QUESTION 1

Alan and Rina were appointed by their friend, Marcus, as trustees of a trust created for
the benefit of Marcus’ brothers, Sam and Bob. Three months ago, Sam offered to sell to
Rina his land in Seremban. He knew that Rina is looking for a piece of land in
Seremban to build a family home. Rina wants to know whether she can purchase the
land from Sam.

Advise Rina

ANSWER
Generally, under the fiduciary duty, a trustee is not entitled to receive any benefit from his
position as a trustee. This is because, 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.

As mentioned in Bray v Ford, “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”.

Next, a trustee is prevented from (a) make any unauthorized profits from the trust; (b)
not entitled to receive any remuneration; (c) make any secret profits;

The general principle in secret trust is the trustee is not allowed to make any
unauthorized trust. The equity will not the trustee to retain any benefit from the trust.

According to the rule in Keech v Sandford, the trustee must not use his position as a
trustee so as to enrich himself.

In respect to trustee purchasing trust property, the judge in Campbell v Walker had
explained the general position that any trustee purchasing the trust property is liable to have
the purchase set aside, if in any reasonable time, the beneficiary chooses 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.

The effect of the purchase is the transaction is voidable at the instance of any
interested beneficiary, regardless of how fair, open and honest the transaction may have been
as in 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.

Alternatively, under purchase of beneficial interest (fair-dealing rule) as in 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.

Also in 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
and the trustee proved that the transaction was arranged by the beneficiary itself.

By applying to the question, Rina may purchase the land offered by one of the
beneficiaries, Sam as the purchase of the land is allowed in law and it is not voidable as of
right. However, this purchase can be set aside if court did not satisfy with the course of
dealing while Rina purchasing the land from Sam.

However, there are several exceptions laid down in Tito v Waddell to avoid the
transaction being set aside (a) she has taken no advantage of his position; (b) she has made
full disclosure to the beneficiary and (c) the transaction was fair and honest.

Rina must fulfill all the requirements where she must prove that she has taken no
advantage of her position as a trustee to purchase the land that had been offered by the
beneficiary itself. Other than that, she must make full disclosure to Sam that she wanted to
purchase the said land without using her position as the trustee. Also, she must prove that she
had acted in bona fide to purchase the said land, so that the transaction made by her can be
said fair and honest.
 In addition, Rina may purchase the said land from Sam where she must prove that
Sam as one of the beneficiaries, had offered her to purchase a piece of land in Seremban. In
successful for doing so, she must prove that there must be no fraud, concealment or using her
position as a trustee to the beneficiary to take an advantage to purchase the land as it was
being offered by the beneficiary itself.

As a conclusion, Rina may purchase the land offered by Sam but she must establish
all the requirements laid down in Tito v Waddwell and Coles v Trecothick to avoid her
transaction being set aside as to the general rule whereby the trustee is prevented from
purchasing any property that related to the beneficiaries in general.
QUESTION 2

Harry and Alan are trustees of a trust fund set up by the late Dato Raymond. They wish
to invest in the trust fund by providing a loan to TRZ Sdn Bhd. Advise the trustees as to
their duties and responsibilities, particularly in relation to investments in the said
company. 

INTRODUCTION

          The court in the case of Re Wragg defined duty to invest includes applying money in
the purchase of some property which interest or profit is expected. It can also be defined in
the case of Tan Soo Lock v Tan Jiak Choo where the court held that there is duty to invest if
it can be inferred from the will that the trustee is to collect income from the trust property.

LAW
A trustee has a duty to invest trust funds and failure to do so will result in a breach of
trust. Under the common law, the trustee has three duties that he must ensure during
investing. 

First, he has the duty to act fairly between the beneficiaries as different beneficiaries
will face different consequences. The rule of fairness must be applied by the trustee. Based
on the case of Nestle v National Westminster Bank, the trustee and life tenant has the
responsibility to maintain the value of the trust fund for the remainderman. Hence, his rule
lays down that the trustee cannot exclude the interest of both parties which are life tenant and
remainderman. It emphasizes that it would be inhumane to maintain capital asset’s value if
the life tenant is poor and the remainderman is well-off.

Secondly, the trustee has a duty to make the best investment in return. This means the
investment should result in profit or income to the trust fund as per the case of Cowan v
Scargill. 

The final duty of a trustee under common law is that they have to act prudently and
safely. The case of Learoyd v Whiteley has set the requirement that a trustee must act as a
businessman of ordinary prudence and avoid any dangerous investments. However, this does
not prevent the trustee from taking risk in investing. Pursuant to the case of Bartlett v
Barclays Bank, it is stated that the trustees can take a risk provided they must act prudently
in taking the risk. 

In exercising duty to invest, the investment is said to be authorised only if the trust
instrument does not expressly prohibit certain investments. In Re Harari’s Settlement, it was
stated that any express power of investment under the trust instrument should not be
interpreted restrictively. Nevertheless, the trust instrument allows the trustee to invest as he
thinks fit, the court will construe the power to invest widely. However, in Re Lake, if the
trustee makes an unauthorised investment, they will be liable for any loss incurred. 

Under the Trustee Act, it is provided in Section 6 regarding the trustee’s power of
investment. First, in Section 6(1)(a), a trustee should have regard to the need for the
diversification of the investments of the trust while simultaneously assessing the degree of
risk involved whereas in section 6(1)(b), the trustee needs to consider the suitability of the
investment. Where a trustee has made an authorized investment, he may still be held liable if
the investment is not suitable for the purpose of the trust. Section 6(2) further lays down that
before exercising such power to invest, the trustee must obtain proper advice as to whether
the investment is satisfactory. The meaning of proper advice has been defined in  Section
6(3) which defines it as the advice of a stock broker obtained through the trustee's bank
manager or the advice of an authorised accountant. Such advice must be made in writing as
per section 6(5).

For a trustee to make an authorized investment in a loan, he must comply with the
guidelines mentioned in Section 4. The trustee cannot invest outside the purview of Section
4. If trustees do so, there will be a breach of trust. In Section 3, it provided the meaning of
authorized investments which are investments authorized by the instrument, if any, creating
the trust for the investment of money subject to the trust, or by law. Other than that, Section 3
also mentioned the definition of approved company which 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. Moreover, by referring to Section 4(1)(e) of the Trustee Act, a trustee
may invest any trust funds in his hands, whether at the time in a state of investment or not, in
the manner of providing loans to an approved company. 
      Apart from that, pursuant to Section 4(2)(a), before making any investment, the approved
company must have a paid-up ordinary share capital of not less than 5 million ringgit. This
means the actual amount of money received into the company must be more than five million
ringgit. This is to indicate that the company has financial stability. Furthermore, Section 4(2)
(b) provides that the approved company must have paid a dividend at the rate of not less than
5% during each of the last 3 years prior to the time of the investment. Based on Section 4(2)
(c), the total amount of borrowings of the approved company from all sources shall not
exceed two-thirds of the amount excluding prospective interest, for the time being secured to
the approved company from its borrowers. It must be noted that before a trustee may invest in
loans to an approved company, all requirements in Section 4(2) must be fulfilled.

Last but not least, the trustee is required to have a standard of care. This has been
mentioned in the case of Speight v Gaunt, where the standard of care required to make an
investment is of an ordinary prudent businessman acting in his own affairs. However, he is
not allowed to exercise some level of standard as if he is dealing with his own property. Thus,
the standard of care of no higher than a man of ordinary prudence is required.

APPLICATION

In applying to the recent question, as trustees, Harry and Alan must act in the best
interest of their respective beneficiaries. Therefore, their intention to invest the trust property
would likely give benefit to the beneficiary by gaining profit and interest from the
investment.
 
In order to make an authorised investment, it is advisable for Harry and Alan to
ensure that all three duties under common law were being fulfilled. 
 
Firstly, Harry and Alan need to act fairly to the beneficiary. They are required to be
fair to the income beneficiaries as well as those entitled to the corpus. By virtue of Nestle v
National Westminster Bank, they must ensure that the investment made by providing loan to
TRZ Sdn Bhd is fair as their duty to maintain the value or generate profits for the trust fund
must also be more beneficial to all beneficiaries listed by the late Dato Raymond.
 Secondly, Harry and Alan must ensure that the act of providing a loan to TRZ Sdn
Bhd will be the best investment in return by considering the profits as well as its risks.

Thirdly, both Harry and Alan must act prudently and safely by avoiding such
investment if it is too risky or if it is a speculative investment. It means that, as trustees, they
are first expected to have information and sources as to whether TRZ Sdn Bhd is safe for
making such investment. 

Before they proceed with the investment, they need to acknowledge the power
provided under Section 6 of the Trustee Act to avoid any infringement. By virtue of section
6(1)(a), there is a need for Harry and Alan to diversify their investments to TRZ Sdn Bhd.
The reason to diversify the investment is to even out the risks. Next, Harry and Alan need to
consider regarding the suitability of the investment as provided in section 6(1)(b). Harry and
Alan need to make sure that the investment made is in line with the purpose of the trust. If it
is found to be unsuitable, Harry and Alan will be held liable.

Lastly, before exercising such power to invest, as provided under section 6(2) and (3),
Harry and Alan must obtain proper advice from a stockbroker through their bank manager or
from an authorised accountant as to whether the investment is satisfactory. If all these
guidelines have been complied with, they can proceed with their investment.

Next, by referring to the situation given, if the trust instrument prohibits certain
investments, then it could not be done. Harry and Alan are allowed to make any authorized
investment, if the trust instrument does not state any prohibition.

In this case, if TRZ Sdn Bhd falls under the criteria of an approved company as
mentioned in section 3, they can invest the trust fund on the company by way of providing a
loan as this act was allowed under section 4(1)(e) of the Trustee Act.

Besides, they shall observe all the requirements provided in section 4(2). By virtue of
paragraph (a), Harry and Alan must indicate that TRZ Sdn Bhd is a company with a stable
financial position by looking at the paid-up ordinary share capital of the approved company.
It must be more than 5 million ringgit. In other words, TRZ Sdn Bhd must be a big and strong
company. Apart from that, based on Section 4(2)(b), TRZ Sdn Bhd must be making a profit
for 3 consecutive years and for every year, the dividend minimum declared is not less than
5%. This also reflects that TRZ Sdn Bhd is financially healthy. Paragraph (c) mentioned that
the total amount of borrowings of TRZ Sdn Bhd from all sources shall not exceed two-thirds
of the amount excluding prospective interest, for the time being secured to the approved
company from its borrowers. If Harry and Alan identified that TRZ Sdn Bhd has fulfilled all
the three requirements under section 4(2), they can proceed to make such investment.

The last requirement that Harry and Alan must take into account is that their standard
of care required is of ordinary prudent businessmen acting on their own affairs. As per the
case of Speight v Gaunt, Harry and Alan are not allowed to exercise some level of standard as
if they are dealing with their own property.

CONCLUSION

To conclude, as accordance to section 6(2) of the Trustee Act, after obtaining a proper advice
Harry and Alan have the right and power to invest the trust fund by way of providing a loan if
TRZ Sdn Bhd falls under the criteria set under section 3, fulfills all the guidelines mentioned
under section 4(2) and after taking into account the standard of care as required.
QUESTION 3
Rick and Aron are the trustees of a trust fund held for the benefit of Robert for life and
the remainder for his children, who are minors in equal shares. Rick told Aron that
since Robert is a teetotaler and non-smoker, none od the trust funds should be invested
in any company, which engaged in the alcohol or tobacco industry, although the trustees
knew that the best returns on investments could only be achieved from these two
industries. Advise Aron.

ISSUE

Whether Aron has the duty to invest and act in best interest of the beneficiaries by
investing in any company engaging with alcohol and tobacco industries for the benefit of
Robert.

LAW

Duty is the legal obligation to do something, failure to do so means that it is a breach,

and the trustee will then be liable. “Investment can be defined as an act to apply money in the
purchase of some property from which interest or profit is expected” as been explained in the
case of Re Wragg. If the trust imposes a duty for the trustee to invest the property in the trust.
Thus he must invest and failure would result in him to be in breach of duty. Referring to the
case of Tan Soo Lock v Tan Jiak Choo, it was held that it was a breach of trust to leave trust
funds lying idle and uninvested, but it so venial a breach of trusts not to call for any penalty.
The trustee must merely make good to the estate simple interest at the “ordinary” rates that is,
the return reasonably to have been expected from the funds if they had been invested in
trustee securities.

There are three types of investments. Firstly is investment mentioned in the trust
instrument. In the case of Re Lake: if a trustee makes an unauthorized investment, they will
be held liable. Secondly is investment not mentioned in the trust instrument where
investment can be made based on Trustee Act, either solely or in addition to the trust
instrument. Thirdly is investment prohibited in the trust instrument where trustee can apply to
the court under Section 59(1) to grant power to trustee to sell or deal with the trust property
but all beneficiaries must be sui juris and all must agree.
 There are factors to consider in making investment such as trustees must be fair and
act in the best interest of the beneficiary, avoid risky investments and be honest, trustee must
also get professional advice if necessary, investment must generate profit for the trust fund
and moral and ethical factors. In Cowan v Scargill (1984), a trust was created to provide for
the beneficiaries. But, in South Africa investing in companies engaging in alcohol, tobacco,
armaments and some other countries is not well celebrated as there is a bad perception
towards the sectors. The court held that the power of investment must be exercised to ensure
return for the beneficiaries. Multiple factors have to be considered such as risks of
investments, prospects of yield income and capital appreciation. In making investments also,
trustees have to put aside their own personal interest. It was held that they may abstain from
making such investments that morally contradicts with their principles. But, under a trust if
the investment of the type would be more beneficial, thus the trustees must make the
investment happen.

Moreover, in Harries v Church Commissioners for England, Richard Harries,

Bishop of Oxford, challenged the Commissioners to change their investment policy. 85% of
the fund provided income for stipends for serving clergy, pensions for retired clergy and
housing for both. Harries argued that investments should not be selected that were
incompatible with ‘the promotion of the Christian faith through the Church of England’ even
if it involved financial detriment. The Commissioners argued their policy was fine, of
regarding non-financial considerations so far as it did not ‘significantly jeopardise or interfere
with accepted investment principles’. Evidence showed not investing in South Africa meant
not investing in 24% of listed companies. The court held that the Commissioners policy was
sound. He went on to say that one can invest ethically if otherwise there would be a conflict
with the trust’s objects. It tempers the decision in Cowan v Scargill to show that trustees can
make investments, guided by ethical considerations, if it can be shown that overall financial
performance would not be harmed, but also if it would be consistent with the purpose of the
trust.

By virtue of section 6, this act gives power to the trustee to change the nature of the
investment of the trust property. Although there is an express prohibition against the type of
investment but it can be done provided that all of the beneficiaries must be sui juris must
consent to the change. This shows the need for diversification. In Quan Hen2 : Lian Neo v
Seow Tiane Tin & Ors, the court can do as such provided that it is in a proper case that
fulfils all the requirement of consent from all beneficiaries.
 Other than that, the trustee has a duty to act in the best interest of the beneficiaries.
Trustees must not put their own interest before those of the beneficiaries. 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. For instance, they may object to any form of
investment in companies concerned with alcohol, tobacco, armaments. The trustees should
invest in high yielding portfolios and not investing in portfolios that has a high chance of not
yielding interest. The trustee should always put their personal views aside and cater to the
best interest of the beneficiaries. The best interest of the beneficiaries are usually their
financial interest. In Cowan V Scargill, the trustees refused to approve an annual investment
plan for £200 unless certain clauses were amended which would have the effect that the
investment would not compete with the coal mining industry. The court held that the trustees
here, were held to be furthering the interest of the coal mining industry and were not acting in
the best interest of the beneficiaries.

APPLICATION

In this situation, it is important for Aron to invest in the companies regardless of

Rick’s opinion on Robert’s condition because failure to do so would result him to be in
breach of duty as a trustee. As per mentioned in section 6(3) discuss on the suitability of the
investment by the trustee. It can be seen that Aron has made a suitable investment as the
companies operate in an industry that is profitable . This will ensure that the trust will be
sustained for the benefit of the beneficiary as there is a need for diversification in this
circumstance. This has been discussed in the case of Quan Hen2: Lian Neo v Seow Tiane
Tin & Ors, where the court has established that the diversification is possible granted that it
is done in a proper case. In applying the ruling towards Aron’s situation, he can invest
provided that proper steps are taken to make the investment.

Besides, Aron as the trustee of the trust fund need to consider the following factors in
making an investment. With regards to moral and ethical factors, Aron may abstain from
making such investments that morally contradicts with their principles. This is due to Aron
who thought that the best return could only be achieved from tobacco and alcohol industry
despite knowing that Robert is a teetotaler and non-smoker. In Cowan v Scargill, the trustees
were held to be furthering their own interest therefore Aron and Rick cannot put their own
interest ahead for the trust.
 Next, 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). Aron has a duty to act in the best
interest of the beneficiaries. However, Aron must put aside his own personal interests and
views in considering what investments to make. Aron must take into account the views held
by the beneficiaries whether it be ethically or morally. Based on the case of Harries v
Church Commissioners for England. The learned judge recognized an that some
investments can be not carried out based on moral and ethical factors on the part of the
beneficiaries.

Besides, the trustee can act in such a way because the investment is not mentioned
and there is no prohibition in the trust instrument. However, there are circumstances whereby
if the trust instrument prohibited the investment considered by Aron, Aron may apply to court
to seek for the grant to proceed with the investment so long as the investment would be
beneficial to Robert.

CONCLUSION

In conclusion, Aron has the duty to invest and act in best interest of the beneficiaries
and the best interest of the beneficiary is to gain as much return of investment for the
beneficiaries however, Aron cannot put his own interest and view without considering
Robert’s moral ethical factor.
QUESTION 4

A trust fund set by Ron consisted partly of a lease of premises on which the trust
business, an interior décor firm run by the trustees, was established. However, due to
the recent recession, the trust often delayed in paying the rent and as a result, the
renewal of the lease was not offered to the trust. The option of the lease was instead
offered to Ridge, a newly appointed trustee, who owned a very successful interior design
firm.

Advise the trustees on their legal position.

ISSUE

Whether a trustee may renew the lease for his own benefit?

LAW

A fiduciary duty is when 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 states
that 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. However, there are exceptions, if it is expressly provided, it is
allowed for trustee to receive any benefit. These general rule and exceptions are stated in
Bray v Ford.

Basically, there are several fiduciary duties of trustee but the duty concerned here is a duty to
not allow his interest and duties conflict. The ‘no-conflict’ rule refers to situations where the
trustee is liable for any profit he gets in circumstances where his interests may conflict with
his duty as a trustee. The trustee must avoid conflicts of interest and the trust’s interest. In
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. Any profit made from a lease renewed in favour of the trustee will cause
the trustee to be held accountable. As in 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. It was held that 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.

APPLICATION

For the application, the fiduciary’s duty of a trustee must not allow their duty and interest to
coincide with each other. In this present situation, the owner of the premise wants to lease the
premise under one of the trustee’s name, Ridge, instead of the trust fund. This is due to the
delayed payment made by the trust fund and that the owner of the premise had lost their trust
in the trust fund. The owner had put faith in Ridge because of his reputation as the owner of a
very successful interior design firm. Based on the case of Bray v Ford, in order to prevent
incidental profits from his position as a trustee, it is advisable if Ridge does not place himself
in a position where his interest and duty conflicts. Also, it is to be noted in the case of Keech
v Sanford, where the court had held that 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.

CONCLUSION

In conclusion, as a trustee, Ridge may not renew the lease for his own benefits. This is
because, it may raise a conflict between his duty as a trustee and his own personal interest.