Administration of Trust [7th Post (Case Extract)]

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I shall dedicate this new post to Ku Amir, a professional colleague of mine whose endeavours, jokes and lessons teaches me a lot.

Title

Holder v Holder [1968] Ch 353. Court of Appeal.

Judge

Harman LJ

Facts of the case

The defendant (third defendant), Victor Holder, was appointed one of the executors of his father’s will. He was also tenant of two farms which were part of the estate. After the death of his father, Victor purported to renounce his office as executor, but the renunciation was technically ineffective. Nevertheless, probate was granted to two of the other executors named in the will. They put the two farms of which he was tenant up for sale by auction, where Victor, through an agent, bid successfully for them. The plaintiff, another member of the family, started an action to set aside the conveyance to Victor.

Ratio

1) A man may not both be vendor and purchaser; but Victor was never in that position here. He took no part in instructing the valuer who fixed the reserves or in the preparations for the auction.

2) Everyone in the family knew that he was not a seller but a buyer. Victor never assumed the duties of an executor. It is true that he concurred in signing a few cheques for trivial sums and endorsing a few insurance policies, but he never interfered in any way with the administration of the estate. It is true he managed the farms, but he did that as tenant and not as executor. He acquired no special knowledge as executor. What he knew he knew as tenant of the farms.

3) There was never be a conflict of duty and interest since Victor made no secret throughout that he intended to buy. The beneficiaries never looked to Victor as to protect their interests. They all knew he was in the market as purchaser. The price paid was a good one and probably higher than anyone not a sitting tenant would give.

Held

The sale would not be set aside.

Note (Suggested hints)

[First ratio] A trustee may not purchase trust property. If a trustee purchases trust property, he can abuse his position and buy at less than the best price obtainable. If he sells to the trust, he may be able to demand too high a price. The rule is very strict where trustees are concerned, so that there must be no possibility of the trustee taking advantage of his position.

[Third ratio] With regard to the proper disclosure of trustee interest to buy.

Administration of Trust [6th Post (Case Extract)]

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Title

Bartlett v Barclays Bank Trust Co. Ltd (o. 1) [1980] 1 All ER 139, [1980] Ch 515. Chancery Division

Judge

Brightman J (on the duty of the bank)

Facts of the case

The bank, as trustee under a settlement of shares in a private company, Bartlett Trust Ltd, had a controlling interest in that company. From 1960 the board of Bartlett Trust Ltd had no director representing the settlor’s family or acting for the bank. The bank made no objection at the annual general meeting of Bartlett Trust Ltd in 1961, when Bartlett Trust Ltd altered its investment policy to go into property development. The board of Bartlett Trust Ltd accordingly embarked on two hazardous development projects, without consulting the bank, and the bank did not insist on receiving a regular flow of information on the progress of these projects. Although one of these projects, at Guildford, was successful, the project at Old Bailey, London, which involved buying at a high price on the chance that planning permission for development would be granted, was unsuccessful, and Bartlett Trust Ltd sustained a large loss. The beneficiaries under the settlement sued the bank.

Ratio

1) It is the duty of a trustee to conduct the business of trust with the same care as an ordinary prudent man of business who would extent towards his own affairs.

2) 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 rather is to take such care as an ordinary prudent man would take if he were minded to make an investment for the benefit of people for whom he felt morally bound to provide.

3) Businessman of ordinary prudence may, and frequently do, select investment which are more or less of a speculative character, but it is the duty of a trustee to confine himself to the class of investments which are permitted by the trust, and likewise to avoid all investment of that class which are attended with hazard. That does not mean that the trustee is bound to avoid all risk and in effect act an insurer of the trust fund.

4) Higher duty of care is plainly due from someone like a trust corporation which carries on a specialised business of trust management. A trust corporation holds itself out in its advertising literature as being above ordinary mortals. The trust corporation hold itself out as capable of providing an expertise which it would be unrealistic to expect and unjust to demand from the ordinary prudent man or woman who accepts, probably unpaid and sometimes reluctantly from a sense of family duty, the burden of trusteeship.

5) Under the law of contract, a professional person possessed of a particular skill is liable for breach of contract if he neglect to use the skill and experience which he professes, so a professional corporate trustee is liable for breach of trust if loss is caused to the trust fund because it neglects to exercise the special care and skill which it professes to have. Counsel for the bank did not dispute that the bank hold themselves out as possessing a superior ability for the conduct of trust business.

6) The prudent man of business will act in such manner as is necessary to safeguard his investment. If facts come to his knowledge which tells him that the company’s affairs are not being conducted as they should be, he will take appropriate action. What the prudent man of business will not do is to content himself with the receipt of such information on the affairs of the company as a shareholder ordinarily receives at annual general meetings. Since he has power to put him on enquiry, he will go further and see that he has sufficient information to enable him to let matters proceed as they are proceeding or to intervene if he is dissatisfied.

7) The bank wrongfully and in breach of trust neglected to ensure that it received an adequate flow of information concerning the intentions and activities of the boards of Bartlett Trust Ltd and Bartlett Trust Holdings Ltd. It was not proper for the bank to confine itself to the receipt of the annual balance sheet and profit and loss account, detailed annual financial statements and the chairman’s report and statement, and to attendance at the annual general meetings and the luncheons that followed, which were the limits of the bank’s regular sources of information.

Held

The bank failed in its duty whether it is judged by the standard of the prudent man of business or of the skilled trust corporation.

Administration of Trust [5th Post (Principle in Re Tempest; Miller v Cameron)]

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In re Tempest [L R] 1 Ch App 485

The discretion which the court exercises in appointing new trustees is not a mere arbitrary discretion, but is to be exercised in accordance with certain principles. Among them are the following:

a) In selecting a person for the office, the court will have regard to the wishes of the author of the trust, expressed in, or plainly deduced from, the instrument creating it.

b) The court will not appoint a person with a view to the interest of some of the beneficiaries, in opposition to the interest of others.

c) The court will have regard to the question whether the appointment will promote or impede the execution of the trust.

The mere fact of the continuing trustee refusing to act with the proposed new trustee would not be sufficient to induce the court to refrain from appointing him. For this would be to give the continuing or surviving trustee a veto upon the appointment of the new trustee. In such a case, it must be the duty of the Court to inquire and ascertain whether the objection of the surviving or continuing trustee is well founded or not, and to act or refuse to act upon it accordingly.

Miller v Cameron (1936) 54 CLR 572

The jurisdiction of the court to remove is exercised with a view:

a) to the interest of the beneficiaries;

b) to the security of the trust property; and

c) to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee.

In deciding to remove a trustee, the court forms a judgment based upon considerations to show that the welfare of the beneficiaries is opposed to his continued occupation of the office. Such a judgment must be largely discretionary.

It is fundamental that a trustee must carry out the terms of the trust. If he fails to do so, he may be removed as trustees by a court even if no harm has been done to the beneficiaries or to the trust.

Administration of Trust [4th Post (Appointment of Trustee)]

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Appointment of trustee

The court has an inherent power to appoint trustees as part of its supervisory jurisdiction over trusts which is supplemented by section 45 of the Trustee Act 1949. Under this section, the court may appoint whenever it is expedient that an appointment should be made and it is inexpedient, difficult or impracticable to bring this about without the assistance of the court. Application to the court may be made by a beneficiary or by a trustee, but if it is possible to appoint under a power in the trust instrument. If there is some person having power to appoint and seeking to exercise that power in good faith, the court will not interfere even if the proposed appointment is not one which it would itself have made.

The court’s assistance may properly be sought when no one has power to appoint, or no one is willing and able to exercise it, or where there is some doubt about whether the power has become exercisable. Recourse to the court may be the only way of replacing elderly or sick trustees who have become incapable of acting for the trust.

In Re Phelp’s ST (1885) 31 ChD 351, where the sole trustees was 85 years old, deaf, and failing in intellect, or of meeting the case where only person having power to appoint is too old or ill, or too young, to be able to exercise it.

The court will not, make an appointment which favours the interest of certain beneficiaries above others, nor will it willingly appoint against the known wishes of the settler.

In Re Tempest (1866) LR 1 Ch App 485 a trustee had predeceased the testator, and there was strong disagreement between the surviving trustee and a fiction among the beneficiaries over who should replace him. It was clear that the surviving trustee would be unwilling to act with the person appointed by the court at first instance.

Turner LJ considered that it would be going too far to say that a court would refuse to appoint a person with whom the existing trustees refuse to act since that would amount to giving them a veto. The court should inquire whether the objection is well founded ad act accordingly. Regard will be had to whether a proposed appointment will promote or impede the execution of the trust.

If you find it useful and/or there are some mistakes (be it in theory, in practice or grammatically) please leave comments as a small token of your appreciation for my work done. Your feedback is so important for the continuation of my carrier as a new-generation-blogger.


Administration of Trust [3rd Post (Standard of Care)]

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Standard of care

1. Speight v Gaunt (1883) 9 App Cas 1, 19

‘all those precautions which an ordinary prudent man of business would take it managing similar affairs of his own’.

The selection of investments involve additional considerations, for although ordinary business prudence may sometimes involve accepting a degree of risk or speculation, trustees must confine themselves to securities which are authorised by the trust instrument or by statute, and avoid hazardous investment.

2. Bartlett v Barclays Bank Trust Co. Ltd (o. 1) [1980] 1 All ER 139, [1980] Ch 515. Chancery Division.

A higher standard of care is required of paid trustees than of unpaid, non-professional trustees, in that the former will be held to the standards of skill and expertise which they claim to possess.

3. Re Whitely, Whitely v Learoyd (1886) 33 ChD at 355 per Lindley LJ.

‘He must take such care as an ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide’.

That duty includes the duty to seek advice on matters which the trustee does not understand, such as the making of investments, and on receiving that advice to act with the same degree of prudence. This requirement is not discharged merely by showing that the trustee has acted in good faith and with sincerity. Honesty and sincerity are not the same as prudence and reasonableness. Some of the most sincere people are the most unreasonable.

Although a trustee who takes advice on investments is not bound to accept and act on that advice, he is not entitled to reject it merely because he sincerely disagrees with it, unless in addition to being sincere he is acting as an ordinary prudent man would act.

4. Cowan v Scargill [1984] 2 All ER 750, [1985] Ch 270. Chancery Division.

Trustees must not refrain from acting in the best interests of the beneficiaries on grounds of personal conscience.

Where trustees for sale had struck a bargain for the sale of trust property but had not bound themselves by legally enforceable contract, they were held to be under a duty to consider and explore a better offer that they received, and not to carry through the bargain to which they felt in honour bound. In other words, the duty of trustees to their beneficiaries may include a duty to ‘gazump’, however honourable the trustees. Trustees have an overriding duty to obtain the best price which they can for their beneficiaries.

Administration of Trust [2nd Post (Choice of Investment)]

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Trustees must not make unauthorised investment and in selecting those which are authorized they must exercise the usual standard of care, bearing in mind that the trustees are not acting for themselves, but for others. In this context, the usual standard of care is that which ‘an ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide (in Re Whitely and later affirmed in Bartlett v Barclays Bank Trust Co. Ltd (No. 1). This may require the trustee to set aside their personal views as to the desirability of particular investments. They must not refuse to invest in armament or South Africa, if such investment is in the best financial interests of the beneficiaries, although if all the beneficiaries were adult they might take into account their views on the impropriety of a proposed investment (in Cowan v Scargill). The trustee must aim to seek the best return for the beneficiaries, judged in relation to the risks of the investment in question. For instance, they should not invest merely to accommodate the wishes of the settler (ibid).

By virtue of Section 6(1) of the Trustee At 1949, trustees are required to have regard both to the need for diversification and the suitability of the proposed investment to the trust. Any investment in a manner specified in Section 4 of the Trustee Act must be made on the basis of advice on the question of whether the investment is satisfactory with the matters of suitability and the need for diversification (subsection 2). The advice must be in writing (subsection 5) and must come from either a stockbroker obtained through the trustee’s bank manager, or the advice of an authorized accountant (subsection 3) unless the advice is being given by a trustee to his fellow trustees (subsection 6).

Obtaining advice does not permit the trustee to place blind faith in his adviser because the final decision cannot be delegated. He must consider the advice, and reach his own decision as a prudent man of business (subsection 2). Where advice was initially required, trustees must also consider at what intervals further advice should be sought upon the retention of the investment (subsection 4) and may incur liability if failure to exercise due consideration result in a loss.

If you find it useful and/or there are some mistakes (be it in theory, in practice or grammatically) please leave comments as a small token of your appreciation for my work done. Your feedback is so important for the continuation of my carrier as a new-generation-blogger.

For every time he sucks your blood, my apologies.

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Have you ever wished, when you are in the state of furore and nearly lost of your self-control, for anything that slipped of your tongue come true? Have you ever thought that you could possibly have back something that you have already given to someone else with good faith? If you have experienced any, I strongly recommend that you could resist it with all your heart because I am not that strong enough thus, the visible results were severe and of course, I don’t want you to ended it like me. I really wish things could be different but after justifying the fact that someone that I trust and someone that I really care, stabbed me in the back, I doubt whether a personnel who possess a high level of patience would remain motionless, doing nothing. It is definitely like a time-bomb or a volcano waiting to erupt. To admit, everyone has their limit.

June 17. I still remember that day and I do remember the rain. I was shocked by a call informing me about the accident. Doctor William said that there was nothing they could do to save him due to excessive blood lost. Until and unless they could find a blood donor, there will be no more hope. Things are getting worst since he has rare blood types. Being identified as a universal donor, purse at own risk, I consented to donate my blood. I’m not willing to loss another best friend, yet again and he can’t hold any longer.

July 29. He was allowed by the doctor to leave. Since then we formed a strong bond. Share personal love stories, problems with girls and play soccer together. Unfortunately, the happiness was short live. I later discovered a long series of exposure that he was definitely different from what I thought. The lies and the complots ruin everything, everything that has been built for the last four years. Until one day when he insists to say sorry, animosity towards him, I mentioned it aloud, “You’re sick! It’s meaningless to apologise and by no mean it would bring any different. Back in the hospital, I wish I would let you die. It’s regrettable. You’re not human because you don’t have feeling and I really wish that you could be something else! Stop pestering me!” Without turning, I headed towards my house, leaving him who numbed, stood still. I haven’t seen him since that day. Some said he moved...

A knock at the door shaking me from my reverie. It’s my sister. She looked scared but she didn’t cry. There must be something wrong with her laptop or ipod, for sure. I switched off the television. An anatomies programme where a Malaysian scientist has discovered a new species of insect on Discovery Channel failed to catch my attention. “Yes, my dear. Is there anything that bothers you?” I asked. “Look, it’s completely insane but I sort of like started to believe it when it really happened to me yesterday night. I thought mum and the neighbours just want to make me laugh. There was a tiny little insect that I have never found it before interrupting my sleep. Its wing beat sound seriously makes me mad but when I listen carefully, it is sort of like saying something and it does really make me scared”. “Saying what?” I reply.

“Please forgive me for every wrong that I did. I must find him. Only his blood could undo his wishes.”

(What I have done? While I refuse to forgive him, the entire world retains their forgiveness against me. For every time he sucks your blood, my apologies.)

Pictures:

http://scienceblogs.com/zooillogix/Mosquito.jpg

http://www.flickr.com/photos/88489931@N00/47376068/


Administration of Trust [1st Post (Case Extract on Demand)]

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I shall dedicate this case extract to perhaps my new visitor of my blog who is also my professional colleague; Amalina.

Title

Cowan v Scargill [1984] 2 All ER 750, [1985] Ch 270. Chancery Division.

Judge

Sir Robert Megarry V-C

Facts of the case

Mr Scargill, President of the National Union of Mineworkers, was one of the trustees of a pension fund with wide powers of investment. He and five other trustees (the defendant) appointed by the union refused to approve an annual investment plan unless it was amended to prohibit any increase in overseas investment, to provide for withdrawal from existing overseas investment, and to prohibit investments in industries which were in direct competition with coal. Their action was in line with the policy of the National Union of Mineworkers (the bold is mine). The plaintiff (five trustees appointed by the National Coal Board) applied to the court for directions that the defendants were in breach of their fiduciary duties as trustees.

Ratio

1. It is the duty of trustees to exercise their powers in the best interests of the present and future beneficiaries of the trust, holding the scales impartially between different classes of beneficiaries. This duty of the trustees towards their beneficiaries is paramount.

2. Power of investment must be exercised as to yield the best return for the beneficiaries, judged in relation to the risks of the investment in question; and the prospects of the yield of income and capital appreciation both have to be considered in judging the return from the investment.

3. The trustees must aim to seek the best return for the beneficiaries, judged in relation to the risks of the investment in question. Trustees should not invest merely to accommodate the wishes of the settlor.

4. In considering what investment to make, trustees must put on one side, their own personal interest and views. (Trustees may have strongly held social or political views. They may firmly opposed to any investment in South Africa for the long-term financial soundness of its economy or other countries, or they may object to any form of investment in companies concerned with alcohol, tobacco, armaments or any other things.) In conducting their own affairs, they are free to abstain from making any such investments. However, under a trust, if investment of this type would be more beneficial to the beneficiaries than other investment, the trustees must not refrain from making the investment by reasons of the views that they hold.

5. If the only actual or potential beneficiaries of a trust are all adults with very strict views on moral and social matters, condemning all forms of alcohol, tobacco and popular entertainment, as well as armaments, the learned judge in this case of the view that it might not to be for the ‘benefit’ of such beneficiaries to know that they are obtaining rather larger financial returns under the trust by reason of investments in those activities than they would have received if the trustee had invested the trust funds in other investments. (The beneficiaries might well consider that it was far better to receive less than to receive more money from what they consider to be evil and tainted sources.)

6. Where trustees for sale had struck a bargain for the sale of trust property but had not bound themselves by legally enforceable contract, they were held to be under a duty to consider and explore a better offer that they received, and not to carry through the bargain to which they felt in honour bound. In other words, the duty of trustees to their beneficiaries may include a duty to ‘gazump’, however honourable the trustees. Trustees have an overriding duty to obtain the best price which they can for their beneficiaries.

Held

The trusts of a pension fund were governed by the ordinary law of trust, and the defendants were in breach of their fiduciary duties in refusing to approve the investment plan.

Next post in line:

i. criteria for choice of investment

ii. case extract for Barlett v Barclays Bank Trust Co. Ltd (No.1)


If you find it useful and/or there are some mistakes (be it in theory, in practice or grammatically) please leave comments as a small token of your appreciation for my work done. Your feedback is so important for the continuation of my carrier as a new-generation-blogger.


Personal Professional Record updated

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It has been more than one year I have not updated my personal professional record to deal with any legal dispute for my legal practice. Well, of course in the first place I want to make myself use with it and obtain more and more experience before I join practical course for my BLS but in the same time I have put myself in a great danger; practicing law without proper qualification (LLB) and trying to deal problems which I am not familiar with. It is imperative to make it clear here that those problems do not whatsoever burdened or causing unwanted disturbance to me because no one has the vote, I personally volunteered myself in exercising the right to choose to get involved in any legal and formal suit for the sake of knowledge for my future prospect.

Since the case of formal suit against the insurance company that I chose to insured my first laptop, last 13 May’s case called me to deal with another insurance company that directly affecting the interest of my beloved auntie. Though the dispute occurred has nothing to do with my financial interest and security protection, I volunteered myself to help my auntie. As her personal consultant and legal adviser, I have prepared myself with relevant argument in legal basis and documentation evidence to fight for her right. My decision faced with repeated criticism from my lecturer who taught me, particularly Madam Roslinem but it doesn’t by any mean discourage me to continue my originating action on the behalf of my auntie, the aggrieved party here.

Sorry to say that it seem to be the nature of practice, be it private company or civil servant, when dispute occurs, most of it due to error on their part, they tend to avoid public siege and refuse to admit that they are the party who should be held responsible. When the payment paid lost undetected in record, they are so reluctant to entertain the claimant what more when the latter come alone to the respective company. I have been informed that all the aggrieved parties who seek for path of redress unable or had never been successful to reach beyond the clerk desk. Procedural rigidity and unethical attitude of the staff in charge caused the aggrieved party to resort to surrender their account and suffer the lost of their payment. Surprisingly, the branch manager not only shocked with my presence but also with the matter which drag me to draw an inference and jump into quick conclusion that the staff didn’t informed the complain to their superior (or it is the best way to escape responsibility on the part of the branch manager when facing a thin man with a black suit and a file of cases and documents of material evidence). Attacking their technical error in the transaction statement, procedural error of the agent, unethical attitude of the staff in charge and unprofessional conduct of the branch manager, with all supporting material evidence and relevant documents, I went to CSC at Kuala Lumpur to report those conflicts to the manager of call-management of customer service department. Representing my auntie and nine others, the complaint now is pending for administrative responsibility and discipline-moral action.

So far, from 13 May until 19 May were a long sequencing days of this semester break. Thanks God, finally they do admitted their mistake and ready to guarantee to correct their error (up till now, they have matched the payment in transaction statement but still working with it to rearrange the amount paid). It is sad and so disappointed to think that such disputes occurred in such Islamic institution and under the surveillance and responsibility of Islamic management. What more when I came into record that the disputed that begun in 2005 only settled in 2009 only with my presence as the middleman. Most of the aggrieved party belong to mothers (from middle-class society) who are poor in basic IT Knowledge, communication skill and formal procedure. They (and persons who accompanied them to make complain, particularly their husband and relative) didn’t know on how and where to seek relief since the accessibility to information about this matter is limited. They refused to seek to appoint private lawyer since they can’t afford to bear the cost and when I mention about Legal Aid and BBG they only expressed their hope that this matter ends in no more time since they had suffered too long.

From the bottom of my heart, I came to help with no motive of monetary orientation and what count the most is my sincere and compassion. For my personal professional record, all supporting documents used in this formal action will be kept for future reference. Justice has, like in other cases in my previous record, preserved.