By a settlement made by S, the fund settled consisted of shares in Alpha Ltd a public

company and certain government stock. The settlement contains no special investment
clause except for a provision that the trustee shall before making any change of investment,
first obtain the consent in writing of S. Without obtaining any such consent, the trustees last
year made the following changes:

They sold the shares in Alpha Ltd for RM50,000 (representing the quoted value at the
time) to X who knew of the terms of the settlement, and invested the RM50,000 in the
purchase of shares in Beta Ltd another public company.

They sold the government stock for RM30,000 (representing the quoted value at the time)
to Y and invested the RM30,000 in the purchase of antique silver.

The shares in Beta Ltd are now worth RM30,000 but the antique silver is now worth RM60,000
and had the shares in Alpha Ltd been retained they would now have been worth RM60,000 but
the present value of the government stock would have been RM20,000

Discuss all possible legal issues that may arise in this situation.
STRUCTURE
Duties to trustee
Duties to invest
WHETHER GOT BREACH – STANDARD (WHETHER PROFESSIONAL OR NORMAL)
What CAN THE BENEFICIARY CLAIM
WHAT THE TRUSTEE USED AS DEFENCE – S.63 (personal liability) so that no need to 赔钱

If there is no loss/ got surplus, but got breach – go for removal and appoint a new one to
manage the trust

Strangers liability (X) – Barnes v Addy (2 limbs), Royal Brunei

Meaning of investment
S.14 & S.6
Duties, whether breach? What parts? S.63
Beneficiary can claim
Trustee use in defence

Issue 1: Whether the trustee can make changes of investment without the
consent of S?
Re Wragg [1897] 1 Ch 796
 The term 'investment' in the law of trusts refers to property which will produce an
income yield.
 o S.3 - "authorised investments" as investments authorised by the trust
instrument, if any, creating the trust for the investment of money subject to
the trust or by law.
o If there is no conflict, the Trustee Act 1949 acts as a supplement to the
guidelines of the trust instrument.

To apply: The settlement contains a provision that the trustee shall before making any
change of investment, first obtain the consent in writing of S. Therefore, as trust
instrument override the Trustee Act, the trustee cannot make changes without the
consent of S.

Issue 2: What is the standard of care expected of and applicable to trustee?

 S.14
 A trustee is subject to additional restrictions when making an investment. These
restrictions take the form of standards.
Duty to exercise required Standard of Care
Learoyd v Whiteley
● Lord Watson stated the rule that the trustee must not take the same risks as a
prudent man of business might be prepared to take with his own money.
● The trustee must (applying the test objectively) take such care as an ordinary
prudent man would take if he were investing for the benefit of people for whom
he felt morally obliged to provide.
● A trustee is bound to make investment in such a way that those who are entitled
to the income will obtain a reasonable income and all the beneficiaries need to
be treated equally and fairly.

Duty to seek advice in matters he doesn’t understand and upon receive consider it as a
prudent man would not just because he disagrees based on own political interest
Section 6(2)
 Before making investment as mentioned in s4 and s5, trustee is required to
obtain proper advice.
Section 6(4)
 In making investment as mentioned in s5, trustee shall seek advice whenever he
feels necessary or when it was desirable.
Section 6(3)
 Proper advice means either obtaining the advice of a stock broker through
trustee’s bank manager or advice of an authorized accountant
Section 6(6)
  The advice must not rom the trustee himself to his co-trusteees
Section 6(5)
 It considered to be non-compliance of s 5(2) and (4) by trustee if the advice has
not been given or has not been subsequently confirmed in writing.

Leeroyd v Whiteley
 The trustee has a duty to seek advice on matters that he doesn’t understand.
However he is still bound to receive those advices with prudence (Cautious). In
this case the court held that the trustee was entitled to rely on a valuer upon a
pure question of valuation but he adopted it without sufficient care on what those
valuer said constitute a breach of standard of care. No prudent man would invest
such a big amount of money on such hazardous securities.

Duty to diversify
Section 6(1)
 Trustee cannot simply invest. He shall regard:
a) The need for the diversification1 if it is appropriate in view of the
circumstances of the trust and the degree of risk of the particular investment
b) Suitability to the trust of investment of the description of investment proposed

For government stock situations above – cuz got diversify

To apply:
1. Duty to exercise required standard of care:
According to Learoyd v Whiteley and Speight v Gaunt, trustees are expected to
exercise the same care and caution as an ordinary prudent person would in managing
their own affairs. They should not take unnecessary risks with trust funds and must act
in the best interests of the beneficiaries.

In this case, the trustees sold the shares in Alpha Ltd and government stock without
obtaining the written consent of S, the settlor. The subsequent investment in shares of
Beta Ltd resulted in a decrease in the value of the trust fund. The trustees did not act
with the required standard of care, as they made investments without considering the
potential risks and without seeking the necessary consent.

2. Duty to seek advice in matters they don't understand:

1
In finance, diversification is the process of allocating capital in a way that reduces the exposure to any one
particular asset or risk. A common path towards diversification is to reduce risk or volatility by investing in a variety
of assets
Under Section 6, trustees are obligated to seek proper advice before making
investments. Proper advice can be obtained from a stockbroker, bank manager, or
authorized accountant.

In this case, The fact is silent on whether the trustees sought advice before making the
changes in investments. However, if they did not seek advice and made the decisions
solely on their own, it would be a violation of their duty to seek proper advice.

3. Duty to diversify:
Section 6(1) states that trustees should consider the need for diversification and the
suitability of investments in view of the circumstances and risks involved.

In this case, the trustees sold the shares in Alpha Ltd and government stock and
invested the proceeds in shares of Beta Ltd and antique silver. The trustees did not
consider the need for diversification or the suitability of these new investments. As a
result, the trust fund's value decreased, whereas if the original investments had been
retained, the value would have increased. This indicates a failure to fulfill their duty to
diversify.

Issue 3: Is causing loss during the course of investment a Breach of Trust?

Liability for loss by reason of improper investment
a) Trustee is liable for the loss due to improper investment.
Section 13(1)
 When a trustee improperly advances trust money on the security of a charge
which would at the time of investment be a proper investment in all respects for a
smaller sum than is actually advanced thereon, the security shall be deemed an
authorized investment for the smaller sum, and the trustee shall only be liable to
make good the sum advanced in excess thereof with interest.
 For instance, when the trust money advanced on the security of a charge at the
time of investment is for a smaller sum than is actually advanced, the securities
shall be deemed an authorized investment for the smaller firm and trustee should
be accountable for the sum advanced in excess with interest.

Personal liability – defence

S.63
Policy
Khoo Tek Keong case
Khoo Tek Keong v Ch’ng Joo Tuan Neoh
 Facts: The testator created a trust fund and provided that trustees may use trust
moneys in such investments as they in their absolute discretion thought fit.
 Where a trustee lends moneys at interest upon security of jewellery without
independent evaluations was a BOT but where a loan was given without taking
security it is considered unauthorized investment. He might have acted honestly,
but he had not acted reasonably as required by the Trustee ordinance.
 Held: He was held personally liable to the loss under the Trust Ordinance.

To apply:
1. Selling shares in Alpha Ltd and purchasing shares in Beta Ltd without obtaining
consent:
According to the settlement, the trustees are required to obtain the written consent of S
before making any change of investment. In this case, the trustees sold the shares in
Alpha Ltd for RM50,000 and invested the proceeds in shares in Beta Ltd without
obtaining S's consent.

The value of the shares in Beta Ltd is now RM30,000, it means the investment has
resulted in a loss of RM20,000. The trustees may be held liable for breach of trust for
not obtaining the necessary consent and for making an unauthorized investment. They
have deviated from the terms of the settlement without proper authority, and as a result,
caused a loss to the trust fund.

2. Selling government stock and investing in antique silver without obtaining consent:
The trustees are required to obtain the written consent of S before making any change
of investment. However, in this case, the trustees sold the government stock for
RM30,000 and invested the proceeds in antique silver without obtaining S's consent.

The antique silver is now worth RM60,000, it indicates that the investment has resulted
in a profit of RM30,000. Although the investment has generated a profit, the trustees
may still be held liable for breach of trust because they did not follow the requirement of
obtaining consent before making the investment. The trustees have acted without
proper authority and deviated from the terms of the settlement.