administration and trust - duties

DUTIES OF
TRUSTEES

LAW556

norliza abdul hamid/october 2012 1

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.


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.”


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.


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]


• 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.


(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.


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.


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.


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.

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.

• 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.


• 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)


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.
•

• 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.

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.


• 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.”


• 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’ decisions
eg in relation to the exercise of trustee’s discretions.


• 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.


• 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.”


(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.”


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.”

• 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.


• CA Held : A trustee is obliged to render accounts of the trust
property to a beneficiary. In this regard reference is made to
Halsbury's 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."


• And at p 855:
• "One of the remedies available against the
personal representative of a deceased person for
those seeking information about the deceased
person's 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."


• 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,…”


• 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

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


• 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].”


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.”


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.”


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.”

• 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.”


(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.”


(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


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.


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.


• 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.


The End


administration and trust - duties

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