Trust Law: Appointment, Removal & Retirement of Trustees (Malaysia) PDF

lOMoARcPSD|12296408 Appointment, Removal and Retirement The first appointment of a trustee is usually done by the settlor, testator or the person whom such power was given to under the trust instrument. - Sec. 39(1): The number of trustees shou...

lOMoARcPSD|12296408 Appointment, Removal and Retirement The first appointment of a trustee is usually done by the settlor, testator or the person whom such power was given to under the trust instrument. - Sec. 39(1): The number of trustees should not exceed four. Any other persons named shall not be trustees unless a vacancy arises. - Sec. 39(2): However, the limit does not apply to trusts for charitable, religious or public purposes. New or additional trustees are thereafter appointed either under an express power in the trust instrument or under Sec. 40 of the Trustee Act. - Sec. 40(7): Every new trustee appointed shall have the same powers, authorities, and discretions as if he had been originally appointed as a trustee by the instrument. Sec. 40(1) & (2): Where a trustee has been removed, a new or additional trustee may be appointed in his place. Several circumstances under Sec. 40 in which a trustee may be removed (grounds of removal of a trustee): - Where a trustee is dead - Sec. 40(8): This includes where a trustee has predeceased the settlor. - However, it does not include instances where the trustee appointed is already dead. If there are no living trustees, the trust created will not be valid. - Where a trustee remains out of Malaysia for more than 12 months - Sec. 40(1): Unless the trust instrument contains provisions to appoint a trustee who resides overseas, if a trustee is absent from the country for a continuous and uninterrupted period of 12 months, he can then be removed against his will due to his inability to manage the trust from within the country. - Re Walker: A trustee can be removed if he remains outside of the country for more than the specified period as his absence will affect the management of the trust. In this case, the trustee could not be removed as the period was broken by a one week visit to London. - Ligar Fernandez v Eric Claude Cooke: The 12 month-rule must be observed strictly, in that the absence must be continuous or else the trustee cannot be removed under this ground. In this case, the defendant was absent from Malaysia for over 12 months, and thus, the court rendered him legally incapable of acting as a trustee and ordered for his removal. - Where a trustee desires to be discharged (retirement) Downloaded by Arianna Nana ([email protected])  lOMoARcPSD|12296408 - Where a trustee refuses to act - Ligar Fernandez v Eric Claude Cooke: A trustee is considered to be refusing to act when his conduct or inability to perform an act is endangering the interest of the trust by hindering his discharge of duty as a trustee. - Re Lister: The words disclaim and disclaimer connote a renunciation of or refusal to claim, rights or property, which would automatically devolve on or accrue to the person making the disclaimer. - Where a trustee is unfit to act - Re Roche: A trustee who has been declared bankrupt is unfit to act in the execution of his duties as a trustee and must be removed from the trust due to his inability to deal with the property as he no longer possesses the legal capacity to do so. - Where a trustee is incapable of acting - Age and infirmity are considered as ‘incapacity’. - Re Lemann’s Will Trust: The testator’s widow, who was 79 years old and was suffering from failure of memory and decay of mental powers, clearly suffered from mental and bodily infirmity which prevented her from being capable of acting in the capacity of a trustee. Thus, the court ordered for her removal, as well as the appointment of a new trustee in her place. - Sec. 40(3): Where a corporation trustee has been dissolved, it shall be deemed to be incapable of acting. - Where a trustee is a minor - Re Vinogradoff: A minor cannot be a trustee of an express trust and trusts of land - An infant may only be a trustee in a resulting or constructive trust The grounds for removal under Sec. 40(1) are only exercisable where a new trustee is being appointed in the place of the trustee that has been removed. Mode and method to appoint new or additional trustees: - Sec. 40(1)(a): Any person nominated in the trust instrument (express power) - The power of appointment must only be exercised by the person whose power has been reserved under the trust instrument - Sec. 40(1): An appointment of a trustee must be made in writing - Such person may only exercise his power to appoint new or additional trustees within the maximum limit of four appointed trustees provided under Sec. 39 - Re Whitehead’s Will Trust: The appointer’s choice must not be capricious or manifestly unreasonable and inappropriate. Downloaded by Arianna Nana ([email protected])  lOMoARcPSD|12296408 - Sec. 40(6): Where a person is a sole trustee, or where the total amount of trustees are no more than 3, though it is not obligatory to do so, an additional trustee or trustees may be appointed so long as the total number of trustees does not exceed 4. - Sec. 40(1)(b): If there is no such person nominated or no such person able or willing to act, as in - Re Sheppard’s ST: The persons nominated were a husband and wife who were living apart at the time and were unable to agree on who should be appointed - Cradock v Witham: The person nominated could not be found - Statutory power to make the appointment is given to - The surviving or continuing trustees, or - The personal representatives of the last surviving or continuing trustee - Sec. 40(4) & (5): Such personal representatives include executors or administrators of the last surviving or continuing trustee, as well as executors intending to renounce. - Where no such persons under Sec. 40(1)(a) or (b) are available, the court may exercise its power to appoint a trustee. - Sec. 45(1)(a): The court has statutory jurisdiction to appoint a new trustee if it is found to be inexpedient, difficult or impracticable to do so without the assistance of the court. - The court will not make a new appointment unless it is necessary to do so - Re Hodson’s Settlement: The court will not interfere if an express or statutory power to appoint a trustee could be exercised and there is someone able and willing to do so - Instances where the court would invoke Sec. 45: - Sec. 45(1)(b): Where the trustee has been imprisoned, declared bankrupt, is a corporation in liquidation, is mentally disordered etc. - Re Smirthwaite: Where the trustees named predeceased the testator. - Re Lemann’s Will Trust: Where the trustee was incapable of acting due to old age and physical infirmity - Re Woodgate: Where there was doubt as to whether the statutory power or express power of appointment was exercisable - Re May Will’s Trust: Where the trustee was in Belgium during the German invasion and had not managed to escape - Re Sheppard’s ST: Where there is no agreement as to whom should be appointed - Re Parsons: Where an infant was appointed as a trustee Downloaded by Arianna Nana ([email protected])  lOMoARcPSD|12296408 - Re Gadd: Even if the court believes that the nomination of trustees could have been bettered, it would not interfere. However, if the court concludes that the trustees nominated are unsuitable, it can call for a fresh nomination. Several unsuitable nominations may be regarded as a refusal to nominate, to which the court would then make its own choice. - Bhikku Daeng v Maung Shwe Tyn: A temple in Penang is to be managed by four trustees, two from the Burmese community and two from the Thai community. A vacancy arose in the position of a Burmese trustee and the second respondent was appointed as the new Burmese trustee in accordance with the trust instrument. Nevertheless, the appellants, the Thai trustees, objected to his appointment. Held: There could not be a valid objection of any substance against the appointment of the second respondent who was duly elected in accordance with the trust instrument. - In exercising its discretion the court will refer to the trust instrument as to whom should be appointed as a new trustee. The court will not act if an express or statutory power can be exercised and there is someone to do so. - Re Tempest (referred to in Bhikku Daeng): In exercising its discretion to appoint a new trustee, the court would have regard to: - i) The wishes of the settlor - ii) Should not appoint a person with a view to the interests of some of the beneficiaries in opposition to the interests of others - iii) Should consider whether the appointment would promote or impede the execution of the trust - If a trustee is not satisfied with the appointment of the new trustee, who has been appointed in accordance with the trust instrument and statutory provisions, the objecting trustee may be removed to protect the interests of the trust. - Generally, the courts will not appoint: - A beneficiary or a beneficiary’s spouse - An existing trustee’s solicitor or partner - Re Norris: On the retirement of one of two trustees of a will, the continuing trustee, who was the solicitor to the trustees, appointed his son, who was his partner in his business, to be a new trustee. The court rejected the appointment as where father and son are partners, it would be as if there was only one person acting as a trustee. - A person living abroad, unless the trust property or beneficiaries are abroad. "A trust will not fail for want of a trustee" - Just because there is an absence of trustees, this does not mean that the trust should fail and cannot exist. - The courts will not allow a trust to fail merely because there are no existing trustees. - Here the court will invoke Sec. 45 and appoint a new trustee. Downloaded by Arianna Nana ([email protected])  lOMoARcPSD|12296408 - However, there is an exception to this maxim. - As per Buckley J in Re Lysaght: If it is of the essence of a trust that the trustees selected by the settlor and no-one else shall act as the trustees of it and those trustees cannot or will not undertake the office, the trust must fail. - Therefore, if the settlor has insisted that the trust should only be managed by those that he has appointed and no one else, and under some circumstance, such trustees are unable to do so or has chosen to not do so, the trust must then fail. Acceptance of trusteeship: - Re Tyron: A person’s appointment can be made without his knowledge or in his absence. However, a person cannot be compelled to accept the office of a trustee. - Mountford v Cadogan: The acceptance of trusteeship can be made expressly or impliedly. - Re Lister: A person can only disclaim the office of a trustee before making an acceptance, otherwise he has to retire according to the trust instrument or statute. Termination of trusteeship by retirement: - A trust instrument may contain an express power permitting a trustee to retire. - Statutory power: - Sec. 40(1): Retirement with the replacement of a trustee - A trustee may retire from the trust provided that it is done in writing with the approval from the co-trustees or the court. However, he may only retire upon finding a new trustee to take his place. - Re Cockburn’s Will Trust: Any trustee that wishes to retire must find a replacement for his office so as not to affect the operation of the trust. It is mandatory for a trustee who desires to retire to find a replacement. - Sec. 43(1): Retirement without new appointment - If no new trustee is required to be appointed, the trustee wishing to retire may do so under this provision. However, this is only allowed where - The trustee wants to be discharged and states this in writing - After he has been discharged, there will be a trust corporation or at least 2 other existing trustees, and they consent in writing to the discharge and agree that the trust property will be vested in them alone - If any person has been given power to appoint a trustee, he too must consent in writing - If the trustee wishing to retire fails to get the consent of the other existing trustees, he has to retire under Sec. 40(1) after finding a replacement. Downloaded by Arianna Nana ([email protected])  lOMoARcPSD|12296408 - Consent of the beneficiaries: - A trustee may retire if he obtains the consent of all the beneficiaries who are of full age and sui juris (competent). - Court order: - Sec. 45(1): Where a trustee wishes to retire, he may apply to the court to remove himself as a trustee. - This may be applied in instances where the trustee wishing to retire has failed to obtain the consent of his existing co-trustees or does not wish to find himself a new replacement, the court will then exercise its power to appoint a new trustee in his place. Termination of trusteeship by death: - Re Harding: On the death of the trustee, the office passes to the surviving trustees and the trust property will vest in them automatically to which they will hold as joint tenants. - Sec. 40(8): On the death of the last surviving trustee, the trust property devolves upon his personal representative who is not obliged to accept the obligation, and the court will invoke Sec. 45 to appoint a new trustee. - Re Smirthwaite: The principle is inapplicable where all the trustees have predeceased the testator. In such instance, the personal representative shall hold the property until the court appoints a new trustee. Removal of trustees by the court: - The court will remove a trustee where he refuses to execute the trust, has mismanaged the trust, or has disqualified himself by circumstances of conduct from continuing to hold the office and may perhaps do so if his continuance in office would be likely to be detrimental to the trust. - The power of the court to remove a trustee will only be exercised in cases of misconduct of trustees and whenever it appears that the continuance of the trustee would prevent the trust from being properly executed. - Yusof Ahmad v Hong Kong Bank: Any acts or omissions sufficient for the removal of trustees must be such as to endanger the trust property to show a want of honesty, a want of proper capacity to execute the duties or a want of reasonable fidelity. - Factors which may persuade the court in removing a trustee: - Where a trustee has been dishonest or incompetent - Letterstedt v Broers: If it appears clear that the continuation of the trustee would be detrimental to the execution of the trust, then the court will exercise its discretion to remove the trustee. - The Privy Council held that the general interest of the beneficiary should guide any decision. Downloaded by Arianna Nana ([email protected])  lOMoARcPSD|12296408 - Yusof Ahmad v Hong Kong Bank: A trustee who failed to comply with a testator’s directions may be removed even if no harm has been done to the beneficiary. - Breach of trust - Miller v Cameron: A trustee who is in a position so impecunious that he would be subject to a particularly strong temptation to misapply the trust funds may be removed from his office even though he has yet to commit a breach of trust. - Hostility - Lack of trust and confidence - A conflict of interest Vesting of trust property - Sec. 44(1): Vesting of trust property in new or continuing trustees - The legal title to the trust property ought to be vested in the trustee. - The method of vesting varies with the nature of the trust property: - Land: Registered in the trustee’s name according to the NLC - Shares: Registered in the trustee’s name according to the Companies Act - Bank balance: Bank book must be in the name of the trustee Downloaded by Arianna Nana ([email protected])  lOMoARcPSD|12296408 Discretion of Trustees Where a trustee is allowed to exercise his discretionary power upon making a decision, such discretion must be exercised as an active mental process and the trustee must not allow a situation to result merely through an inaction. If a trustee, in exercising his discretionary power, has caused a wrong decision to be made, the trustee will be personally liable to repay the amount lost to the trust fund. Powers of Trustee Power of maintenance: Maintenance of all beneficiaries who have yet to reach adulthood: Infant beneficiaries/minors Trustees generally have no power to give a minor, income arising out of the trust fund unless the trust instrument has expressly allowed it. - Any payment of income made out of the trust fund would be for the purpose of maintenance that is to be used to provide for the beneficiary’s necessities and daily expenses, such as education, food and shelter. Where the trust instrument is silent on the matter: - Sec. 36(1)(a): Where trust property is held by the trustees, such trustees may exercise their power to maintain a minor out of the minor’s share of the trust income: - During the beneficiary’s minority only (before 21) - At their own discretion as it is not a duty imposed upon the trustees - The money must be paid to the minor’s parent or guardian, and cannot be paid directly to the minor - OR the trustee himself can use the money towards the minor’s benefit - For the minor’s maintenance, education or benefit - Leong Mook Nyean v Chew Nyit Fah: What is required by the minor must come within the meaning of the word ‘maintenance’ in order for payment to be valid - Through a payment of the whole or part of the income of that property according to what is reasonable - Trustees have the discretion to determine the amount of maintenance given - Even if there exists other funds applicable, or any other person bound by law for the maintenance or education of the minor - The income arising out of the minor’s share of the fund must be applicable for his maintenance. If the minor’s share of the fund does not carry any income, there can be no maintenance. Downloaded by Arianna Nana ([email protected])  lOMoARcPSD|12296408 - Proviso to Sec. 36(1): In exercising the discretionary power, trustees should take into consideration: - The age of the minor - His requirements (the minor must have a beneficial interest) - The general circumstances of the case - The existence of other income applicable for the same purposes - If the income of more than one fund is applicable, only a portion of the income of each fund can be applied - The trustees should not pay the minor in excess of his needs if there exists other funds - The discretionary power to grant maintenance can only be exercised after giving due regard to all the necessary factors. - Bryant v Hickley: If the discretion is exercised in good faith the court will not interfere. - Wilson v Turner: Where the trustees paid income to the minor’s father automatically without enquiring into the minor’s actual needs, the father was ordered to repay the money and the trustees were held in breach of trust. Sec. 36(2): The residue of the income that is not paid out in maintenance must be accumulated by the trustee in the way of compound interest that is by investing it through authorized investments. - The trustee is required to hold such accumulations until the minor turns 21. Sec. 57: Maintenance under the court’s inherent jurisdiction - The court has statutory power to order the disposal of a minor’s beneficial interest for the purpose of maintenance - E.g: Where a large sum of money is to be paid out for the maintenance of a minor, the trustees may seek from the court an order to make such payment - Re Collins: Where a settlor has directed the trust income to be accumulated, the court has inherent jurisdiction to allow the expenditure of the income on the maintenance of the infant beneficiaries. The settlor’s instructions may be ignored under the court’s presumption that the settlor did not intend for his children to be left un-provided for or not educated properly. Downloaded by Arianna Nana ([email protected])  lOMoARcPSD|12296408 Power of advancement: To take capital out of a trust fund and pay it for the benefit of the beneficiaries. It applies to all trust instruments, unless the contrary has been stated. Sec. 37: Trustees may exercise their discretionary power to advance capital for the benefit of the beneficiaries, regardless of the type of interest they hold in the fund, whether vested (present right to immediate possession) or contingent (awaiting) interest - The trustees have an absolute discretion to make an advancement whether - Absolutely (where the beneficiary has a vested interest) or - Contingently upon the beneficiary attaining a specific age (to be paid when he turns 25) or on the occurrence of an event (when he graduates) The discretionary power is subject to the restrictions that: - Sec. 37(a): The money advanced does not exceed RM10,000 or half of the share of the beneficiary, whichever is greater - Re Evan’s Settlement: Where the trust instrument provided that the trustees could only advance up to $5000, thus excluding the statutory power of advancing up to one-half of the share - Sec. 37(b): The money advanced to the beneficiary will be recognized as part of his share of the trust property when the beneficiary becomes absolutely entitled to it (has a vested interest in it) - Sec. 37(c): No advancement that would prejudice any person shall be made, unless such person has consented to it in writing Pilkington v IRC: Advancement means setting up the beneficiaries in life as opposed to making mere casual payments to the beneficiaries. It covers purposes such as purchasing business premises, making a settlement on marriage, making payment to enter into apprenticeship, or supplying further capital to an existing business. Other valid advancements: - Lowther v Bentick: Discharge of debt of the beneficiary himself - Re Kershaw: Paying the debt of beneficiary’s husband - Pilkington v IRC: An advancement to avoid tax Re Pauling’s Settlement Trusts: Where the children filed a suit against the trustees for advancing money to their parents who used it for their extravagant lifestyle. - Trustees could not advance money without any responsibility such as to inquire into its application. An advancement must be made for the benefit of the beneficiaries and applied for the purpose specified. Failure to do so will cause the trustees to be personally liable for the repayment of the money advanced. Molyneux v Fletcher: Where the trustees made an advancement to a beneficiary to enable her to use the money to repay her father’s debt to one of the trustees, the advancement was found to be invalid as trustees cannot make an advancement to benefit themselves. Downloaded by Arianna Nana ([email protected])  lOMoARcPSD|12296408 Duties of Trustees Fiduciary Duty A trustee is not entitled to receive any benefit from his position as a trustee. - The position of a trustee is one of personal confidence, thus a trustee must not allow the duty he owes to a beneficiary to come into conflict with his personal interest, or else he will be liable to account for any profit made by him. In Bray v Ford, Lord Herschell: It is an inflexible rule that a person in a fiduciary position is not, unless expressly provided, entitled to make a profit, he is not allowed to put himself in a position where his interest and duty conflict. A trustee’s fiduciary duty can be divided into a few sub-duties: 1. A trustee has a duty to not allow his interest and duties to conflict (conflict rule) - Bray v Ford: A trustee is not allowed to put himself in a position where his interest and duty conflict. - A trustee who derives any incidental profits from his position as a trustee will be held in breach of the trust. - In the renewal of a lease held on trust, it is a rule that the trustee must not renew the lease for his own benefit even if the lessor has refused to renew it in favour of the trust. - Keech v Sanford: A market lease was bequeathed by a testator to a trustee to hold for an infant. Before the expiration of the lease the trustee applied for a renewal on behalf of the trust and was refused such a grant as the lessor said the grant would only be made if the trustee renewed the lease in his own favour and not the trust’s. The trustee applied for and received such a grant for his own benefit, but was then held liable to account for all the profits made. Held, Lord King: Where it is the trustee’s duty to hold the lease on trust for the beneficiary, the trustee should have let the lease expire rather than have it renewed in his favour. - Any profit made from a lease renewed in favour of the trustee will cause the trustee to be held accountable. - Similarly: - If the spouse of a trustee or the executor renews the lease not in favour of the trust - Where the renewal of contracts is involved Downloaded by Arianna Nana ([email protected])  lOMoARcPSD|12296408 2. A trustee has a duty to not take any secret profit, unless authorised by the trust instrument, by the beneficiaries (in full legal capacity) or by the court (Brown v IRC). This may arise in several instances: i) Purchase of trust property (self-dealing rule) - General rule: Trustees cannot purchase trust property for himself - Campbell v Walker: Any trustee purchasing the trust property is liable to have the purchase set aside, if in any reasonable time, the beneficiary choose to say that he is not satisfied with it. - The self-dealing rule is strict in order to prevent any remote possibility of a trustee taking advantage of his position, whether he does take advantage or not. - If a trustee purchases trust property, he is free to abuse his position and make the purchase at a price lower than what can be obtained. - Similarly, if he sells to the trust, he would be able to demand a price that is too high. - Effect of the purchase: The transaction is voidable at the instance of any interested beneficiary, regardless of how fair, open and honest the transaction may have been. - Re Mulholland’s Will Trusts: The rule remains applicable where the trustee has retired and intends to purchase the property. - Wright v Morgan: A trustee, who had resigned, purchased trust property at a price that had been fixed by independent valuers. However, where it was discovered that the arrangements for the transaction were made while he was still a trustee, the Privy Council ordered for it to be set aside. - The rule cannot be avoided through indirect transactions or methods - Parker v McKenna: A trustee cannot sell trust property to a third party with the intention of repurchasing such property from that person. - Campbell v Walker: It is immaterial that the sale was made at an auction and that the trustee paid well above the reserve price as the rule is based on his status as a trustee and not on his conduct. ii) Purchase of beneficial interest (fair-dealing rule) - Tito v Waddell: The rule is that if a trustee purchases the beneficial interest of any of his beneficiaries, the transaction is not voidable as of right, but can be set aside, unless the trustee can show that he has taken no advantage of his position and has made full disclosure to the beneficiary, and that the transaction was fair and honest. - Coles v Trecothick: A trustee may purchase from the beneficiary provided that there is a clear and distinct contract proving that the beneficiary intended for the trustee to make the purchase. There can be no fraud, concealment, or taking of advantage by the trustee - The trustee proved that the transaction was arranged by the beneficiary. Downloaded by Arianna Nana ([email protected])  lOMoARcPSD|12296408 iii) Director’s fees - A trust estate may comprise of several shareholdings in different companies. - Where a trustee is appointed as a director of a company due to the trust’s shareholding in that company, any director’s fees obtained is regarded as an incidental profit, which is subjected to the rule that a trustee must not take any profit obtained from his position as a trustee. - The fees obtained cannot be kept by the trustee as it belongs to the trust. - Re Macadam: The trustees used their position to appoint themselves as directors of a company. Held: The trustees had purposely put themselves in a position where their duty and interest conflicted, and were thus, liable to account to the trust all the fees they received as directors. - The rule does not apply if the trustee was appointed as director not because of the trust. - Re Dover Coalfield Extension Ltd: The trustee was already a director before he became a trustee. - Where there is no link between a person’s position as a trustee and the profit made, he cannot be held liable. iv) Competing with trust - A trustee is prohibited from competing with any business belong to the trust. - IDC v Cooley: A trustee will be liable to account for profits made by him from a business which competes with the business of the trust. - Re Thompson: The testator’s estate was involved in the yacht-broking business. One of the trustees then set up his own similar business. Held: This amounted to a breach of the trustee’s fiduciary duty as his personal interest was in conflict with his duty of protecting the beneficiary’s interest. - The rule does not apply to ordinary businesses where the element of competition is not an issue. - The rule also applies to situations where the trustee becomes involved with a competing third party without the beneficiary’s consent (In Plus Group v Pyke) v) Misuse of opportunities and information - Boardman v Phipps: After a meeting with the directors of a company, a solicitor took the opportunity to reorganise the company in which the trust had a minority shareholding by purchasing more shares for the trust. As the shares increased in value, so did the shares which he purported to purchase for himself, thus resulting in a profit. However, a purchase of more shares for the trust was in fact prohibited unless authorised by the court. Held: The solicitor was liable to account for the profit he made in breach of his duty. Downloaded by Arianna Nana ([email protected])  lOMoARcPSD|12296408 vi) Receiving bribes - Secret profits could be a bribe which the trustee knowingly takes in breach of his duty. - AG of Hong Kong v Reid: Reid, the acting Director of Public Prosecutions, accepted bribes amounting to $2.5 million to obstruct the prosecution of criminals. The money was then used to purchase three properties in New Zealand. Held: Reid was found liable to account for the bribe money he accepted. vii) Full disclosure of material facts - Re Thompson: If a trustee concurs in a transaction in which he has an interest, failure to disclose such interest will cause him to be liable for any profits received. Duty of trustees upon appointment Upon accepting the appointment as a trustee, a person has a duty to: - Familiarise himself with the terms of the trust - Ensure that he has read and understood all the provisions of the trust instrument - Inspect the trust instrument and comply with the terms of the trust - Ensure that all trust properties are duly and properly vested in him - The trust property is transferred to his name and is within his control - Investigate any prior breach of trust by any retired or removed trustees and take the necessary legal action to claim back the property or have any sum of money repaid to the trust - Act impartially between the beneficiaries - Act unanimously and jointly with his co-trustees Re Brogden: A sum of money was owed by certain persons to the trust fund. However, the trustees did not seek payment. Subsequently, the debtor became bankrupt and a claim could not successfully be made against him. The new trustee, upon accepting appointment, brought an action against the retired trustees. Held: The retired trustees were found liable as they should have taken steps to claim the money earlier. Downloaded by Arianna Nana ([email protected])  lOMoARcPSD|12296408 Duty to distribute Trustees have a duty to distribute the trust property to those entitled to receive them in accordance with the trust instrument. The duty to distribute may arise in three circumstances: i) Payment of income to the beneficiary, or the capital share of one of the several beneficiaries who has fulfilled the contingencies (e.g: attained a certain age) under the trust - Re Gulbenkian’s Settlement Trusts: Trustees were given the discretion to pay or not pay income to certain beneficiaries. - Lord Reid: If the trustees decide in good faith and at appropriate times to give none of the income to any of the beneficiaries, the court will not review their decision. ii) Distribution of the whole of the trust fund when all the beneficiaries have reached their full age and are absolutely entitled to the trust property between themselves - The rule in Saunders v Vautier: Where all the beneficiaries of a trust are of full age and capacity who together are entitled to the full beneficial interest of the trust, the beneficiaries can call upon the trustees to convey the trust property to them and bring the trust to an end. iii) Distribution of trust property when the trust requires immediate distribution - E.g: Gifts under a will or intestacy Trustees are under a duty to distribute the trust property to persons who are rightfully entitled to it. - When in doubt, the trustees should enquire into what would be the prudent and preliminary step to take, or apply to court for directions. Failure to distribute trust property to those rightfully entitled would result in a breach of trust: - Eaves v Hickson: The trustees were held liable when they made payment to the wrong person on the faith of a forged marriage certificate - Hilliard v Fulford: The trustees were held liable for distributing the trust property based on an erroneous but bona fide interpretation of the trust deed. Protection for trustees: - Trustees may protect themselves from breach of trust by advertising for beneficiaries - Sec. 32(1): Trustees may advertise their intention to distribute the trust property in order for any person interested to send particulars of his claim to the trustee. - Where a notice is given, the time limit is not less than two months - Where several notices have been given, the time limit is not less than two months since the last notice - Sec. 32(2): When the time has reached its limit, the trustees may distribute the property to the persons entitled to it, having regard only to the claims made. The trustees will not then be liable to any person who did not have notice at the time of the distribution. - Sec. 32(3): It is applicable regardless of any contrary provision in the trust instrument. Downloaded by Arianna Nana ([email protected])  lOMoARcPSD|12296408 - Re Aldhous: Where no beneficiaries responded to the advertisement, the executor then paid the estate money to the Crown. Benjamin Order: - Re Benjamin: David Benjamin left his residuary estate to all twelve children equally. However, a year before he died, one of his children disappeared in France. Held: In the absence of any contrary evidence, the court presumed that the beneficiary had died, and thus his share of the property was to be allocated accordingly. - It is a court order which presumes that a beneficiary had pre-deceased the settlor and is applied in instances where the beneficiary’s whereabouts are unknown. Thus, the trustee can allocate the trust fund as though the beneficiary had died. - Before the order is made, the court must be satisfied that all possible or reasonable inquiries have been made as to locate the beneficiary. - However, if the beneficiary turns up, he may then trace his share of the property from the recipients. The trustees cannot be held liable for any breach of trust where distribution is made after the court order. Duty to act in the best interest of the beneficiaries in all matters Trustees have a duty to not put their own interests before those of the beneficiaries. - Trustees must treat the beneficiaries’ interests as paramount, and thus, they should not place ethical or social demands above such interests, thereby depriving the beneficiaries of investment or opportunities they would otherwise have enjoyed. Cowan v Scargill: The trustees refused to approve an annual investment place for £200 unless certain clauses were amended, which would result in the investment not competing with the coal mining industry. Held: The trustees were furthering the interest of the coal mining industry and were not acting in the best interest of the beneficiaries. - When the purpose of the trust is to provide financial benefits for the beneficiaries, as is usually the case, the best interests of the beneficiaries are normally their best financial interests. - In the case of a duty to invest, the duty must be exercised so as to yield the best return for the beneficiaries, judged in relation to the risks of the investments in question (whether the return of investment would profit the trust) - In considering what investments to make, trustees must put aside their own personal interests and views. Trustees may have strongly held social or political views. - E.g: They may object to any form of investment in companies concerned with alcohol, tobacco, armaments. - However, under a trust, if these types of investments would be more beneficial to the beneficiaries than other investments, the trustees must not refrain from making the investments by reason of the views that they hold. Downloaded by Arianna Nana ([email protected])  lOMoARcPSD|12296408 The rule in Howe v Dartmouth: In acting in the best interests of the beneficiaries, the trustees have a duty to convert the trust property into something valuable, subject to the trust instrument. - E.g: Trustees may sell property which do not produce income and apportion the proceeds between the beneficiaries. Duty to keep accounts A trustee has a duty to provide his beneficiaries with a full and accurate record of his management of the trust property. - Pearse v Green: Trustees are required to keep and render proper, clear and accurate financial accounts, with supporting vouchers, receipts and other documents. He must allow the beneficiaries or their solicitors to inspect such accounts when requested to do so. - Sec. 28: A trustee may employ an agent for the purpose of maintaining accounts. - Wroe v Seed: A trustee who was illiterate and therefore could not keep accounts himself was justified in employing an agent to keep accounts. - There is no duty to have the accounts audited, unless specifically required under the trust instrument. - However, Sec. 27(4): Trustees may from time to time have the accounts of the trust property examined or audited by an independent accountant. Duty to provide information to the beneficiaries Trustees have a duty to provide information relation to the trust fund to the beneficiaries and allow them to inspect trust documents. - Beneficiaries are beneficial owner of the trust property, and are thus equitable owners of the trust documents. - O’Rourke v Darbishire: Beneficiaries have a right of access to the document they desire as they are beneficiaries to the trust. Exceptions: The right does not extend to - Documents which the beneficiaries have no beneficial interest in - Documents belonging to the trustees - Documents which records the reasons for the trustees’ decisions Re Marquess of Londonberry’s Settlement: The trustees were to distribute the trust fund in proportions as they think fit. One of the beneficiaries complained that she received too little and thus wanted to inspect all the documents which indicated the reasons which led the trustees to act as they did. Held: The beneficiary was not allowed to see the documents. Downloaded by Arianna Nana ([email protected])  lOMoARcPSD|12296408 Duty to invest Re Wragg: ‘To invest’ includes to apply money in the purchase of some property from which interest or profit is expected Tan Soo Lock v Tan Jiak Choo: If it can be inferred from the will that the trustee is to collect income from the trust property, there is a duty to invest. Where the trust instrument does not expressly prohibit certain investments, investments authorised under the trust instrument may be made. - Re Harari’s Settlement: Any express power of investment under the trust instrument should not be interpreted restrictively. - If the trust instrument allows the trustee to invest as he thinks fit, the court will construe the power to invest widely. - Re Lake: Where a trustee makes an unauthorised investment, they will be liable for any loss incurred. Trustees may also choose to make investments approved under Sec. 4 provided that they are not in contrary to the authorised investment clauses in the trust instrument. Loans to approved companies (Subject to the requirements in Sec. 4(2)) - Sec. 3: An approved company is a company incorporated in Malaysia, or if incorporated prior to Malaysia day, in Sabah or Sarawak and having a place of business in Malaysia. - Sec. 4(2)(a): No trust fund is to be invested unless the paid-up ordinary share capital of an approved company is not less than five million ringgit. - Before making any investment, the approve company must have a paid-up ordinary share capital of not less than five million ringgit. - Sec. 4(2)(b): The approved company must have paid a dividend at the rate of not less than 5% during each of the last three years prior to the time of investment. - Sec. 4(2)(c): The total amount of the borrowings of the approve company from all sources, shall not exceed two-thirds of the amount excluding prospective interest, for the time being secured to the approve company from its borrowers. Other types of investment: - The trustee can sell shares belonging to the trust and buy other authorised shares (authorised by the trust instrument or statute) - Trustees can sell land under the trust property in order to buy another piece of land or other shares - If the trust instrument does not expressly provide the trustees with power to sell or deal with the trust property, the trustee or beneficiary can apply to the court under Sec. 59(1) for such power to be granted, where the court considers it expedient. All types of investment must be made according to standard of a prudent businessman in order for the trustee to avoid being held liable for breach of trust. Downloaded by Arianna Nana ([email protected])