman.


Tenant for life takes all the incomeTenant for life takes all the income The remainderman’s interest is in the capital.The remainderman’s interest is in the capital. So long as those rules are observed, a trustee is So long as those rules are observed, a trustee is

usually under no duty to rearrange investment usually under no duty to rearrange investment – to balance equality.– to balance equality.

If not, they the trustee will have the duty to If not, they the trustee will have the duty to convert or reinvest in authorised investments convert or reinvest in authorised investments depends on the terms of the trust.depends on the terms of the trust.


HOWE V EARL OF WARMONTH (1802) 7 HOWE V EARL OF WARMONTH (1802) 7 VES JR. 137.VES JR. 137.

The rule is that the direct conversion of an The rule is that the direct conversion of an asset to take place where there is no direction asset to take place where there is no direction in trust instrument.in trust instrument.

Need to follow certain conditions;Need to follow certain conditions;a)a) Trust must be created by willTrust must be created by willb)b) There must be at least two beneficiaries are There must be at least two beneficiaries are

entitled to successionentitled to succession


3) Property consist of residuary personalty3) Property consist of residuary personalty 4) The assets are vesting revisionary or of an 4) The assets are vesting revisionary or of an

unauthorised characterunauthorised character There is no contrary intention in the will.There is no contrary intention in the will.


In other words trustee should convert all parts In other words trustee should convert all parts of trust which consist of future revisionary of trust which consist of future revisionary nature or unauthorised securities into nature or unauthorised securities into authorised investments,authorised investments,


DUTY TO RENDER ACCOUNT DUTY TO RENDER ACCOUNT AND INFORMATIONAND INFORMATION

Account :Account : The trustee must keep accounts and be The trustee must keep accounts and be

constantly ready to produce them for the constantly ready to produce them for the beneficiariesbeneficiaries

Information :Information : Beneficiary are entitled to be informed about Beneficiary are entitled to be informed about

matters currently affecting the trust.matters currently affecting the trust.


Halsbury’s Laws of Malaysia Halsbury’s Laws of Malaysia Vol 5 at p 720:Vol 5 at p 720:

““A trustee must furnish to a beneficiary, or to a person A trustee must furnish to a beneficiary, or to a person authorised by him, on demand, information or the means of authorised by him, on demand, information or the means of obtaining information as to the mode in which the trust obtaining information as to the mode in which the trust property or his share in it has been invested or otherwise dealt property or his share in it has been invested or otherwise dealt with, and as to where it is and full accounts respecting it, with, and as to where it is and full accounts respecting it, whether the beneficiary has a present interest in the trust whether the beneficiary has a present interest in the trust property or only a contingent interest in remainder, or is only property or only a contingent interest in remainder, or is only an object of a discretionary trust. If the trustee neglects or fails an object of a discretionary trust. If the trustee neglects or fails to do so, he is liable for the costs of proceedings to compel to do so, he is liable for the costs of proceedings to compel production of information or accounts. He must also allow a production of information or accounts. He must also allow a beneficiary to inspect the trust accounts and all documents beneficiary to inspect the trust accounts and all documents relating to the trust, and has a duty to explain to a beneficiary relating to the trust, and has a duty to explain to a beneficiary what his rights are.” (Quoted in the case of what his rights are.” (Quoted in the case of DR CHAN CHIN DR CHAN CHIN CHEUNG PLAINTIFF v CHAN CHAK CHEUNG and others[2005] 2 CHEUNG PLAINTIFF v CHAN CHAK CHEUNG and others[2005] 2 CLJ 405 )CLJ 405 )


Unclear as to disclosureUnclear as to disclosure

RE LONDONERY’S SETTLEMENT [1965] RE LONDONERY’S SETTLEMENT [1965] Ch 918Ch 918

Trustees bought a summons to determine the Trustees bought a summons to determine the nature and extent of their duties in relation to nature and extent of their duties in relation to disclosures.disclosures.

COA defined what kind of trust documents COA defined what kind of trust documents that a beneficiary had a right to see.that a beneficiary had a right to see.


Salmon LJ : The categories of trust document Salmon LJ : The categories of trust document could not be defined. They have however could not be defined. They have however these characteristic in common.these characteristic in common.

1) They are documents in the possession of the 1) They are documents in the possession of the trustees as trusteetrustees as trustee

2) Contain information about the trust which 2) Contain information about the trust which the beneficiaries are entitled to knowthe beneficiaries are entitled to know

3) Beneficiary have a proprietary interest in 3) Beneficiary have a proprietary interest in the documents and accordingly are entitled to the documents and accordingly are entitled to see them.see them.


““If any parts of a document contain If any parts of a document contain information which beneficiaries are not information which beneficiaries are not entitled to know, I doubt whether such part can entitled to know, I doubt whether such part can be truly said to be integral part of a trust be truly said to be integral part of a trust document.”document.”


DUTY TO DISTRIBUTEDUTY TO DISTRIBUTE

Failure to distribute is a Breach of TrustFailure to distribute is a Breach of Trust If the trustee made payment to person not If the trustee made payment to person not

entitled, the beneficiary can take action to entitled, the beneficiary can take action to recover the payment backrecover the payment back

The only limitation in the case is as regards to The only limitation in the case is as regards to bona fide purchaser for value without notice : bona fide purchaser for value without notice : Ministry of Health v Simpson [1951] AC 251Ministry of Health v Simpson [1951] AC 251


If the trustee is not clear on his duty the trustee If the trustee is not clear on his duty the trustee may may

1) Seek direction from the court1) Seek direction from the court 2)Made payment to the Court2)Made payment to the Court 3)Benjamin Orders3)Benjamin Orders 4) Advertisement.4) Advertisement.


BENJAMIN ORDERSBENJAMIN ORDERS

Taken from the case of In Re Benjamin [1902] Taken from the case of In Re Benjamin [1902] 723723

The court has power to authorise distribution The court has power to authorise distribution of the whole of assets although not all of the whole of assets although not all beneficiaries or creditors have made beneficiaries or creditors have made themselves known so as to be able themselves known so as to be able

A typical situation is where the whereabouts of A typical situation is where the whereabouts of certain beneficiary is not knowncertain beneficiary is not known

The procedure is known as Benjamin OrderThe procedure is known as Benjamin Order


RE GREEN’S WILL TRUST [1985] 3 All ER RE GREEN’S WILL TRUST [1985] 3 All ER 455455

Testatrix left her property to her son provided Testatrix left her property to her son provided that it should go to charity if he did not that it should go to charity if he did not claim.The son had disappeared on a bombing claim.The son had disappeared on a bombing raid in 1943 but the mum believed that he was raid in 1943 but the mum believed that he was not dead.not dead.

Benjamin order was made.Benjamin order was made.


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Section 32 of the Trustee ActSection 32 of the Trustee Act To protect themselves form BOT failure to To protect themselves form BOT failure to

distribute.distribute. Trustee(s) may advertise in the Gazette and Trustee(s) may advertise in the Gazette and

other notices including notices outside other notices including notices outside Malaysia.Malaysia.

Those who are interested should make their Those who are interested should make their claim and he should be given 2 months to send claim and he should be given 2 months to send in their particulars.in their particulars.