Professional Documents
Culture Documents
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◆ Involves obligation of loyalty.
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◆ A fiduciary must:
● Must act in good faith
● Must not make a profit out of his trust
● Must not place himself in a position where his duty and his interest may
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conflict
● May not act for his own benefit or the benefit of a third person without the
informed consent of his principal.
➔ Keech v Sandford
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◆ If a trustee, being in a fiduciary relationship, secures a benefit for himself by
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taking advantage of the trust, equity will not allow him to retain the same and he
or she shall hold the benefit under a constructive trust.
◆ Hence, a trust is not allowed to make secret profits out of the trust property.
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3. So long as the fiduciary made a personal profit while performing duties pertaining to his
office of fiduciary, the duty applied ▶ no matter even if the fiduciary’s action also resulted
in a benefit to his principal.
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4. The doctrine of equitable accounting comes into play into favour of the fiduciary if the
circumstances suggest to the court that it is just to give the fiduciary some recompense
for the work done for the beneficiaries despite being held liable as constructive trustee
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for the unauthorised profits made ▶ it permits the court of equity in its discretion to adjust
any amount to be disgorged from the fiduciary.
5. The duty applied even if the fiduciary had acted in good faith
6. The duty applies whether or not the profit would or should otherwise have gone to the
principal.
7. The prohibition is against unauthorised profits ▶ Thus, authorisation to make a personal
profit would afford a defence to the fiduciary.
8. In case of secret profits a.k.a. bribes, it is beyond doubt that a bribe received by a
trustee is an unauthorised secret profit.
a. Metropolitan Bank v Heiron / Lister & Co v Stubbs = the trustee was
accountable only for the value of the bribe, it being treated as a debt owed by the
trustee to the trust.
b. FHR European Ventures LLP & Ors v Cedar Capital Partners LLC ▶
Overruling above’s decision
i. When an agent received a bribe in breach of his fiduciary duty to his
principal - he held the bribe on trust for his principal
ii. The principal had a proprietary claim to the bribe and any profit generated
from it.
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➔ DUTIES TO CONVERT AND APPORTION (membahagikan)
➔ Arise where there are different classes of beneficiaries.
➔ Where a conflict of interest arises between beneficiaries, the trustees are expected to be
fair to all and not favour one to the prejudice of the other.
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➔ Nestle v National Westminster Bank Plc [1994] – the trustee must act ‘fairly’ instead
of ‘equally’.
➔ Howe v Dartmouth (1802) – the trustees are required to sell the residuary personality
instrument/Act.
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and subsequently to invest the proceeds in investment authorised under trust
◆ The life tenant is entitled to all the income from the trust fund, and the
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remainderman’s interest is that of the capital.
➔ In the absence of any duty to convert, there is no duty for the apportionment of income.
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➔ It is difficult to treat the duty to invest and the power to invest separately ▶ because the
power will determine whether the duty has been fulfilled or not.
➔ To invest = to apply money in the purchase of some property from which interest or profit
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is expected and which property is purchased in order to be held for the sake of the
income which it will yield”
➔ Investment = the purchase of property for the purpose of generating income or profit
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➔ A trustee is under a duty to invest trust funds in investments as authorised by the trust
instrument, legislation or by the court.
➔ A well-drafted trust instrument normally consists of wide investment powers, while the
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➔ General considerations:
◆ Standard of care
● Re Whiteley (1886) ▶ Rule – the 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
● Learoyd v Whitely (1887) ▶ “… the law requires a trustee no higher
degree of diligence in the execution of his office than a man or ordinary
prudence would exercise in the management of his own affairs. Yet he is
not allowed the same discretion in investing the money of the trust as if he
were a person sui juris dealing with his own estate…”
● Prudence? Re Mulligan (Decd) [1988] ▶ “… prudence provides a
flexible standard, one which will change with economic conditions and in
the light of contemporary thinking and understanding… in judging past
performance of trustees one must apply the standard of the relevant
period…”
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● The fact that a trust is suffering a loss is not conclusive that a trustee is
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liable for the loss. Not every error of judgement on the part of the trustee
amounts to a breach of duty.
◆ Securing advice
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● Acting solely on good faith may not always be sufficient. Trustees have a
duty to seek appropriate advice from the experts.
● Lee Tak Suan v Tunku Dato’ Seri Shahabudin bin Tunku Besar
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Burhanuddin [2013] ▶ Some committee members of Selangor Turf Club
were alleged to have made a huge investment without due diligence. This
was rejected – advice was secured from an independent financial adviser
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– assisted also by club’s official who have the necessary financial
experience.
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◆ Professional trustees
● As a matter of policy, the law may demand a higher standard from
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◆ Non-commercial motives
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➔ Investment Power
◆ Express powers of investment
● Provided in the trust instrument.
● Re Hariri’s Settlement Trust [1949] ▶ the power conferred on the
trustees was formulated as being investments `as the trustees may think
fit” – the court gives effect to the plain meaning of these words.
● Khoo Tek Keong v Ch’ng Joo Tuan Neoh [1934] ▶
○ The trustees made 2 loans, one with security and another one
without security.
○ Held – wide powers were conferred. The one with security was a
proper loan but the second loan was not and amounted to breach
of trust.
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➔ Statutory Range of Investment
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◆ Trustee Act 1949
● S.4 – authorised investment
● S.5 – further powers of investment that involves security
● S.6 – the duty of trustees in choosing investment – factors to
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consider
● S.12 – trustees lending money on the security of property
● S.13 – liability for loss occasioned by improper investment
➔ DUTIES TO DISTRIBUTE
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◆ Failure of the trustee to distribute the trust property to those entitled amounts to a
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breach of trust.
◆ Must ascertain the correct beneficiaries.
◆ Eaves v Hickson (1861) – trustees were required to make good the loss arising
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from payment to the wrong person.
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➔ S27(4) TA 1949
◆ right to information – a duty on the trustee to provide the beneficiaries with
information and to allow them to inspect trust documents.
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➔ Mason v Coleman ▶ trustees who indefensibly fail to produce accounts upon req may
be ordered to pay not only the cost of proceedings to obtain the accounts but also the
costs of taking the account that is ordered.
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and accurate information as to the value of the trust fund ▶ there is no
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duty to inform beneficiaries of the value of the trust fund in which such
beneficiaries do not have any share or interest.
● The duty to provide information does not extend to the trustees having to
explain or give reasons to discretionary beneficiaries why they exercised
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their discretion in a particular way ▶ this principle applies to both
beneficiaries of discretionary trusts and objects of trust powers.
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◆ The duty to disclose “trust documents” upon request by beneficiaries
● Trust document = refers to trust acc and any other docs which relates to
the affairs of the trust.
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● The trustee’s duty to provide and the beneficiary’s concomitant right to
inspect trust acc is undoubted.
● Failure to do = breach of duty
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● Refers to a docs that is not part of the will but which is addressed to the
executors/setting out the testator’s wishes as to how they should exercise
their powers and discretions.
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