Trustee Law and Management

Trust Law: Trustees and their Responsibilities

• A trustee is anyone who manages a trust, including Executor's Trust, Charitable Trust, Non-Charitable Trust, and Resulting Trust.
• The Trustee Act 1949 is applicable to these types of trusts.
• A corporation can be a trustee.
• Capacity: A trustee must have the capacity to hold property, which means they must be of the age of majority (as defined in the Age of Majority Act 1971) and must not be bankrupt or convicted of a crime.

Appointment of Trustees

• The number of trustees is limited to four (Trustee Act 1949, s39).
• In the case of charitable, religious, or public trusts, the number of trustees is not limited.
• A person is not a trustee unless they accept the office (Moey Yoke Lai v Ivan Ho Tiong Yin).
• A trustee can accept the office explicitly or impliedly.

Vacation of the Office of Trustees

• A trustee can resign (Trustee Act 1949, s40) or be removed by the court (Trustee Act 1949, s45).
• A trustee's office becomes vacant upon their death.
• A trustee can also be removed by the court if it is necessary for the welfare of the beneficiaries.

Standard and Duty of Care

• A trustee has a duty to act with a degree of care and skill expected from a trustee (Re Speight).
• The trustee must consider and explore a better offer (Buttle v Saunders).
• The paramount consideration is the best financial interest of the beneficiaries.
• A paid trustee has a higher duty of care (Bartlett v Barclays Bank).
• Exclusion clauses may limit a trustee's liability, but minimum duties cannot be excluded (Armitage v Nurse).

Powers and Duties of a Trustee

• Powers: administrative, dispositive, and mandatory.
• Duties: mandatory obligations to perform a duty.
• A trustee has the power to delegate certain responsibilities, but not discretionary powers (Trustee Act 1949, s28).

Investment and Maintenance

• A trustee has a duty to invest trust property prudently and safely (Learoyd v Whiteley).
• The trustee's duty is to seek the highest available return for the beneficiaries (Cowan v Scargill).
• A trustee must act as a prudent person of business would when investing on behalf of others (Cowan v Scargill).

Malaysia's Trustee Act 1949

• Sections 28, 30, and 35 of the Trustee Act 1949 relate to delegation, maintenance, and investment powers.
• Section 36 of the Trustee Act 1949 relates to the power of maintenance.
• Section 37 of the Trustee Act 1949 relates to the power of advancement.### Duties of a Trustee
• A trustee has a duty to seek advice on matters they do not understand, such as making investments, and to act with the same degree of prudence.
• A trustee is not entitled to reject advice merely because they sincerely disagree with it, unless they are acting as a prudent person would.

Trustee's Duty to Diversify Investments

• It is desirable for trustees to diversify their investments, so that if some investments fail to yield dividends, others will. (s. 6 of the Trustee Act 1949)
• The trustee has a duty to obtain proper advice on the suitability of an investment. (s. 6(2))

Non-Commercial Considerations

• A trustee should not be guided by non-financial considerations, except in exceptional cases.
• Example: Harries v The Church Commissioners for England, where a charitable trustee was allowed to restrict investments to those that promoted Christian faith and excluded investments in armaments, tobacco, and gambling.

Duty to Act in the Best Interests of Beneficiaries

• A trustee has a duty to act in the best financial interests of the beneficiaries, without regard to underlying ethical implications. (Buttle v Saunders)

Rights of Beneficiaries

• Beneficiaries have the right to require the trustee to carry out the trust properly according to its terms.
• Beneficiaries have the right to sue the trustee for breach of trust or third parties who knowingly receive trust rights.
• Beneficiaries have a right to be informed of their interests under the trust and to access trust documents. (O'Rourke v Darbishire)

Confidentiality

• A trustee has the right to assert confidentiality in relation to trust documents, except where disclosure is necessary to resolve disputes or to carry out the trust. (Schmidt v Rosewood Trust)

Breach of Trust

• A trustee will be liable for a loss to the trust fund or to a beneficiary if the loss has been caused by their breach of duty.
• The beneficiaries must show that the loss was caused by the breach. (Re Chapman)

Remedies for Breach of Trust

• Specific enforcement: the court orders the trustee to carry out the trust duties.
• Personal liability: the trustee must compensate the beneficiary for any loss caused by their breach of duty.
• Falsifying the trust account: the beneficiary can apply to the court to falsify the account and make the trustee liable for the loss.
• Surcharging the trust account: the beneficiary can apply to the court to surcharge the account and make the trustee liable for the loss.### Trustee's Liability
• Trustees are jointly and severally liable when they act together or ought to have acted together in doing something they should not have done or failing to do what they should have done.
• However, where a breach is committed by a trustee clearly acting alone, their co-trustees will not be liable.
• One trustee may seek an indemnity from another trustee when the latter alone misappropriated trust rights or exercised a controlling influence over the trust and is essentially responsible for the breach.

Case: Bahin v Hughes (1886)

• The trustees were liable to the beneficiaries for breach of trust.
• The court held that Miss Hughes, as an active trustee, was liable jointly with the other trustees, and Mr. Edwards was not entitled to an indemnity from Miss Hughes.

Remedies for Unauthorised Investments

• Situations:
  • Trustee makes unauthorised investments, suffers losses.
  • Trustee makes unauthorised investments, gains profits.
  • Trustee improperly sells authorised investments, reinvests proceeds in unauthorised investments.
• Cases:
  • Knott v Cottee (1844): Trustee was liable to compensate the estate for the difference in value of the assets between the date of the declaration and the sale proceeds.
  • Nestle v National Westminster Bank Plc (Target Holdings v Redfern): Beneficiary may adopt the breach and ask the trustee to re-invest.
  • Re Massingberd's Settlement (1875): Trustees are liable to replace the authorised investments if they have risen in value or the proceeds of sale of the unauthorised investments.

Exclusion of Trustee's Liability

• Consent of Beneficiaries:
  • A beneficiary who is sui juris (of full age and of sound mind) can consent to a trustee acting in a way that departs from the terms of the trust.
  • If all beneficiaries are sui juris and consent to an action that departs from the trust terms, there is no breach of trust.
• Trustee exemption clauses:
  • A trust instrument may contain a clause that exempts trustees from personal liability for breach of trust.
  • Case: Armitage v Nurse (EWCA Civ 1279) - The exemption clause was effective, and the trustee was not liable.
• Section 63 of the Malaysian Trustee Act 1949 and Section 61 of the English Trustee Act 1925:
  • Empower the court to relieve a trustee of all or part of their liability for breach of trust if they have acted honestly and reasonably and ought fairly to be excused for the breach of trust.

Case: Evans v Westcombe (1987)

• The act of the administrator taking out a missing beneficiary policy was sensible and an allowable expense of administration.
• The defendant was allowed relief from liability.

Case: Barlett v Barclay's Bank Trust Co Ltd (1980)

• The trustee had not discharged its duty as trustee in failing to supervise the new ventures of the company.
• The trustee was not entitled to relief from liability.

Case: Armitage v Nurse (EWCA Civ 1279)

• The exemption clause was effective, and the trustee was not liable.
• Millet LJ stated that there is an irreducible core of obligations owed by the trustees to the beneficiaries, but the duty of skill and care is not part of this core.

Case: Ong Soo Keok & Ors v Ong Soo Kwee (suing as executor of the state of Loh Ah Moy @ Loh Siew Keng (P) 5 MLJ 389 (CA))

• The court granted relief from personal liability to the co-trustees who had acted in the best interests of the beneficiary and had fulfilled all the elements of Section 63 of the Malaysian Trustee Act 1949.

Personal Liability of Third Parties/Strangers

• Third parties may be personally liable to pay money from their own pockets to make up the loss to the trust fund caused by a breach of trust in two cases:
  • Where they have dishonestly assisted in the breach of trust by the trustee (dishonest assistance).
  • In certain cases where they have received trust rights dissipated in breach of trust (knowing receipt).