Topic 3 – Trustees Part II

Limitation number of S.39 (1)(a), (b) TA 1949

Trustee - No more than 4 persons
Exception under S. 39(2) TA 1949
- Restriction not applicable in the case of property vested in trustees for charitable, religious or public purposes
o In relation to S.9 of Government Proceeding Act 1974

Retirement of Trustee - Retirement means a discharge from further responsibility and liability under the trust
- A trustee is prohibited from retirement when dispute arise among the beneficiaries and leave them to settle their
differences among themselves
o Or else he is considered to commit breach of trust and remains liable
Express provision
- In a deed or will
- Trust instrument may make specific provisions in respect of the retirement of trustees
Statutory provisions
- S.40(1)
o “desire to be discharged”
- S.43(1)
o Prescribes conditions
 Permits the retirement of a trustee without a replacement being appointed
 Only be possible if at least 2 individual trustees/a trust corporation remain to perform
the trust
o Considered as being discharged and retired from the trust
 Without any new appointment made
 If condition not satisfied, trustee may retire and be replaced under s.40 TA
- Retirement will not protect trustee from liability for breaches of trust that he committed whilst being a trustee
o Will be liable for breaches of trust committed after his retirement if he retired to facilitate those breaches
Consent of all beneficiaries
- Beneficiaries are full age & sui juris
- Trustee cannot be forced to retire (removal) by beneficiaries
o No matter how much beneficiaries may have wished to have them replaced
Court order
- S.45
 o Court may make order to appoint new trustee in substitution in the prescribed circumstances
o Court also enjoy inherent jurisdiction to allow trustee to retire

Removal of Trustee Express provision

- Trust instrument may contain express provisions authorizing the removal of trustees
Statutory provision
- S.40(1)
o All situations in s.40(1)
o Ligar Fernandez v Eric Claude Cooke[2002] 6 CLJ 152
- S.45
o Court has the power to appoint new trustee in the prescribed circumstances
 But may a trustee be removed when the court appoint new trustee under the section?
 Titterton v Oates [1998] 143 FLR 467 (Australian case)
 s.70 Trustee Act 1925 (NSW)
 Held:
o section does not have any explicit power to remove trustee
 power to appoint in substitution for existing trustee may be intended to
simply authorize court to replace trustee who has resigned or disqualified
from continuing that role
 following decision in Monty Financial Services Ltd v Delmo [1996] 1 VR
65
 Found jurisdiction conferred by s70 does not extend to an application to
remove a trustee against his or her will
o In terms of removal:
 Not be removed merely bcs certain beneficiaries desire his or her removal
 Not be removed bcs all beneficiaries requires such removal
 Conflict of interest not necessarily lead to removal
 Breach of trust will also not necessarily lead to removal
 Jurisdiction must be exercised with a view to the interest of beneficiaries,
security of trust property, efficient and satisfactory execution of the trusts
and a faithful and sound exercise of the trustee’s power

 S.45(2)
o Court’s inherent power
 More is required than mere friction between trustees and beneficiaries to justify removal
 Re Wrightson [1908] 1 Ch 789
  “you must find something which induces the court to think either that the trust property will
not be safe or that the trust will not be properly executed in the interest of the beneficiaries”
 Letterstedt v Broers (1884) 9 App Cas 371

o Halsbury’s Laws of Malaysia:

 Court can remove a trustee if
 Refuse to execute a trust
 Mismanaged the trust; or
 Disqualified himself by the
o circumstances or conduct
 from continuing to hold office; or
 if detrimental to the trust owing to him being out of sympathy with it’s
object or his beneficiaries

Death of trustee Death:

- S.23(1) TA
- In the case of sole trustee
o If he dies, 2 options
 S.23(2) TA
 Personal representative can exercise the power given to the sole trustee
 S.40(1) TA
 Choose to point new trustees as they are not bound to accept trusteeship

Disclaimer of - Any person nominated to be a trustee can choose to disclaim it

trusteeship o But once accepted, cannot disclaim
- Can be done
o By deed
o By oral application
o Inference by conduct

Vesting of trust property - The vesting of trust property in new or continuing trustees is provided for under S.44 TA
S.44(2) TA – retiring trustee
S.44(3) TA – interest & rights as are capable of being and ought to be vested in those persons
S.44(4)(a) TA - exclusion
S.48 TA – court may make order for the vesting of land
Fiduciary nature of - Snell’s Equity:
trusteeship o General nature of fiduciary duties & concept of loyalty of trustee:
 Prohibits a fiduciary from acting in situation where there is a conflict between fiduciary duties
and his or her interest
 Prohibits fiduciary from making profit out of his or her fiduciary position
- 2 sub-topics:
o Remuneration
o Secret profit

REMUNERATION
- A trustee cannot expect remuneration for performing duties in relation to the trust
o But does not preclude from recovering his or her cost and expenses in executing the trust
 S.35(2)
- Equity disallow a trustee to enter arrangements where his or her interest would come into conflict with the
interest of those he or she is required to protect
o Barret v Hartley (1866) LR 2 Eq 789

Exceptions where trustee can get remuneration:

- Remuneration provided for in the trust instrument
o Charges to be paid ought to be reasonable
o where trustee claim excessively, may give rise to breach of trust actions
o remuneration clause are subject to strict construction
 Re Chapple (1884) LR 27 Ch D 584
 A clause “to make the usual professional charges”
- Remuneration authorized by the court
o Boardman v Phipps
 Pursuant to its inherent jurisdiction
 May exceptionally authorize remuneration for fiduciaries
o Brown v Litton (1711) 1 P Wms 140
 A mate who has assumed command of the vessel on the captain’s death made use of the money
brought by the captain
 Resulting in considerable profits
 In spite of being held accountable for all the money and profits
 He nevertheless was permitted to receive remuneration for his diligence
 o O’Sullivan v Management Agency and Music Ltd
 Contract between singer and his agent was set aside for breach of fiduciary & undue influence
o Re Duke of Norfolk’s Settlement Trusts
 Court may authorize trustee to increase the remuneration rate
 factors should be borne in mind:
o Nature of the trust
o Experience and skill of a particular trustee and to the amount which he seeks to
charge when compare to what other trustees might requires to be paid for their
services
o All other circumstances in the case
 That it would be in the interest of the beneficiaries to increase the
remuneration, court may properly do so
- With consent of all beneficiaries
o Trustee may contract for remuneration with the beneficiaries
 Who are sui juris and absolutely entitled to the trust property
o Such contract is regarded jealously by the court & must not be secured by pressure
- Remuneration authorized by legislation
o S.46 TA
- Under the rule in Cradock v Piper
o A solicitor-trustee is permitted to charge for his services if he has acted for a co-trustee and himself in
respect of an action or matter in court
o Relates to work litigious in nature and the activities concerned have not increased the usual expenses
o The rule has been said to be “exceptional, anomalous and not to be extended”
- Overseas trust assets
o Where law of the country where the trust assets are situated permit trustees to receive remuneration
 Re Northcote’s Will Trusts
SECRET PROFIT

- If trustee, being in a fiduciary relationship, secures a benefit for himself by taking advantage of the trust
o Equity will not allow him to retain the same; and
o He or she shall hold the benefit under a constructive trust
- Some ways that these can happen:
o Under the rule in Keech v Sandford
 Established principle that trustee must not use his position as a trustee so as to enrich himself
 Keech v Sandford
 The principle has been extended to all instances where one stands in a fiduciary
relationship with another
 Fiduciary has to account for the profit
 Profiteer, however honest and well intentioned, cannot escape the risk of being called
upon to account
o Arising of the use of confidential information
 Imposition of constructive trust may be an appropriate remedy in cases where a trustee has been
unjustly enriched on account of a breach of confidence at the beneficiary’s expenses
o Purchase by trustee of trust property
 The general rule: trustee cannot be involved in self-dealing with property belonging to the trust
 Campbell v Walker
 Any trustee purchasing the trust property is liable to have the purchase set aside
o Purchase by trustee of beneficial interest
 Coles v Trecothick
 A trustee may buy from cestui que trust, provided that there is a distinct and clear
contract, ascertained to be such after a jealous and scrupulous examination of all
circumstances
o Proving that cestui que trust intended the trustee to buy
 There’s no fraud, no concealment, no advantage taken
 By the trustee of information acquired by him in the character
of trustee
o Director’s fees
 Any director’s fee received will be subject to the general rule that a trustee is not to profit from
the trusteeship
 Rule doesn’t apply /not to account for the director’s fee received if :
 a trustee secure directorship as a director of a company in which the trust has shares was
 made before the person’s appointment as trustee; or
 appointed a director independent of the trust shares, on account of his own personal
shareholding
 court also possess power under its inherent jurisdiction to allow trustee-directors to retain their
remuneration either in full or in part
 Re Duke of Norfolk’s Settlement Trust
 Trust instrument may provide for a trustee to appoint himself as a director and be remunerated
o Re Llewellin’s Will Trust
o Competing with the trust
 Trustee is prohibited from competing with any business belonging to the trust
 In specialized business, the rule is strictly adhered to
 Re Thomson
 Rule does not apply to ordinary businesses where the element of competition is not an issue
 A question of fact
POWERS AND DUTIES OF TRUSTEES

Power - Power in context of trusteeship is the recognition that a trustee may or may not do certain act in the
discharge of his or her duty
- Court will not interfere with a trustee’s decision which are honestly arrived at
o Scope for court to interfere is limited, but not excluded
o Halsbury’s Laws of Malaysia
 Trustee may not use the powers which the possession of the legal estate in the trust
property confers on him in law
 Except in a proper way for the legitimate purposes of the trusts
 If he is about to exercise a power improperly, he may be restrained by
injunction
o Re Hastings
 Court may interfere where:
 power exercised in mala fide
 where trustee has taken into account irrelevant factors or alternatively has not
taken into account relevant factors
- Unreasonableness
o A decision that some other trustees may not have opted for is not necessarily unreasonable for
the purpose
 But a decision that is clearly perverse may not be allowed to stand
- S.2(2)

Duty to invest - Trustee is under duty to invest funds in investments authorized for the purpose,
- specifically as authorized by the trust instrument, legislation or by the court
- Investment duties:
o Trustee is required to be fair to the income beneficiaries as well as those entitled to the corpus
o Law requires trustee to be honest and avoid risky and speculative investments
- General considerations
o Standard of care
 Trustee is to take such care as an ordinary prudent person would for the benefit of other
people for whom he or she felt morally bound to provide
 Re Whiteley
 “The duty of a trustee is not to take such care only as a prudent man would take
if he had only himself to consider, the duty is rather to take such case as an
 ordinary prudent man would take if he were minded to make the investment for
the benefit of other people for whom he felt morally bound to provide”
 Learoyd v Whiteley
 Gen rule: law requires trustee no higher degree of diligence in the execution of
his office than a man of ordinary prudence would exercise in the management
of his own affairs
 Duty of trustee: confine himself to the class of investments which are permitted
by the trust and likewise to avoid all investments of that class which are
attended with hazard
 Speight v Gaunt
 “a trustee ought to conduct the business of the trust in the same manner that an
ordinary prudent man of business would conduct his own”
 The fact that trust is suffering loss
 Not conclusive that trustee is liable for the loss if only for that reason
 Nestle v National Westminster Bank
o “one must be careful not to endow the prudent trustee with prophetic
wisdom or expect him to have ignored the perceived wisdom of his
time”
 Not every error of judgment on the part of the trustee amounts to a breach of
duty
 Trustee not under an absolute obligation to ensure the capital value of the fund is
maintained
o Securing advice
 Duties may include the duty to seek appropriate advice
 Acting solely on good faith may not always be sufficient
 Honesty and sincerity not equal to prudence and reasonableness
 Pearce: “trustees would not be discharging their function if they followed the advice
without applying their minds to it, but equally it would be unwise to disregard the
advice without good reason”
 Lee Tak Suan v Tunku Dato’s Seri Shahabudin bin Tunku Besar Barhanuddin &
Ors
 Some committee members of the Selangor Turf Club were alleged to made a
huge investment without due diligence
 Advice was secured from an independent financial adviser, assisted by the
club’s finance and administration manager
o Professional trustees
  Law demands a higher standard from professional trustees, including trust corporations
 Bartlett v Barclays Bank Trust Co Ltd (No 2)
 Higher degree of care is plainly due from someone like trust corporation which
carries on a specialized business of trust management
o Specialist trust officers, managers with ready access to financial
information and professional advice, dealing with and solving trust
problems and others
o Relevancy of non-commercial motives
 Trustee must act in the best interest of the beneficiaries
 Cowan v Scargill
 Some trustees (including Mr Scargill) of a pension fund refused an investment
plan submitted by experts
o Unless changes made to the plan designed to prohibit investment which
were in competition with coal and investments in South Africa
 This view in line with policy of National Union of
Mineworkers, which Mr Scargill was then the President
o In considering what investment to make, trustees must put on one side
their own personal interest and views
 Harries v Church Commissioners for England
 Trustees of the Church of England’s investment fund refused to invest in certain
activities including gambling, tobacco

- Investment powers
o Express power of investment
 Express power in trust instrument, the scope of permissible investment power may
require a construction of the relevant provision
 Re Harari’s Settlement Trusts
 Power conferred on trustee was formulated as being investments “as trustees
may think fit”
 Re Power’s Will Trust
 Power to invest in a freehold property was held not to have authorized the
purchase of a freehold house for the occupation of beneficiary
 Trust instrument may allow trustees to lend money
 But lending in return of a personal promise ot of personal property is not
permissible
o Constitute a conduct amounting to a breach of trust
  Khoo Tek Keong v Ch’ng Joo Tuan Neoh
o Statutory range of investment
 S.4 to 15 (Part II)
 Express provision in respect of investment by trustee
o Leasing of trust property
 Where trustee rent out trust property
 They are under continuing duty to ensure, as far as they reasonably can
o Rents are paid, and if not, to seek new tenant
 Failure to do so amounts to a breach of trust
 Byrnes v Kendle [2011]

Duty to review investment - Law requires trustees in the exercise of their discretion not to ignore relevant considerations or take into
from time to time account irrelevant considerations
- Rule of relevancy
o Applies only to considerations that trustees are duty bound to take into considerations
 Sieff v Fox
- Edge v Pensions Ombudsman
o Judge may disagree with the manner in which trustees have exercised their discretion
 But unless they can be seen to have taken into account irrelevant, improper or irrational
factors, or unless their decision can be said to be one that no reasonable body of trustees
properly directing themselves could have reached
 Judge cannot intervene
-