As seen in the given question, there are a few issues to be discussed.
The first issue is whether Ruby is allowed to ask for an explanation to the trustees for the
unequal distribution?
The relevant doctrine to be discussed here is that trustees have a duty to convert. What this
means is that trustees has to act impartially among all the beneficiaries to the trust. Therefore,
it is generally stated that trustees have to act in a way that is fair to all the beneficiaries and
trustees cannot favour one beneficiary over another. The relevant case for this is the case of
Nestle v Westminster Bank Private Limited Company [1994] All ER 118 1 in which the
crux of this case is that the grandchild is dissatisfied for bring left with a little money
considering the deceased is a rich man. The court eventually found that there was no breach
of trust by the trustees as it is within their powers to distribute accordingly and her sum that
she received was a reasonable figure of what the property should be worth.
Trustees generally have a duty to distribute. Trustees have to distribute the trust property
accordingly to the trust instrument to those who are entitled. For example, in Hilliard v
Fulford, the judge held that the trustees were ultimately found to be liable for breach of their
trust duties because they had applied an erroneous interpretation of the trust instruments
which due to the wrong interpretation caused the monies to be distributed to the wrong
beneficiaries. Similarly, in the case of Eaves v Hickson, it was found that if the trustees have
paid the trust monies to the wrong party the trustees would have to make good for the loss
occurred.
Another element of trust that should be notes here is discretionary trust. Discretionary trust
generally occurs when powers are given to trustees to divide up the trust property as they
think fit. This means the shares of the trust property are not pre determined by the testator. In
the case of Mcphail v Doulton [1970] UKHL 12 , the trust funds allow the trustees to apply
the net income of the fund at their absolute discretion as they think fit. The court held that
this was a discretionary trust given to the trustees to determine whether a beneficiary would
be able to take the trust property.
In Re Gulbenkian’s Settlement Trusts (No 1) [1970] AC 508 3, trustees were given a very
wide discretionary powers whether to pay the trust monies to the beneficiaries. The court held
that since the trustee are given an absolute discretion to decide in the bona fide faith whether
1
Nestle v Westminster Bank Private Limited Company [1994] All ER 118
2
Mcphail v Doulton [1970] UKHL 1
3
Re Gulbenkian’s Settlement Trusts (No 1) [1970] AC 508
it is appropriate to give to the beneficiates and if they are acting within the trust, the court
will not question or review the decision made by the trustees.
It can also be seen in the case of in Re Londonderry’s Settlement [1965] Ch 9184 in which
the court held that trustees do not have to give any reasons how they are to exercise their
discretionary trusts for the benefit of the beneficiaries.
The crux of discretionary trusts is that the trustees have the option based on their reasonable
care to distribute the trust property. In Re Marquess of Londonderry’s Settlement [1965]
Ch 9185, one of the beneficiaries were dissatisfied with the small sum that was given to her.
She then asked the trustees for the reasons of her distribution. The court stipulated that the
trustees are not bound to disclose the reasons for such distribution because it could cause
fruitless litigation and make jeopardize the position of the trustees’ duty. Hence, the
beneficiaries have no right to actually know the reasons because the discretion is solely given
to the trustee to do so.
In our scenario, applying the case of Nestle, Tham and the trustees cannot be said to have
breached their fiduciary duties as trust as they have acted in accordance to the trust created.
Besides, applying the case of Hilliard and the case of Eaves, it is clear that this is not the case
here as the trust was given to the three beneficiaries which are Ruby m Jade and Violet albeit
their proportion is different. There isn’t any form of absurd interpretation of the trust
instrument as the three beneficiaries have clearly benefitted from it. Further, applying the
case of Mcphail and the case of Re Gulbenkian, the we can see that the trust is said to be a
very wide discretionary trust to Tham and the trustees because the trust instrument uses the
word ‘as they thinks fit’ which is an indicator of a discretionary trust.
Even though Ruby is getting the remaining 20% of the distribution, the court will generally
not question Tham and the trustees for doing so as it is within the powers and discretion of
the trustees. Hence, the court also will unlikely to question the method of distribution towards
Tham. Applying the case of re Londonderry’s Settlement, Tham is not bound to let Ruby
know the reasons for the uneven distribution of the trust between the three beneficiaries.
Further, the case of Re Marquess clearly shows that since the current trust is a discretionary
trust, Tham is not obliged to let Ruby know the reasons for the said distribution because the
discretion is given to Tham and other trustees. When Ruby is claiming that the trustees are
4
Re Londonderry’s Settlement [1965] Ch 918
5
Re Marquess of Londonderry’s Settlement [1965] Ch 918
biased because they dislike her, the onus would seem to be on Ruby to prove that the trustees
and Tham have acted in a mala fide way.
In conclusion, as the trust in the given question is one of a discretionary one, Ruby has no
power to actually ask why the trust monies is distributed this way.
The second issue is whether Ruby is allowed to ask for documents and have access to the
trust account?
Generally, the beneficiaries to a trust may inspect accounts is so required by them. This was
reiterated in the case of O’Rouke v Darbishire [1920] AC 581 6 in which the court held that
a beneficiary is entitled to inspect all documents in relation to the affairs of the trust. The
rationale to this is that the beneficiaries have a proprietary right to do so. This is why trustees
have to be ready with the accounts and information of the trust if is being asked by the
beneficiaries. In the case of Pearse v Green [1819] 1 Jac & W 135 7, the court stipulated that
the first duty of a trustee when handling the affairs of the trust instrument is to be constantly
ready with his accounts.
However, there are always exceptions to a general rule. In the case of Re Londonderry’s
Settlement [1965] Ch 9188, the court allowed the trustees to withhold some documents from
the beneficiaries on the grounds of confidentiality. Examples of categories that are
confidential are the discretionary powers of the trustees and how they are to exercise them. It
is only common documents that is with regards to their proprietary interest that beneficiaries
have a right to know.
Similarly, in Schmidt v Rosewood Trust Ltd [2003] 2 AC 709 9, the plaintiff sought
information on the trust accounts set up by his late father. The defendant is the trustee to the
trust account. The trustees refused to disclosed the relevant accounts and information to the
plaintiff on the basis that since the trust is a discretionary trust, the plaintiff does not have a
proprietary interest to the trust property. The court allowed the trustees ground and rejected
the notion that a beneficiary has a proprietary interest to a trust property as laid down in the
case of Re Londonderry’s Settlement.
Therefore, it can be seen that the grounds that a trustee can rely on to withhold the trust
documents are that such right to inspect does not extend to documents which the beneficiaries
6
O’Rouke v Darbishire [1920] AC 581
7
Pearse v Green [1819] 1 Jac & W 135
8
Ibid
9
Schmidt v Rosewood Trust Ltd [2003] 2 AC 709,
have no beneficiaries interest. It also does not apply to documents that does not belong to the
trustees, or documents which the trustees have absolute discretion to decide on.
However, in the case of Hartigan Nominees Pty Ltd v Rydge [1992] 29 NSWLR 405,10 in
which the court developed the notion that trustees have a duty to keep the beneficiaries
updated with all the relevant information of the trust and that if a beneficiary sought for
information, it is best for the court to intervene and supervise the type of documents possible
to be disclosed.
In the case of AT & T Istel Ltd v Tully [1993] AC 45 11, the court states that inspection of
documents by the beneficiaries do not extent to documents which will reveal any form of
information that is with regards to the exercising of discretion by the trustees.
In Malaysia, it seems that courts are more inclined to allow beneficiaries to inspect
documents from the trustee. This was evident in the case of Chan Chin Cheung v Chan
Chak Cheung [2005] 1 LNS 8912, the court found that when a beneficiary demands the
trustee for the trust accounts or any form of information in relation to the trust, the trustee
must furnish it to the beneficiaries and must inform them what are the rights of the
beneficiaries.
Applying the case of O Rouke and Pearse, it can be seen that Ruby, who is one of the
beneficiaries to the trust account has the right to actually inspect documents in relation to the
trust account. Applying the case of Re Londonderry’s and Schmidt, it is clear that the trust in
our current situation is a discretionary trust in which the trustees have the discretion to
distribute according to their wishes. Hence, applying the said cases, Ruby does not have the
right to actually apply for inspection of documents and accounts since the trust is a
discretionary trust.
On the other hand, when applying the case of Hartigan, Tham as one of the trustees have the
duty to actually keep track and inform Ruby of all the necessary information in relation to the
trust account but with the help of the court to supervise the type of documents that can be
disclosed to Ruby. What is important here like the case of At & T is that when it is a
discretionary trust, Tham would generally not bound to disclose and form of information or
accounts to Ruby as the right and discretion to do so is with Tham and the other trustees. In
10
Hartigan Nominees Pty Ltd v Rydge [1992] 29 NSWLR 405,
11
AT & T Istel Ltd v Tully [1993] AC 45
12
Chan Chin Cheung v Chan Chak Cheung [2005] 1 LNS 89
Malaysia however, applying the case of Chan Chin Cheung to our current scenario, Ruby is
highly likely able to inspect the documents and accounts in relation to the affairs of the trusts.
In conclusion, it is debatable as to whether Ruby can actually apply to inspect for the relevant
documents and information. What is certain is that in Malaysia, the possibility of Ruby being
able to do is high. However, the court might apply some reservation in the sense that not all
documents are able to be inspected by Ruby. Documents that do not prejudice the rights of
the trustees and are important to come to the knowledge of the beneficiaries like Ruby should
only be allowed to be disclosed. Therefore, if the documents sought by Ruby is only in
relation to the reasons of unequal distribution of the trust, then such documents might not be
disclosed to Ruby. On the other hand, trust accounts might be made available to Ruby.
The third issue is whether Tham and the trustees have been in breach for not auditing the trust
account for 2 years?
Generally, a trustee owes a fiduciary duty to the beneficiaries in that the trustees have to take
a reasonable standard of care during the administration of the trust. In the case of Learoyd v
Whiteley [1887] 12 App Cas 72713, the court stipulated that a trustee has to act in a way of
diligence in the execution of its office similar to a man of ordinary prudence would exercise
in the management of the trust account.
In Chan Chin Cheung v Chan Chak Cheung & Anor [2005] 1 LNS 89 14, the plaintiff in
this case was one of the beneficiaries in the trust property. The beneficiaries were not
satisfied with how the trustees are handling and maintaining the trust estate. Therefore, the
plaintiff filed a proceeding in the court to obtain an order to investigate and audit the accounts
of the trust. The court held that trustees have a right to inspect the trust accounts and to
ensure that the matters done by the trustees are in accordance to the trust. However, the court
went on to say that there are generally no duty for trustees to have the trust accounts be
audited unless there is an express clause in the trust instrument which specifically dictates so.
Besides, under section 27(4) of the Trustee Act 194915 provides that the main rule is that
trustees do not have the obligation to have the trust account audited. However, the provisions
13
Learoyd v Whiteley [1887] 12 App Cas 727
14
In Chan Chin Cheung v Chan Chak Cheung & Anor [2005] 1 LNS 89
15
Trustee Act 1949,s 27 (4)
goes on to state that the trustees may in their discretion do so but not more than once a year to
allow the audit of the accounts.
In the case of Tetuan Khana & Co (sued as a firm) v Saling Bin Lau Bee Chiang and
other appeals [2019] 3 MLJ 116, in which the crux of this case is with regards to a trust
money amounting to RM 22 million. It was contended by the plaintiff that there was no
account being submitted by the trustee to the trust for five years and there were ambiguities
as to the amount of interest earned thereon. The court held that the deed of the trust clearly
establishes the need for the trustees to maintain proper accounts and the failure of the trustees
to do so is clearly a breach of the trust deed.
In the case of Maybank Trustees Bhd (formerly known as Aseambankers Malaysia Bhd)
v AMtrustee Bhd [2020] 4 MLJ 40517, the court found that according to the stipulated trust
deed , it is clear that the trustees has a responsibility to examine the books and accounts with
proper notice. Evidence adduced by the counsels have shown that the trustees have failed to
do so thereby breaching their duty or obligation to ensure that the designated accounts are in
accordance to the transaction documents.
As one who is holding a fiduciary duty, it is generally deduced that trustees owes a duty of
care to the beneficiaries. In the case of Wright v Stevens [2019] NSWSC 548,18 the court
held that trustees are always liable for their action against the beneficiaries. The trustees are
therefore obliged to keep proper accounts and allow the beneficiaries to inspect them. It
seems that the liability to keep a proper account is an essential ingredient.
Cases have also shown that the responsibility to audit accounts is based on the court’s
inherent jurisdiction to order as such when intervening in the administration of trust. An
example which can been the court to make an order for the accounts to be audited can be seen
in the case of Henchley and Others v Thompson [2017] EWHC 225 19
in which
beneficiaries may apply to the court and the court may exercise their discretion to make an
order for the account unless to do so would place an impossible position to the trustees due
to the destructions of records.
16
Tetuan Khana & Co (sued as a firm) v Saling Bin Lau Bee Chiang and other appeals [2019] 3 MLJ 1
17
Maybank Trustees Bhd (formerly known as Aseambankers Malaysia Bhd) v AMtrustee Bhd [2020] 4 MLJ
405
18
Wright v Stevens [2019] NSWSC 548
19
Henchley and Others v Thompson [2017] EWHC 225
What amount to trust account properly audited can be seen in the case of Henchley is that an
audited account has to comprise of a balance sheet and an income and expenditure account to
show the comparative figures from twelve months prior. It is also very important that the
audited accounts have to be signed by the trustees and the failure to do so would render the
accounts to be a flop and that it is considered as a business account and not an audited
account.
In MTD Capital Bhd v Tan Sri Dr Azmil Khalili bin Dato Khalid [2019] MLJU 773 20, it
was held that trustees have to audit their accounts in order for them to be answerable to the
beneficiaries when they are being asked for what they have done with the trust assets. The
way to do so is through formal financial statement and must be prepared by accountants
Furthermore, in the case of Nestle v Westminster Bank Private Limited Company [1993]
1 WLR 126021, the court held that the onus to show that the trustees have breached their trust
is on the person that is claiming that.
Applying the case of Learoyd, it is clear that Tham as one of the trustees generally has to act
in the best interest of the beneficiaries, Ruby, Jade and Violet. Tham and the trsutees have to
act in way with reasonable care and skills and an ordinary trustee would be. Applying the
case of Chan Chin Cheung, it can be seen that Tham is not obliged to actually audit the
accounts even though Ruby has the right to inspect the trust accounts. What this means is that
as long as Tham and the other trustees have prepared some form of trust accounts, it is not
necessary for Tham to audit the said accounts. This is clear by applying section 27(4) of the
Trustees Act 1949 in which Tham and the trustee may by their discretion audit the trust
accounts not more than once in a year. However, as stated above, Tham and the trustees may
choose not the audit the accounts as it is not a duty for them to do so. Applying the case of
Tetuan Khana and Maybank Trustees’ case, what is being asked by Ruby now is that Tham
has failed to audit the accounts which is not a requisite under the Trustee Act. Therefore, it
will be a requirement for Tham to audit the accounts if it is expressly being stated in the trust
instrument to do so.
Applying the case of Wright v Stevens, once again, trust accounts are essential to be kept and
updated by the trustees as they might be required to disclose it to the beneficiaries if they are
being asked to. However, it is not essential for the trust accounts to be audited. Applying the
case of Henchley to our scenario, Ruby may ask for the court to get the trust accounts to be
20
MTD Capital Bhd v Tan Sri Dr Azmil Khalili bin Dato Khalid [2019] MLJU 773
21
Ibid
audited but this is still up to the courts’ discretion to do so. However, the case of MTD
Capital is different with the crux of section 27(4) of the Trustee Act and if applying that to
our scenario, it seems that Tham has to audit the trust accounts to prepare for when they are
being asked by the beneficiaries of what they have done towards the trust. Lastly, applying
the case of Nestle, Ruby bears the burden of proof to show to the court that Tham has
actually breached his duty as a trustee.
In conclusion, Tham has the option whether to audit the trust accounts. It is not essential for
Tham and the other trustees to do so according to the statutory provision as mentioned above.
Hence, Ruby may not order Tham to audit the accounts even after failing to do so for two
years as the option is for Tham to decide. In the event Ruby wants to bring an action for
breach of duty against Tham, Ruby then bears the burden to prove such.
The fourth issue is whether Tham is allowed to get any form of remuneration for his services
as a trustee?
The general rule is that a trustee is not allowed to expect for any form of remuneration while
performing his duties in relation to the trust deed. This was seen in the case of Bray v Ford
[1896] AC 4422, in which the court held that a person who is under a fiduciary position is not
allowed to make any form of profit as they are not allowed to be in a position in which there
is a conflict of interest.
However, there are exceptions to the general rule. Under section 35(2) of the Trustee Act
194923, it is stated that a trustee may seek to ask for reimbursement for any form of expenses
in the course of executing the trust. An example to this provision can be seen in the UK case
of Barret v Hartley [1866] LR 2 Eq 789 24in which the trustees are allowed to recover any
costs and expenses when they are executing the trust. In the Malaysia case of The Estate of
Y Deed v Comptroller of Income Tax, States of Malaya [1969] 1 MLJ 157 25, the court
held that a trustee may earn an income and such income renders the trustee to hold a
remunerative office and such is also chargeable with tax.
The second exception to the general rule is that remuneration may be granted to a trustee if it
is specifically provided in the trust instrument itself. In the case of Re Orwell’s Will Trusts
22
Bray v Ford [1896] AC 44
23
Trustee Act 1949, s 35(2)
24
Barret v Hartley [1866] LR 2 Eq 789
25
The Estate of Y Deed v Comptroller of Income Tax, States of Malaya [1969] 1 MLJ 157,
[1982] 1 WLR 133726, the court found that there was a clause in the trust instrument which
allowed the trustee to actually charge for services performed by him as a trustee. However, as
seen in Re Wells, if the trustees claimed an amount as remuneration that is erroneous, the
court may stipulate that the trustees may be in breach of trust actions.
The third exception is when remuneration is authorized by the court. Undoubtedly, courts
have inherent jurisdiction to actually give remuneration to the trustees. In the case of
Boardman v Phipps, the court awarded some remuneration to the trustee who has utilized
the opportunity and has made some profits to the trust account. In O’Sullivan v
Management Agency and Music Ltd [1985] QB 42827, the court reiterated that it may allow
for some remuneration even if there has been a breach of fiduciary duty by the trustees.
Generally, factors that will be looked at by the court include the nature, experience and the
skills of the trustees while handling the trust as stated in the case of Re Duke of Norfolk’s
Settlement Trusts.
In the case of CD v Comptroller of Income Tax [1967] 2 MLJ 16628, the court held that as
long as the trustee is still continuing his services as a trustee, the court should not take into
account the number of work done by the trustee. The court may then determine the adequate
remuneration for the trustee as a reward for his services.
The fourth exception is that remuneration may be obtained if consent by the beneficiaries
have been given to the trustees. This can be seen in the case of Ayliffe v Murray [1740] 2
Atkyns 529 in which the court held that the trustees may make an agreement with all the
beneficiaries to get an allowance. However, in terms like this, the court would be extremely
cautious when enforcing such an agreement.
The fifth exception is that remuneration us authorized by the legislation. This is stated under
section 46 of the Trustee Act 194930 in which it states that the court may allow any trustee
any form of remuneration as the court may thinks fit. For example, in the UK case of
Cradock v Piper’s rule (1850)31 , wit was held that the general rule is that a trustee can
never expect any form of remuneration when exercising his duties as a trustee, however, he is
permitted to charge for his service in respect of an action or any matter in the court. On the
26
Re Orwell’s Will Trusts [1982] 1 WLR 1337
27
O’Sullivan v Management Agency and Music Ltd [1985] QB 428
28
CD v Comptroller of Income Tax [1967] 2 MLJ 166
29
Ayliffe v Murray [1740] 2 Atkyns 5
30
Trustee Act 1949. S 46
31
Cradock v Piper’s rule (1850)
other hand, in the case of Guiness v Saunders, [1989] UKHL 232, the court held that
remuneration may be given to the trustees but only to the extent for the word done which is of
the benefit of the trust and the beneficiaries.
Applying the case of Bray v Ford, we can see that Tham as a trustee who holds a fiduciary
duty shall not receive any form of profit arising from the trust. However, applying section
35(2) of the Trustee Act, if Tham has done any form of matter or court proceedings, he may
ask for reimbursement. Applying the case of Barrett and the estate of Y deed, as long as there
are evidence to show that the trustees has done some work or have spent some expenses for
the trust, the trustee may get back the said expenses and such will amount to remuneration
chargeable with tax. Applying the case of Re Orwell’s, the facts in our scenario is silent as to
whether there is an express clause in the trust deed to allow for remuneration. In the event
there is an absent of that, Tham may not rely on that to claim for remuneration.
Applying the case of O’Sullivan, it can be seen that if Tham has committed a breach of his
duty, he might be still able to receive form of remuneration by the court. Applying the case of
Ayliffe, it can be seen that even if Jade and Violet has consent to the payment of his
remuneration, it is pertinent for Ruby to also consent to Tham’s payment for his services as a
trustee. If Ruby disagrees with this, it can be said that Tham has not gotten consent from all
the beneficiaries. Applying section 46, case of Guinness and Cradock, Tham can apply to the
court for remuneration as he has incurred expenses when carrying out his duties.
In conclusion, Tham may ask for remuneration for his services.
References
Statutes
1. Trustee Act 1949,s 27 (4)
2. Trustee Act 1949. S 46
3. Trustee Act 1949, s 35(2)
Cases
1. Nestle v Westminster Bank Private Limited Company [1994] All ER 118
2. Mcphail v Doulton [1970] UKHL 1Re Gulbenkian’s Settlement Trusts (No 1) [1970] AC
508
3. Re Londonderry’s Settlement [1965] Ch 918
4. Re Marquess of Londonderry’s Settlement [1965] Ch 918
32
Guiness v Saunders, [1989] UKHL 2
5. O’Rouke v Darbishire [1920] AC 581
6. Pearse v Green [1819] 1 Jac & W 135
7. Schmidt v Rosewood Trust Ltd [2003] 2 AC 709,
8. Hartigan Nominees Pty Ltd v Rydge [1992] 29 NSWLR 405,
9. AT & T Istel Ltd v Tully [1993] AC 45
10. Learoyd v Whiteley [1887] 12 App Cas 727
11. In Chan Chin Cheung v Chan Chak Cheung & Anor [2005] 1 LNS 89
12. Tetuan Khana & Co (sued as a firm) v Saling Bin Lau Bee Chiang and other appeals
[2019] 3 MLJ 1
13. Maybank Trustees Bhd (formerly known as Aseambankers Malaysia Bhd) v AMtrustee
Bhd [2020] 4 MLJ 405
14. Wright v Stevens [2019] NSWSC 548
15. Henchley and Others v Thompson [2017] EWHC 225
16. MTD Capital Bhd v Tan Sri Dr Azmil Khalili bin Dato Khalid [2019] MLJU 773
17. Bray v Ford [1896] AC 44
18. Barret v Hartley [1866] LR 2 Eq 789
19. The Estate of Y Deed v Comptroller of Income Tax, States of Malaya [1969] 1 MLJ 157,
20. Re Orwell’s Will Trusts [1982] 1 WLR 1337
21. O’Sullivan v Management Agency and Music Ltd [1985] QB 428
22. CD v Comptroller of Income Tax [1967] 2 MLJ 166
23. Ayliffe v Murray [1740] 2 Atkyns 5
24. Cradock v Piper’s rule (1850)
25. Guiness v Saunders, [1989] UKHL 2
