Power and Duties of Trustee

05/14/1405/14/14 Equity & Trust II (Dr. Zuraidah Ali)Equity & Trust II (Dr. Zuraidah Ali)
POWER & DUTIES OFPOWER & DUTIES OF
TRUSTEETRUSTEE

05/14/14 Equity & Trust II (Dr. Zuraidah Ali)
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 duties
2)2) Power to sell trust propertyPower to sell trust property
3)3) Power to insure.Power to insure.
4)4) Power to compound liabilitesPower to compound liabilites
5)5) Power to maintenance and advancementPower to maintenance and advancement
6)6) Duty to protect trust assets : investmentDuty to protect trust assets : investment
7)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 byAll these may be modified or excluded by
express terms in the instrument.express terms in the instrument.
 Need to know the differences between trustNeed to know the differences between trust
and power as similar distinction exists relatingand 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 theyTrustees have discretion as to whether or not they
will exercise a power.will exercise a power.
 If after a proper consideration they decide on goodIf after a proper consideration they decide on good
faith not to exercise, beneficiaries will not be allowedfaith not to exercise, beneficiaries will not be allowed
to complain.to complain.
 Duties and powers vary according to the character ofDuties and powers vary according to the character of
the trust.the trust.
 Some kinds of power are in principle widely availableSome kinds of power are in principle widely available
to trustee – most are now statutory and serve toto 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 theTrustee is under an obligation to invest the
funds in authorised securities according to thefunds in authorised securities according to the
powers given by the trustee instruments orpowers given by the trustee instruments or
under the Trustee Actunder 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 ofCertain fundamental duties arising from fiduciary nature of
trustee, eg; duty of loyalty & duty not to make personal profittrustee, 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 isPower 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 dutyIn exercising their power of sale, trustee duty
is obtain the best price on behalf ofis 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 differenceout of their own pocket money, the difference
between selling price and the offer ofbetween 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 avested 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 subjectperson 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 publicby 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 therespecting title or evidence of title or other matter as the
trusteetrustee thinks fit, with power to vary any contract for sale, orthinks fit, with power to vary any contract for sale, or
to rescind any contract for sale and to resell, without beingto 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 divisionor 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 uponshall be impeached by any beneficiary upon
the ground that any of the conditions subject to which the sale was madethe ground that any of the conditions subject to which the sale was made
may have been unnecessarily depreciatory, unless it also appears that themay 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 thebe impeached as against the purchaser upon the ground that any of the
conditions subject to which the sale was made may have beenconditions subject to which the sale was made may have been
unnecessarily depreciatory, unless it appears that the purchaser was actingunnecessarily depreciatory, unless it appears that the purchaser was acting
in collusion with thein collusion with the trusteetrustee at the time when the contract for sale wasat 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
thisthis ActAct..

Power to InsurePower to Insure
 Trustees are under no duty to insure the trustTrustees are under no duty to insure the trust
property.property.
 They will not be liable for failure to insure ifThey 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 anyUnless 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 anymay insure against loss or damage by fire any
building or other insurable property to any amount, includingbuilding or other insurable property to any amount, including
the amount of any insurance already on foot, up to the fullthe amount of any insurance already on foot, up to the full
value of the building or property, and pay the premiums forvalue of the building or property, and pay the premiums for
the insurance out of the income thereof or out of the income ofthe insurance out of the income thereof or out of the income of
any other property subject to the same trusts without obtainingany other property subject to the same trusts without obtaining
the consent of any person who may be entitled wholly orthe 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 awhich a trusteetrustee is bound forthwith to convey absolutely to anyis 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 actionA 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 trusteeIn 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 itsIn 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 andPower of Maintainance and
AdvancementAdvancement
 Very appropriate to family type-investmentVery appropriate to family type-investment
 The object is usually meant for infantThe object is usually meant for infant
beneficiaries (under 18) who are not yetbeneficiaries (under 18) who are not yet
entitled to income or capital BUT requireentitled to income or capital BUT require
financial support during their minorityfinancial support during their minority
 Payment by way of maintenance are paymentsPayment 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 sumsPayment 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 personalGeneral powers of trustees and personal
representatives, maintenance, advancementrepresentatives, maintenance, advancement
and protective trusts.and protective trusts.
 Section 36. Power to apply income forSection 36. Power to apply income for
maintenance and to accumulate surplus incomemaintenance and to accumulate surplus income
during a minority .during a minority .
 Section 37 : Power of AdvancementSection 37 : Power of Advancement
 Permits the trustee to pay capital sums toPermits the trustee to pay capital sums to
beneficiary some time before he is entitled tobeneficiary some time before he is entitled to
claim : for the advancement and benefit ofclaim : for the advancement and benefit of
beneficiarybeneficiary

Trustee and the investment of trustTrustee and the investment of trust
funds in authorised investmentfunds in authorised investment
 A trustee is under a duty to invest trust moneyA trustee is under a duty to invest trust money
in his handsin his hands
 To invest : to employ money in purchase ofTo invest : to employ money in purchase of
anything from which interest or profit isanything from which interest or profit is
expected.expected.

Matters to be considered in investingMatters 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 andInvestments must produce income and
maintain capitalmaintain capital

Power to invest.Power to invest.
 1) Trust instrument : incorporates wide power1) 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 theAlthough investment is considered as power but the
duty lies upon the trustee to continue protecting theduty 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 beGen principle : Once assets are in, they must be
protected and an important aspect is the selection ofprotected 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 betweenTrustee have a general duty to act fairly as between
b)b) Limitations on the making of risky investmentLimitations on the making of risky investment

i) Failure to invest amount toi) 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 MLJIn 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 ofii) Discretion in matter of
investmentinvestment
 Trustee can choose where to invest.Trustee can choose where to invest.
 They have to exercise the discretion asThey have to exercise the discretion as
 ““ an ordinary prudent man of business wouldan ordinary prudent man of business would
take in managing single affairs on its own. Buttake 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 theMust take into account while managing the
affairs ;affairs ;
 ““ all those precautions which an ordinaryall those precautions which an ordinary
prudence man of business would take inprudence man of business would take in
managing similar affairs of businessmanaging similar affairs of business

 Followed by Bartlett v Barclays bank TrustFollowed 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 bankersBank on the advise of the merchant bankers
invested into two projects : one was sucessfulinvested 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 inThe bank as trustee was bound to act in
relation to the shares and to the controllingrelation to the shares and to the controlling
position which they conferred in the sameposition 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 himIf facts come to his knowledge which tell him
the company’s affairs are not conducted asthe 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 doWhat the prudent man of business will not do
is to content himself with the receipt of suchis to content himself with the receipt of such
information on the affairs of the company as ainformation on the affairs of the company as a
shareholder ordinarily receives at annualshareholder 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 inLindley 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 taketake such care as an ordinary prudent man would take
if he were minded to make an investment for theif he were minded to make an investment for the
benefit of other people for whom he felt morallybenefit of other people for whom he felt morally
bound to provide.”bound to provide.”

iii) Trustee’s personal views andiii) Trustee’s personal views and
investmentinvestment
 Trustee may have a strong health, social andTrustee may have a strong health, social and
political view.political view.
 What is important is the interest of the trustWhat is important is the interest of the trust
property and beneficiaries.property and beneficiaries.
 Trustee will have to invest althoughTrustee 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 theMegarry 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 ofIf the purpose of the trust was the provision of
financial benefit, the best interest of the beneficiariesfinancial benefit, the best interest of the beneficiaries
normally meant their best financial interest. Thenormally meant their best financial interest. The
duties to the beneficiaries was paramount. The trusteeduties to the beneficiaries was paramount. The trustee
must exercise their powers so as to yield the bestmust exercise their powers so as to yield the best
return, putting aside personal interest and social andreturn, putting aside personal interest and social and
political viewspolitical views

DUTIES OF TRUSTEE ASDUTIES 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 EQUALITYDUTY 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 the2) remainderman : those who inherit after the
death of tenant for lifedeath of tenant for life
 Need to strike a balance between the provisionNeed to strike a balance between the provision
of income for the life tenant and preservationof 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 isSo long as those rules are observed, a trustee is
usually under no duty to rearrange investmentusually under no duty to rearrange investment
– to balance equality.– to balance equality.
 If not, they the trustee will have the duty toIf not, they the trustee will have the duty to
convert or reinvest in authorised investmentsconvert 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) 7HOWE V EARL OF WARMONTH (1802) 7
VES JR. 137.VES JR. 137.
 The rule is that the direct conversion of anThe rule is that the direct conversion of an
asset to take place where there is no directionasset 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 will
b)b) There must be at least two beneficiaries areThere 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 an4) 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 partsIn other words trustee should convert all parts
of trust which consist of future revisionaryof trust which consist of future revisionary
nature or unauthorised securities intonature or unauthorised securities into
authorised investments,authorised investments,

DUTY TO RENDER ACCOUNTDUTY TO RENDER ACCOUNT
AND INFORMATIONAND INFORMATION
 Account :Account :
 The trustee must keep accounts and beThe trustee must keep accounts and be
constantly ready to produce them for theconstantly ready to produce them for the
 Information :Information :
 Beneficiary are entitled to be informed aboutBeneficiary are entitled to be informed about
matters currently affecting the trust.matters currently affecting the trust.

Halsbury’s Laws of MalaysiaHalsbury’s Laws of Malaysia Vol 5 at p 720:Vol 5 at p 720:
 ““A trustee must furnish to a beneficiary, or to a personA trustee must furnish to a beneficiary, or to a person
authorised by him, on demand, information or the means ofauthorised by him, on demand, information or the means of
obtaining information as to the mode in which the trustobtaining information as to the mode in which the trust
property or his share in it has been invested or otherwise dealtproperty 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 trustwhether the beneficiary has a present interest in the trust
property or only a contingent interest in remainder, or is onlyproperty or only a contingent interest in remainder, or is only
an object of a discretionary trust. If the trustee neglects or failsan object of a discretionary trust. If the trustee neglects or fails
to do so, he is liable for the costs of proceedings to compelto do so, he is liable for the costs of proceedings to compel
production of information or accounts. He must also allow aproduction of information or accounts. He must also allow a
beneficiary to inspect the trust accounts and all documentsbeneficiary to inspect the trust accounts and all documents
relating to the trust, and has a duty to explain to a beneficiaryrelating to the trust, and has a duty to explain to a beneficiary
what his rights are.” (Quoted in the case ofwhat his rights are.” (Quoted in the case of DR CHAN CHINDR CHAN CHIN
CHEUNG PLAINTIFF v CHAN CHAK CHEUNG and others[2005] 2CHEUNG 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 theTrustees bought a summons to determine the
nature and extent of their duties in relation tonature and extent of their duties in relation to
disclosures.disclosures.
 COA defined what kind of trust documentsCOA 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 documentSalmon LJ : The categories of trust document
could not be defined. They have however thesecould not be defined. They have however these
characteristic in common.characteristic in common.
 1) They are documents in the possession of the1) They are documents in the possession of the
trustees as trusteetrustees as trustee
 2) Contain information about the trust which2) Contain information about the trust which
the beneficiaries are entitled to knowthe beneficiaries are entitled to know
 3) Beneficiary have a proprietary interest in3) Beneficiary have a proprietary interest in
the documents and accordingly are entitled tothe documents and accordingly are entitled to
see them.see them.

 ““If any parts of a document containIf any parts of a document contain
information which beneficiaries are notinformation which beneficiaries are not
entitled to know, I doubt whether such part canentitled to know, I doubt whether such part can
be truly said to be integral part of a trustbe 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 notIf the trustee made payment to person not
entitled, the beneficiary can take action toentitled, the beneficiary can take action to
recover the payment backrecover the payment back
 The only limitation in the case is as regards toThe 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 trusteeIf the trustee is not clear on his duty the trustee
maymay
 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 distributionThe court has power to authorise distribution
of the whole of assets although not allof the whole of assets although not all
beneficiaries or creditors have madebeneficiaries or creditors have made
themselves known so as to be ablethemselves known so as to be able
 A typical situation is where the whereabouts ofA 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 ERRE GREEN’S WILL TRUST [1985] 3 All ER
455455
 Testatrix left her property to her son providedTestatrix left her property to her son provided
that it should go to charity if he did notthat it should go to charity if he did not
claim.The son had disappeared on a bombingclaim.The son had disappeared on a bombing
raid in 1943 but the mum believed that he wasraid 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 toTo protect themselves form BOT failure to
distribute.distribute.
 Trustee(s) may advertise in the Gazette andTrustee(s) may advertise in the Gazette and
other notices including notices outsideother notices including notices outside
Malaysia.Malaysia.
 Those who are interested should make theirThose who are interested should make their
claim and he should be given 2 months to sendclaim and he should be given 2 months to send
in their particulars.in their particulars.

Power and Duties of Trustee

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