administration and trust - duties


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administration and trust - duties

  1. 1. DUTIES OFTRUSTEES LAW556 norliza abdul hamid/october 2012 1
  2. 2. 1) DUTY TO ACT IN ACCORDANCE WITH TRUST DEED• The trustee must act in accordance with the terms of the trustee deed and general law.• The trust instrument may make the duties more or less strict. norliza abdul hamid/october 2012 2
  3. 3. Example• Settlor cannot exclude the duties which are the essence of a trust relationship.• Eg Settlor cannot state that the trustees do not have to provide accounts to the beneficiaries.• Armitage v Nurse [1998], the court said ‘if the beneficiaries have no rights against the trustees there are no trusts.” norliza abdul hamid/october 2012 3
  4. 4. 2) DUTY ON APPOINTMENT• Duty to familiarize himself with the terms of the trust, ie he should read and understand the provisions of the trust instrument.• Duty to ensure that all trust properties are duly and properly vested in him• Duty to act impartially between the beneficiaries, especially when there are beneficiaries with life interest (life tenant) and those with residual interest.• Duty to act unanimously / jointly.• Duty to comply with the terms of the trust. norliza abdul hamid/october 2012 4
  5. 5. 3) DUTY TO CONVERT• This is connected to trustees’ duty to be fair & impartial to all the different categories/classes of beneficiaries (life tenants and remaindeman, if any).• Refer to rule in Howe v Earl of Dartmouth [1802] norliza abdul hamid/october 2012 5
  6. 6. • Trustees are required to sell:(i) Speculative, wasting, hazardous and unauthorized investments. Eg royalties, copyright.• Assumed that these investments produce income which exceeds what a life tenant should reasonably have.• Trustees are under duty to apportion the property fairly between the beneficiaries.• Life tenant receives income from authorized investment and the balance will be added to the capital. norliza abdul hamid/october 2012 6
  7. 7. (ii) Future, reversionary and other properties which do not produce any income.• Must be sold to produce income. Proceeds will be apportioned between the life tenant and remainder man. norliza abdul hamid/october 2012 7
  8. 8. Comments• The rule in Howe v Dartmouth has limited application. Does not apply to inter vivos trust.• Rule is considered to be out-dated. Modern wills generally exclude these duties. norliza abdul hamid/october 2012 8
  9. 9. 4) DUTY TO APPORTION• When there is a duty to convert, the courts have developed rules regarding apportionment which depends on trust properties. Unless there’s specific provisions in trust instrument regarding apportioning trust properties.• If there is no duty to convert, then there’s no duty to apportion. The life tenant gets the income from trust fund, and the remainderman gets the capital.• Relevant cases:• Howe v Dartmouth• Re Earl of Chesterfield’s Trusts. norliza abdul hamid/october 2012 9
  10. 10. 5) DUTY TO DISTRIBUTE• Trustees have a duty to distribute the trust property to those entitled to receive them as provided by the trust instrument. Otherwise, if the trustees fail to properly distribute, it is a breach of trust.• Linked to this is the duty of the trustee to properly identify and determine the right beneficiaries.• In Eaves v Hickson (1861), the trustees had to make good the loss for paying the wrong person based on a forged document. norliza abdul hamid/october 2012 10
  11. 11. Protection in s.32 TA 1949• s.32(1) – trustees may give advertise of their intention to distribute. Give notice in the Gazette, and similar notices, including those outside Malaysia. In notice give time limit of not less than 2 months. If there are several notices, then not less than 2 months of last notice.• Purpose is for any person interested to send to trustees particulars of his claim in relation to the property stated in the notice. norliza abdul hamid/october 2012 11
  12. 12. • s.32(2) – When the time period is up, then trustees “may convey or distribute the property … to or among the persons entitled thereto, having regard only to the claims, …, of which the trustees …had notice…”. They then will not be liable to any person who they did not have notice at the time of distribution. Thus, trustees are protected. norliza abdul hamid/october 2012 12
  13. 13. • Re Aldhous [1955], where no beneficiaries responded to the advertisement. The executor then paid estate money to the Crown.• Held: Executor not liable.• The section shall apply, regardless of any contrary provision in the trust instrument – s.32(3) norliza abdul hamid/october 2012 13
  14. 14. See also : Benjamin Order• Re Benjamin [1902] 1 Ch 723.• Facts: David Benjamin left his residuary estate to all 12 children equally. However, a year before he died, one of his children had disappeared in France.• Held: In the absence of contrary evidence, the court presumed that Benjamin’s beneficiary had died. His share was to be allocated accordingly.• norliza abdul hamid/october 2012 14
  15. 15. • a Court Order which presumes that a beneficiary had pre-deceased the settlor. If so, trustees can then allocate trust fund as if the beneficiary has died. The order is used in cases where the beneficiaries’ whereabouts are unknown.• If he eventually turned up, then he may trace his share from the recipients. The trustees would not be liable for breach of trust when they distributed after the court order.• However, before the order is made, the court must be satisfied that all possible / reasonable inquiries have been made to locate the beneficiaries. norliza abdul hamid/october 2012 15
  16. 16. 6) DUTY TO PROVIDE INFORMATION TO BENEFICIARIES• To provide the beneficiary with complete and accurate information relating to the trust fund and also to allow them to inspect documents relating to the trust. norliza abdul hamid/october 2012 16
  17. 17. • O’Rourke v Darbishire [1920] AC 581• Lord Wrenbury: “…a beneficiary has a right of access to the documents he desires to inspect upon what has been called in the judgments in this case a proprietary right. The beneficiary is entitled to see all trust documents, because they are trust documents, and because he is a beneficiary. They are, in this sense, his own.” norliza abdul hamid/october 2012 17
  18. 18. • Exceptions:(i) The right does not extend to documents which the beneficiaries have no beneficial interest.(ii) It also does not apply to documents which belong to the trustees.(iii) It also does not apply to documents which records the reasons for the trustees’ decisionseg in relation to the exercise of trustee’s discretions. norliza abdul hamid/october 2012 18
  19. 19. • Re Marquess of Londonderry’s Settlements• Facts : Trustees were authorized to distribute the trust fund according to whatever proportion they think fit. One of the beneficiaries complained that she received too little. So she wanted to inspect all documents which would have stated the reason for the trustees to distribute that way.• Held: beneficiary was not allowed to do so. norliza abdul hamid/october 2012 19
  20. 20. • Re Gulbenkian’s Settlement Trusts (No 1) [1970] AC 508• Facts: Trustees were given discretion to pay or not pay income to certain beneficiaries.• Lord Reid: “They are given an absolute discretion. So if they decide in good faith at appropriate times to give none of the income to any of the beneficiaries the court cannot pronounce their reasons to be bad. And similarly if they decide to give some or all of the income to a particular beneficiary the court will not review their decision.” norliza abdul hamid/october 2012 20
  21. 21. (iv) Beneficiaries have no access to confidential documents• Hartigan Nominees Pty Ltd v Rydge (1992)29 NSWLR 405• Mahoney JA, “..there are documents and, no doubt, there is information which have been given to the trustee upon the basis that they be treated as confidential. It is not every aspect of confidentiality which need be, for the present purpose, examined … It is possible to envisage documents communicated to a trustee which, though the property of the trust, are confidential and for that reason should not be disclosed to beneficiaries. The settler may communicate confidential information about a beneficiary as a reason for not exercising a discretionary power in his favour; a beneficiary may communicate to the trustee information as to his assets which he desires to keep confidential; and information may be communicated in the context of personal family affairs the disclosure of which would be abrasive or distressing. As the judgments in the Re Londonderry case [1965] Ch 918 indicate, that is a proper reason for not requiring disclosure of documents of information which otherwise should be disclosed to a beneficiary.” norliza abdul hamid/october 2012 21
  22. 22. 7) DUTY TO KEEP ACCOUNT• Required to keep and maintain accurate accounts. The accounts must be made available for the beneficiaries’ inspection on demand.• Pearse v Green (1819)1 Jac & W 135.• Plummer MR said, “the first duty of an accounting party whether an agent, trustee, a receiver or an executor … to be constantly ready with his accounts.” norliza abdul hamid/october 2012 22
  23. 23. • Chan Chin Cheung v Chan Chak Cheung & Anor [2005] 1 LNS 89. Court of Appeal• Facts: The plaintiff was one of the beneficiaries of an estate. The defendants were the trustees. At all material times the defendants resided in Singapore. The plaintiff was not satisfied with the defendants conduct of the affairs of the estate. So he filed an action in the KL High Court to obtain an order for an investigative audit of the accounts of the estate. norliza abdul hamid/october 2012 23
  24. 24. • CA Held : A trustee is obliged to render accounts of the trust property to a beneficiary. In this regard reference is made to Halsburys Laws of Malaysia Vol 5 which says at p 720:-• "A trustee must furnish to a beneficiary, or to a person authorised by him, on demand, information or the means of obtaining information as to the mode in which the trust property or his share in it has been invested or otherwise dealt with, and as to where it is and full accounts respecting it, whether the beneficiary has a present interest in the trust property or only a contingent interest in remainder, or is only 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 production of information or accounts. He must also allow a beneficiary to inspect the trust accounts and all documents relating to the trust, and has a duty to explain to a beneficiary what his rights are." norliza abdul hamid/october 2012 24
  25. 25. • And at p 855:• "One of the remedies available against the personal representative of a deceased person for those seeking information about the deceased persons estate is to be supplied with an account of it. It is the imperative duty of the personal representative to keep proper accounts from the time he begins to administer the estate so as to render proper account to any beneficiary who demands the same throughout the administration of the estate." norliza abdul hamid/october 2012 25
  26. 26. • there is no duty to have the accounts audited, unless there is a specific requirement under the trust instrument.• However, s.27(4) states:• “Trustees may, in their absolute discretion, from time to time, but not more than once in every year unless the nature of the trust or any special dealings with the trust property make a more frequent exercise of the right reasonable, cause the accounts of the trust property to be examined or audited by an independent accountant,…” norliza abdul hamid/october 2012 26
  27. 27. • When fulfilling this duty, trustees may appoint an agent.• Wroe v Seed• Held: A trustee who was illiterate and therefore could not keep accounts himself was justified in employing an agent to keep the accounts.•• See s.28 TA 1949 – which states that as long as the act of employing the agent is done in good faith, then the trustees will not be liable for breach of duty norliza abdul hamid/october 2012 27
  28. 28. 8) NON-DELEGATION OF DUTIES• The general rule is that a trustee cannot delegate his duties relating to the management of the trust to another person.• Maxim: delegates non potest delegare norliza abdul hamid/october 2012 28
  29. 29. • Lord Westbury in Robson v Flight (1865)• “such trust and powers are supposed to have been committed by the [settlor] to the trustees he appoints by reason of his personal confidence in their discretion, and it would be wrong to permit them to be exercised by [another].” norliza abdul hamid/october 2012 29
  30. 30. Exceptions:• Lord Radcliffe in Pilkington v IRC [1964]• “the law is not that trustees cannot delegate; it is that trustees cannot delegate unless they have authority to do so.” norliza abdul hamid/october 2012 30
  31. 31. i) Delegation under s.28(1) TA 1949.• ie, delegation is allowed where to do any act or transaction in executing the trust ,• eg receipt and payment of money.• If so, the agent can be paid for his charges & expenses incurred.• If the trustee did employ an agent to act for him, then the trustee is still liable to the beneficiaries.• Eg If the agent failed to perform his task and breached his duty as agent.• Unless, trustees acted in good faith – see s.28(1)“ and shall not be responsible for the default of any such agent if employed in good faith.” norliza abdul hamid/october 2012 31
  32. 32. In Re Vickery [1931], the court said:(i) delegation is allowed regardless of whether “there is any real necessity for the employment”(ii) trustee should use his discretion when choosing an agent.(iii) agent should be employed only to do acts within the scope of the usual business of the agent.(iv) if any loss occur due to the employment of agent, the trustee will not be liable “unless he has been guilty of wilful misconduct.” The court referred to Re City Equitable Fire Insurance Co [1925] and said that wilful conduct means “either a consciousness of negligence or a breach of duty, or a recklessness in the performance of a duty.” norliza abdul hamid/october 2012 32
  33. 33. • Courts have accepted that delegation may be necessary for commercial practicality.• Learoyd v Whiteley (1887)• per Lord Watson “...whilst trustees cannot delegate the execution of the trust, they may ... avail themselves of the service of others wherever such employment is according to the usual course of business.” norliza abdul hamid/october 2012 33
  34. 34. (ii) Delegation under s.28(2)• Trustee may appoint agent to sell, convert, collect, manage or administer any movable/immovable property outside Malaysia.• “…and shall not, by reason only of their having made such appointment, be responsible for any loss arising thereby.” norliza abdul hamid/october 2012 34
  35. 35. (iii) Delegation under s.28(3)(a)(i)• Trustee may appoint a solicitor as his agent eg to receive/give discharge any money/property on behalf of the trustee norliza abdul hamid/october 2012 35
  36. 36. iv) Delegation under s.28(3)(a)(iii)• Trustee may appoint a banker/solicitor as agent to receive/give discharge for any money payable to trustee under an insurance policy. norliza abdul hamid/october 2012 36
  37. 37. v) Delegation under s.30(1)• where trustee intends to be out of Malaysia for more than 14 days, he may delegate his power and discretion as a trustee to any person. By power of attorney.• s.30(3) – effective when trustee is out of Malaysia and revoked on his return/entry to Malaysia.• s.30(9) – valid for not longer than 3 years. norliza abdul hamid/october 2012 37
  38. 38. • NOTE:• Even when delegation is allowed, the trustee can still be liable if he failed to exercise reasonable care in choosing, appointing and supervising the agent. If he failed to properly supervise the agent in performing his duty, he can still be held liable – Re Briers (1884) 26 Ch D 238. norliza abdul hamid/october 2012 38
  39. 39. The Endnorliza abdul hamid/october 2012 39