The Gazette 1996

GAZETTE

NOVEMBER 1996

"As he in his absolute discretion shall think fit" Murphy J made it clear that words such as "his absolute discretion" would not necessarily relieve a trustee from his duty to exercise reasonable care and prudence; however, he was satisfied that the defendant's decision to place the caretaker in occupation of the premises was one made bona fide in the exercise of his discretion and he dismissed the plaintiffs claim. PRIVATE COMPANY SHARES Questions of board representation and directorships immediately come to mind when one considers a holding of private company shares in trust (depending on the size or nature of the share holding involved). The responsibilities of board representations/directorships bring their own separate legal liabilities and when accepted, a dual liability is accepted by the trustee. The liability of a trustee as trustee is limited to the value of the trust assets unless negligent or in breach of trust. The liability of a trustee acting as director is the same as any other director in the exercise of his duties and the trustee should be made aware of same. Trustees have a general duty to invest and face ever increasing risks in handling the investment of the trust assets. Generally wide investment powers are given to trustees and often the range of investment choices on offer can make decision making and control difficult. (In many ways a restrictive investment clause would actually make investment decisions easier.) Where the trust deed is silent as to an express investment clause the trustees may invest the trust property in accordance with the statutory scheme laid down in Part 1 of the Trustee Act, 1893 as amended by the 341 TRUSTEES' DUTY TO INVEST

paramount. Failure to fully appreciate the extent of the trustee's role in these three areas can lead to serious risk, for the trustee. • Duty to collect and control the trust assets • Duty to invest • Duty to keep accounts and provide information to beneficiaries.

once the trustee exercises due care and diligence in choosing the custodian, the liability of the trustee will not be affected by the fact that the trustee entrusts the trust assets to that third party. SUB-CUSTODIAN In many cases there will be additional agreements between the custodian and one or more sub- custodians (sub-custodian facilities are usually required for the holding of overseas stocks and shares) where the sub-custodian is, say, a local bank in Singapore. NOMINEE In some cases, trustees may decide to hold all the securities in a "nominee account." The responsibility and the risk stay with the trustee and the trustee should ensure that they have the power to hold the trust assets in nominee accounts. The last relationship that has to be managed in the context of trusts and against the background of risk is of course the trustee's relationship with its co-trustees. Both in commercial and private client trusts there is an obligation on trustees to act in harmony and when this harmony breaks down, the alternative (if retirement is not available) is to apply to the court for directions which of course is a financial cost on the trust assets and may result in a delay and loss of opportunity to the trust fund. CO-TRUSTEES

DUTY TO COLLECT AND CONTROL THE TRUST PROPERTY

The trustee has a duty to ensure that all trust property is in his possession or under his control. What does "control" mean in practical terms for the trustee of real property and related assets, and private company shares which are assets frequently found in will trusts? REAL PROPERTY It is very difficult to satisfactorily administer trust property without first having arranged to inspect the property and obtain a detailed rep;rot as to the nature of same. It is therefore critical that a full record of all properties in trust be maintained and that the record be fully reviewed and the properties inspected at regular intervals. The extent of the duty imposed on a trustee in relation to real property has recently been considered in this jurisdiction by Murphy J in Stacey v Branch (1995) 2L ILRM The plaintiff beneficiary brought a claim against the defendant trustee alleging a breach of trust on the grounds that the latter had not managed a trust property with the necessary degree of care, and claimed specifically that, if this house had been let over a period of 14 years rather than being maintained by a caretaker, it would have yielded a substantial rental income. The trust deed conferred on the defendant the power to deal with the property.

3. ADMINISTRATION OF TRUSTS: ACTIVITIES THAT ATTRACT RISK

Trustees have many duties and obligations and amongst them is a duty not to profit from the trust funds or to tolerate a conflict of interest. Trustees are also personally liable for

the payment of some taxes and secondarily liable in respect of other taxes.

In my opinion when acting as a trustee, three duties of a trustee are