Chapter 2 Duties and Powers of Trustee PDF

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Summary

Duties and powers of trustees 3. Duty to invest (i) express power (iii)lending money on security of property (ii) statutory range (iv) liability for loss(i) Express power to invest S. 2(2) of Trustee Act states the powers conferred by the Act is in addition to the trust instrument (will/ trust deed)...

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Duties and powers of trustees 3. Duty to invest (i) express power

(iii)lending

money

(ii) statutory range

(iv) liability for loss

on

security

of

property

(i) Express power to invest S. 2(2) of Trustee Act states the powers conferred by the Act is in addition to the trust instrument (will/ trust deed). It will be apply if it does not contravene the intention of instrument (express power). In the case of Re Hastings, the court may interfere when the trustee exercise power on mala fide or take into account irrelevant factor/ fail to take into account relevant factor. Similarly in Re Tan Tye, trustee has the duty to invest the trust funds in investment authorized by the instrument/ legislation or court. In Re Whiteley, in exercising power to invest, trustee has the duty to take reasonable care as an ordinary man would take if he were to make investment for the benefit of other people whom he is morally bound to provide. Thus, trustee has a duty to confine himself to investment which are permitted and avoid investment which are risky. In the case of Cowan v Scargill, duty of trustee may include duty to seek appropriate advice. Merely acting in good faith is not sufficient. In the case of Lee Tak Suan v Tunku Dato’ Seri Shahabudin bin Tunku Besar Barhanuddin & Ors , some members of the club were alleged to have made a huge investment without due diligence. They argued that advice had been obtained from an independent financial adviser and they were assisted by the club's administration manager who has financial experience. The court held that the committee had not breach its fiduciary duty by acting prudently in investing the fund. In Barlett v Barclays Bank Trust Co Ltd (No 2), higher standard from professional trustees is required.

(ii) Statutory range -

s. 4 - 15

*Re Wragg, investment means purchase of anything which profit is expected. In Re Power's Will Trusts, power to invest in property for the occupation of beneficiary is not authorized. Investments should produce income. In Re Harari's Settlement Trusts, trustee has the power to invest in any investment which they honestly think necessary. In Khoo Tek Keong v Ch’ng Joo Tuan

Neoh

Trustees were authorised to invest in investments which they think fit. They made a loan and charged interest on the security of jewelry and other loan without any security. The first loan was proper but the second was not. A clause giving the trustee an absolute discretion to choose such investments as he thought fit did not entitle him to make an unsecured personal loan.

-

s. 4 - list that can invest (land, buildings, loan...)

-

s. 5 - further power of investment

-

s.

6

s.

6(2),

(3)

s.

6(5)

-

-

duty

of

seek

advice

must

have

trustee from

expert

writing

from

to

choose

in

investment

expert

(use

investment. before as

investing DEFENCE)

s. 6(6) - (5) does not apply if the person giving advice is the co-trustee -

s. 9 - power to invest under s. 4 & 8 shall be exercised according to discretion of trustee subject to direction in instrument/ law

-

s. 12 - trustee will not be liable for lending money on security of property if he comply with (1)(a) s.

12(1)(a)

-

act

upon

report

on

the

(c) value

of

property

by

surveyor

s. 12(1)(b) - amount of loan does not exceed 2/3 of the value in report s. 12(1)(c) - loan was made under the advice of surveyor

Is valuer necessary or trustee can exercise in his reasonable belief? In the case of Re Walker, the valuer to have been as a matter of fact employed independently of the owner. In Re Solomon and *Re Somerset, a reasonable belief on the part of the trustees would be adequate. s. 13 of Trustees Act states that if trustee improperly advances excess trust money than the actual amount for investment, he has to pay back the excess amount with interest. In Shaw v Cates, the funds were to be over-secured by an asset worth half of the funds invested. The court held that trustees should make good the loss sustained on a trust investment.

Lending money on security of property (supplementary power) s. 14(1) governs the trustee’s right to lend money on security of property. Basically, trustee can lend money under S.12 to 3rd party (Chargor) to invest. Trustee may within 5 years does not call back the capital but ask for interest provided that chargor should not breach any clause regarding

maintenance & protection of property. S. 14(2) states the trustee can charge the land. The property charged by chargor must have insurance.

Enlargement power by court S 59(1) states the management of property by trustee in the court opinion is expedient, but cannot be done because of the absence of power in instrument, court may grant additional power. In Lee Brothers Plantations & Realty (M) Sdn Bhd v Lee Yeow Teng, the court held that the lands were held on trust for the beneficiary. Trustee did not obtain a Court order to sell the trust properties nor is there a consent by the beneficiary. It is clearly a breach of trust. Plaintiff could not remove the caveat.

S.59(2) states that the court may allow trustee to make investment on immovable property, auction land, raise fund for the improvement of land or houses. In the case of Re Syed Hashim Bin Kassim, houses which are trust property were not occupied by the beneficiaries. Houses are rented to strangers and the rental are distributed by the trustees in accordance with the terms of the trust. Municipal Commissioners require mandatory installations of sanitary appliances. The court held that installations of sanitary appliances are permanent improvement and expenses used are payable by capital money. Any expenditure is to increase the capital value of the trust property then that expenditure is a capital charge.

Remainderman Person who inherits or is entitled to inherit property upon the termination of the estate of the former owner. -

Ex: A

Property =

life

is

to

tenant

A ->

for

life,

entitle

and for

residue capital

to and

B. income

B = remainderman -> only income In the case of Wilkie v Allington, ordinarily recurring repairs which more towards the enjoyment of the tenant for life and which last only for a short time -> paid by income structural repairs are very great -> paid by capital remainderman)

(advantage obtained will benefit the

Duty to convert -

apply together with duty of apportion

-

Ex: house convert into money (liquidation), use money to invest in other property

*Nestle

v

Westminster

Bank

The claimant said that the defendant bank as trustee of her late father’s estate had been negligent in its investment of trust assets. HELD: claimant had failed to establish either a breach of trust or any loss arising from it. trustee must act fairly in making investment decisions which may have different consequences for different classes of beneficiaries. For the purposes of ensuring that a degree of fairness is maintained, the law has established a set of rules related to the duty of trustees to convert and to apportion. *rule applies (1)

in to

gift

by

will

wasting,

(2) -

Howe of

hazardous

properties not

-

applied

to

subject

v

residuary.

Trustee

and

is

instrument

to

statute

required

unauthorised

yielding intervivo

Dartmouth to

investments

no (during

income

lifetime

&

sell

of

settlor)

instrument

Ex: abandoned house (trust property). In will stated house is to be used for charity purpose =>cant -

after

convert disposal

of

asset,

trustee

may

use

it

for

investment

6. Duty to apportion -

if there is no duty to convert (cant fulfil rule in Howe), no need for apportionment of income

-

life tenant is entitled to all the income and the remainderman's interest is the capital

-

divide according to portion (capital & income). life tenant receive capital + income

7. Duty to distribute How to distribute: 

Directly give to beneficiary (if can be identified & contacted)



Serve notice to beneficiary last address (if can't be reached then advertise)



Advertisement -

s. 32

-

once complied with s.32 = trustee is protected

*Re

Aldhous

no beneficiary responded to the advertisement. The executor paid the estate money to the Crown HELD: beneficiary was protected by s.27 English Trustee Act in respect to the proceeding brought by next of kin 

s. 27 = s. 32 of our Trustee Act

Benjamin order -

trustee may know the identity of beneficiary but not the location

-

order is made to allow the distribution of asset even if not all the beneficiaries are known

-

court must satisfied that all inquiries had been done (notice, advertise)

8. Duty to provide accounts and information -

s. 27(4) - trustee may from time to time provide account to beneficiary. If beneficiary does not ask for it, at least once in a year provide it to beneficiary

9. Right to inspect document -

provide relevant document according to the nature of power of beneficiary

-

Ex: income beneficiary (life tenant) are entitle to examine full set of account; capital beneficiary (remainderman) can only check on capital account

In Re Londonderry's Settlement, a beneficiary did not like the small sums proposed to be distributed to her. She wanted information about the reasons for the decision. The trustees exercising a discretionary power are not bound to disclose to their beneficiaries. They are only bound to reveal trust documents. Trust documents has common characteristics: (1) document in possession of trustees; (2) contain information about the trust which beneficiaries entitled to know; (3) beneficiaries has personal interest in the document and entitled to see them. In Schmidt v Rosewood Trust Ltd, personal interest is not necessary. Inspection is an aspect of court's supervisory control over administration

of trust. In Re Fairbairn, the plaintiff was a beneficiary of trusts. The will gives discretion to trustee to divide the residue into 3 parts. The plaintiff was a life tenant sought to inspect books of accounts and financial records of the testator. The court held that the beneficiary is entitled to inspect any property forming part of the deceased's estate in which he was beneficially interested. In Hartigan Nominees Pty Ltd, beneficiaries are prohibited from having access to a trust document if the provision in the instrument expressly/ implied stated/ on account of confidentiality (settlor communicate to trustee not to tell beneficiary) - to pay/ not to pay income to beneficiary? *Re

Gulbenkian's

Settlement

Trusts

trustee are given absolute discretion. As long as they decide in good faith not to give income to any beneficiary, court cannot interfere. If trustee decide to give all income, court cannot review their decision Ex: House is to give to A when he reach 25years old. House rented out (investment) Rental receive before 25years old can pay to A partly/ all at once/ not pay until 25 years old. Property pass to A when 25 years old (according to instrument)

10. Duty to act personally -

more than 1 trustee, all have to act unanimously unless stated in express provision

-

Ex: decision made according to majority decision

In Luke v South Kensington Hotel Ltd, where there is more than one trustee they must act unanimously. In case there is difficulties, on application of one or other of the trustees or a beneficiary, court may intervene.

11. Delegation of power The trustee may employ agent. This is stipulated in s. 28(1) where the trustee may employ agent and not responsible for the wrong done by agent as long as appoint in good faith. Under s. 28(3), the trustee may also appoint solicitor as agent. In s. 28(3)(a)(ii), the trustee will not be liable for breach of charge in appointing the solicitor. The trustee cannot use this provision as defence if trustee allow agent to exercise longer than reasonable time or allow agent to retain trust property. If in absence of trustee, s. 30(1) provides that the trustee not in Malaysia for more than 14days may delegate his power by power of attorney. In the case of Turner v Corney, trustees who take

on themselves the management of property for the benefit of others have no right to shift their duty on other persons: and if they employ an agent, they remain responsible to the beneficiary. In S. 30(2), donor (trustee) will be responsible for donee's (appointed trustee) wrong. In s. 35(1), trustee is only accountable for transaction he done (not done by broker, banker). In s. 35(2), the trustee shall return back the money (pay back the amount he had lost).

12. Maintenance s. 36(1) states that if beneficiary is a minor, interest can pay to his guardian/ apply towards his maintenance, education, benefit. In Wellesley v Wellesley, husband had separated from his wife and children. They had a marriage settlement. The wife died and the children were taken care by his sister. Husband wanted to recover the children. The court has the jurisdiction to allow maintenance to be paid out of the trust to minor.

13. Advancement -

s. 37 - money provide as advancement shall not exceed 10k...