THE TRUSTEE ACT 1949, ACT 208

1. Overview of the Law of Trustees

1.1. Onerous office:

The office of a trustee is an onerous one as they play a crucial role in the
administration of trusts. Trustees have very few rights, we only speak of their
powers, duties and liabilities. Trustee duties include investment, distribution,
accounting, tax payments and others. The role of trustees and their position,
duties and powers are governed by the terms of the trust deed and by statutory
provisions in the Trustee Act 1949 (De Fonseka and British and Malayan
Trustees Cases) and in some cases by rules and principles developed by the
courts.

1.2. Trust property is vested in them and they are responsible for it. It may be valued
at a few hundred ringgit or millions of ringgit.

CCT - Milroy, Re Rose, Pennington, Chetiram

1.3. Trustees must act absolutely selflessly: they must act in the best possible way
for the beneficiaries. Trustees must act exclusively in the interest of the trust and
gains nothing from his work unless the trust instrument provides for his
remuneration. Professional trustees are paid nowadays. He is required to observe the
highest standards of integrity and a reasonable standard of care and skill in the
administration of the trust. He is personally liable if he fails to reach the standards
set. He cannot compete with the trust and his personal interests cannot conflict with
those of the trust. He must forego opportunities if he is a trustee which he could have
enjoyed were he not a trustee. Usually trusts have also professional trustees or a
combination of professional and non-professional trustees. Professional trustees
charge for their services. Examples of professional trustees are lawyers, accountants,
banks (executor and trustee departments) and even insurance companies. Public
trustee like the Amanah Raya Berhad and Trust Corporations like Banks, Trustees
in bankruptcy like Solicitor–General, and British Malayan Trustees.

1.4 A settlor having chosen a trustee to act is presumed to intend that particular
individual to administer the trust personally.

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1.5 A trustee’s office is personal to him and the general rule is that the trustee must
discharge the duties personally and may not delegate : delegatus non potest delegare.
In Malaysia, see Section 28 Trustee Act 1949: can delegate

1.6 A particular person may have been selected because of his personal qualities,
sense of morality, religious beliefs etc… for these virtues to influence the
management of the trust. People consent to be trustees out of a sense of duty to the
settlor or testator

1.7 Who may be a Trustee? Anyone who can hold property can be a trustee, except
minors in case of lands (as they cannot hold interests in lands) and as seen in Re
Vinogradoff, where a minor was a trustee of personalty on resulting trust. The role
of the Public Trustee Corporation/ Amanah Raya Berhad has been covered in
Semester I, also relevant here.

• Capacity – anyone with legal capacity to hold property may be a trustee

except, bankrupts, convicts, mentally disordered, or other relevant health factor

• Minors – Not over land, see Re Vinogradoff [1935] WN 68.

1.8 Disclaimer by trustees

Trustees who do not wish to accept the office of trustee must disclaim by deed as
this constitutes evidence of the disclaimer as opposed to mere implied disclaimers
as proof is that much harder to come by. Once the trustee has disclaimed, he cannot
accept the office and once he has accepted he can no longer disclaim but can retire
from the trust. Where he meddles with the trust estate, his conduct will be construed
as acceptance.

1.9Topics covered:

 The appointment, removal and retirement of trustees;

 The duties and responsibilities of trustees including duty to invest;
 The powers of trustees; and
 Breach of trust.

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2. THE APPOINTMENT, REMOVAL AND RETIREMENT OF TRUSTEES

Any number of persons may be trustees of personalty, but it is rare to go beyond

four. A sole trustee is not advisable as the opportunities for maladministration and
fraud arises. The first trustees are generally appointed by the settlor or testator in the
deed or will setting out the trust. The trust is constituted when the property is
conveyed to them. In a will, the same persons may be appointed as executors and
trustees. Where they are different persons, the trust is constituted after the testator’s
death, and the executors hold on trust pending transfer to the persons appointed
trustees under the will. Trustees hold as joint tenants, so when one of the trustees
dies, the survivors are the trustees and they and their successors, retain the same
powers and duties as the original trustees. On the death of a sole trustee, his personal
representatives become the trustees.

2.1. The Trustee Act 1949 governs this issue from sections 39-44. If the settlor
names more than four persons to be trustees, the first four who are ready, willing and
able to act become trustees and the others will not become trustees unless they are
appointed when a vacancy occurs. This restriction does not apply to land held for
charitable, ecclesiastical or public purposes in the UK in s 34(2) UK Trustee Act
1925. Section 40, Malaysian Trustee Act 1949, is in pari materia with sections 34,
36 Trustee Act 1925, UK.

2.2. Appointment: Initial appointment may be an express appointment or by

the court under section 45 of the Malaysian Trustee Act1949/ UK s. 41, Trustee
Act 1925.

The settlor usually appoints the first trustees either inter-vivos where the trustees are
parties to the deed creating the trust, in the trust instrument. Once the property is
vested in the trustee, it becomes a CCT. If the trustees disclaim, the property will
still vest in the settlor pending the appointment of new trustees. In the case of
testamentary trusts, the appointment is done through the will. Usually the same
people act as executors and as trustees. A settlor can appoint himself as a trustee of
his trust.

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2.3. Maxim: a trust does not fail for want of a trustee. But English courts have
realized that there may be some situations where the trust will fail if there is no one
to vest the trust property in, in the first place. This was held in Re Lysaght [1965]2
All ER 888 by Lord Buckley J: “If it is of the essence of the trust that the trustees
selected by the settlor and no-one else shall act as the trustees of it and if those
trustees cannot or will not undertake the office, the trust must fail.”

2.4. Section 39 (1): -

For express private trusts, four persons can be trustees.

Section 39 (1) states that for express private trusts the no of trustees may be 1-4 and
if more than four, the first four who are able and willing to act.

Section 39(2) states that for charitable trusts, the number of trustees may exceed four
in number.

In the UK too, If the settlor names more than four persons to be trustees, the first
four who are ready, willing and able to act become trustees and the others will not
become trustees unless they are appointed when a vacancy occurs. This restriction
does not apply to land held for charitable, ecclesiastical or public purposes in the UK
in s 34(2) UK Trustee Act 1925.

2.5 Section 40, Malaysian Trustee Act 1949 deals with the power of appointing new
or additional trustees, this is in pari materia with sections 34, 36 Trustee Act 1925,
UK.

2.5.1 New trustees may be appointed according to section 40(1) in the following
situations where a trustee:

• is dead – trustee dies after assuming office, and covers a testamentary

trustee who dies before the testator but does not cover an inter-vivos trust
where all the trustees die before the trust documents are executed;
• remains outside Malaysia for more than 12 months – any brief return as in
Re Walker [1901] 1 Ch 259 will break the period of 12 months. It is not
based on intention to return. Likewise remaining longer than was expected
or remaining overseas “accidentally” is not accceptable;
• desires to be discharged - whether from the whole or part of the trust;

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 • refuses to act - disclaiming trustee may be replaced;
• is incapable of acting –in such circumstances a disclaiming trustee may be
replaced;
• is unfit to act as in a bankrupt trustee, note a bankrupt trustee may be unfit
but is not incapable;
• is removed under a power contained in the trust instrument; or
• is a minor-appointment of an infant of an express private trust is void, but
in a resulting trust as in Re Vinogradoff it may be possible. There has to
be an outgoing trustee who is to be replaced.

2.6. Vesting of trust property in trustees– section 44 (1). (Cross refer to CCT)
The vesting of trust property is an associate requirement under section 44 (1).

2.7. The Court has power to appoint new trustees under section 45 (1) (a)
and (b). Appointment: Initial appointment may be an express appointment or by the
court under section 45 of the Malaysian Trustee Act1949/ UK s. 41, Trustee Act
1925. The breadth of the power of the Court to appoint new trustees under section
45 (1) (a) and (b) has to be examined.

• In Bhikku Daeng v Maung Shwe Tyn, the Federal Court held that it had
inherent jurisdiction to appoint trustees and was not fettered by the trust deed or by
section 40 of the Trustee Act.

• In Letterstedt v Broers, the Privy Council ruled that all courts had the inherent
jurisdiction to remove old trustees and to appoint new trustees in their place if this
was required.

• The locus classicus is found in Re Tempest (1866) LR 1 Ch App 485. In Re

Tempest, (1866) 1 Ch App 485, the Court said it will take note of the wishes of the
creator of the trust by not making an appointment that would impede the execution
of the trust and not appoint a person who would or might favour one beneficiary at
the expense of the other(s).

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• In Tan Chong Kee v Tan Chong Lay the trustee was a leper and the court ruled
that it could remove such a trustee where it affected the proper administration of the
trust.

• In Yap Tai Chee v Yap Tai Cheong, it was held that where there was an
unauthorized dealing of trust funds even though no fraud was shown, this was a
sufficient basis to remove the trustees. The Court stressed the principle that the
welfare of the beneficiaries was the prime factor that should guide the court in this
matter.

• In Yusof bin Ahmad & Ors v Hong Kong Bank (Singapore) Ltd & Ors – the
court had laid down the following grounds for removal of the trustees – trustees may
be removed when their acts or omissions are sufficient to endanger the trust property
or they show a want of honesty or a want of proper capacity to execute the duties or
a want of fidelity.

2.8. Ending trusteeship: Section 43 (1)

Trustees desiring to retire may do so according to the provisions of the trust

instrument.

Apart from this a trustee can retire when a new trustee is appointed in his place under
section 40(1).

If no new trustee is appointed then he may retire under the provisions of section
43(1) TA 1949– that is to be discharged from the trust.

A trustee who desires to be discharged must put the request in writing and the
consent of the remaining trustee must be given in writing and as far as possible in
the same deed.

For removal by the Courts see Letterstedt v Broers, (1984) 9 App Cas 371 by Lord
Blackburn.

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2.9. Standards applicable to trustees:

 Common law standard and

 Statutory standard

2.9.1 The common law standard of care is expected of trustees.

2.9.2 The trustees must discharge their duties, adopting the same standard of care as
an ordinary prudent man of business would take in managing similar duties of his
own. The classic statement of this duty is to be found in the judgment of Sir George
Jessel MR in Re Speight (1833) 22 Ch D 727 (affirmed in Speight v Gaunt (1883) 9
App Cas 10. A duty is an obligation which must be carried out. Equity requires strict
and diligent performance of a trustee’s duties. (Note: A power, on the other hand, is
discretionary which may or may not be exercised. Powers may be given by statute,
or by the trust instrument and may relate to the general management of the affairs of
a trust.)

2.9.3 But when making investments the trustee is subject to additional restrictions.
He 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. See Learoyd v Whiteley (1887)
12 App Cas 727 where Lord Watson stated this rule.

2.9.4 Statutory standard of care as seen - In the UK, section 1 (1) Trustee Act 2000.

2.9.5 Who wants to be a trustee under such onerous conditions? So try and put in an
exemption clause for these trustees. Understand how a clearly worded provision in
the trust instrument can exclude or modify the liabilities of trustees for breaches of
trust, including failure to carry out their prescribed duties or exceeding their powers.
Understand when and how a trustee’s appointment may end or be ended.

2.9.6 Trustees must act honestly and according to Lord Blackburn in Speight v Gaunt
((1883) 9 App Cas 1 at 19), must take in managing trust affairs, “all those precautions
which an ordinary prudent man of business would take in managing similar affairs
of his own.” If the trustee performs his duties, powers and discretions he is not liable

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for loss to (Morley v Morley (1678) 2 Ch Cas 2) or depreciation of the trust property
arising from factors beyond his control (Re Chapman (1896) 2 Ch 763).

The Trustee Act 1949 gives the court a discretion to excuse a trustee who has acted
honestly and reasonably and ought fairly to be excused.(Section 63 Trustee Act
1949, UK s. 61 Trustee Act 1925)

2.9.7 Power to relieve trustee from personal liability

63. If it appears to the Court that a trustee, whether appointed by the Court or
otherwise, is or may be personally liable for any breach of trust, whether the
transaction alleged to be a breach of trust occurred before or after the
commencement of this Act, but has acted honestly and reasonably, and ought
fairly to be excused for the breach of trust and for omitting to obtain the
directions of the Court in the matter in which he committed such breach, then
the Court may relieve him either wholly or partly from personal liability for
the same.

Laws of Malaysia ACT 208

A relevant case to be noted here is the case of Moo Sing Hoe v Tan Bee Yong, [2017]
7 MLJ 294 - 12 October 2016, considered after the discussion below.

2.9.8 A Statutory duty of care is expected of trustees.

The standard of conduct expected of trustees was laid down in the case of Speight v
Gaunt that in the management of trust affairs the trustee must act as an ordinary
prudent business person would act in managing similar affairs of his own. A higher
standard was expected of paid trustees.

In Re Waterman’s WT [1952] 2 All ER 1054 at 1055, Harman J said;

“I do not forget that a paid trustee is expected to exercise a higher standard of

diligence and knowledge than an unpaid trustee and that a bank which advertises
itself largely in the public press as taking charge of administrations is under a special
duty.”

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In Bartlett v Barclay’s Bank Trust Co Ltd (No 1) (1980 Ch. 515 at 534) Brightman
J. said:

“I am of opinion that a higher duty of care is plainly due from someone like a trust
corporation which carries on a specialized business of trust management. A trust
corporation holds itself out in its advertising literature as being above ordinary
mortals. With a specialist staff of trained trust officers and managers … the trust
corporation holds itself out, and rightly, 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 burdens of a trusteeship… so I think that 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.”

The distinction between lay and professional trustees is not maintained in the Trustee
Act 1949. However, in the UK, there is such a distinction as seen in Section 1 of the
Trustee Act 2000, section 1 reads: a trustee

“must exercise such care and still as is reasonable in the circumstances, having
regard in particular (a) to any special knowledge or experience that he has or
holds himself out as having and (b) if he acts as trustee in the course of a
business or profession, to any special knowledge or experience that it is
reasonable to expect of a person acting in the course of that kind of business
or profession.”

As mentioned earlier, a trustee has many functions like investment, acquisition of

land, appointment of agents to name a few. The duty of care is primarily
concerned with the powers of a trustee and how they are exercised, that is, the
manner in which they are exercised. The duty of care is less concerned with the
exercise of dispositive powers of a trustee such as selection of a beneficiary from
a class of beneficiaries or providing them with maintenance or advancement
money from the trust fund. These latter powers are generally referred to as
dispositive powers.

In the case of duties, the question is simply whether the duty has been
performed or not. If it has not, as where a distribution has been made to the
wrong beneficiary, a breach has been committed, even though the trustee was

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careful and may be relieved under section 63 of the TA 1949 if he acted honestly
and reasonably. An unpaid family trustee is more likely to be relieved from
personal liability than a professional trustee. A professional trustee is expected
to delegate less and do more of the work himself and will be given less
opportunity to rely upon the fact that he acted upon legal advice.

Moo Sing Hoe v Tan Bee Yong, [2017] 7 MLJ 294 - 12 October 2016, HIGH
COURT (IPOH), SM KOMATHY JC

Head notes: Plaintiff entrusted monies with defendant for investment -- Plaintiff
commenced action against defendant for breach of trusts -- Whether defendant
misappropriated monies -- Whether defendant invested monies in accordance with
instructions of plaintiff -- Whether defendant could seek relief under s 63 of the
Trustees Act 1949 -- Trustees Act 1949 s 63

The plaintiff had entrusted the defendant with a sum of RM5.1m for the latter to
invest the said monies on his behalf. Upon receiving the monies, the defendant had
remitted the monies to JP Morgan Chase and subsequently to Heritage Bank in South
America. The defendant had also entered into an agreement ('the agreement') with
Bunya Holdings to manage the plaintiff's monies. As event unfolded, the defendant
was notified by Bunya Holdings that there were complications with the investment;
consequently, the defendant demanded return of the monies from Heritage Bank.
Nevertheless, despite numerous reminders by the defendant, no refund was made by
Heritage Bank. In the present action, the plaintiff contended that the defendant had
misappropriated the monies and used them for her own purposes in breach of
contract and in breach of trust. In defence, the defendant submitted that she was not
liable to return the monies as the same had been invested in accordance with the
plaintiff's instructions. The defendant further submitted that, in the event that the
court found that she was in breach of her obligation as trustee, the court should
exercise its jurisdiction to relieve her from personal liability for the breach pursuant
to s 63 of the Trustees Act 1949 ('the Act') as she had acted honestly and reasonably
and ought fairly to be excused from the breach of trust.

Held, allowing the plaintiff's claim and entering judgment against the defendant for
RM5.1m with interest and costs of RM10,000:

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(1) In order to be absolved from her liability as trustee to account for the monies,
the defendant must show that she had transferred the monies in JP Morgan Chase to
Heritage Bank on the plaintiff's instructions. In the circumstances, apart from the
bare assertion of the defendant, there was no documentary evidence to show that the
monies were remitted to Heritage Bank in South America as alleged by her. Further,
none of the individuals the defendant had dealt with either from Bunya Holdings, JP
Morgan Chase or Heritage Bank were called to establish that the monies were
transferred to Heritage Bank. In the absence of such evidence, the plaintiff was
entitled to judgment on the claim. Most crucially, there was no evidence to show
that Bunya Holdings was indeed a company incorporated in Switzerland and was an
investment company. In addition, the agreement was signed one day after the
plaintiff had banked in the monies into the defendant's Maybank account. If indeed
it was the plaintiff who had instructed her to sign the agreement with Bunya
Holdings, it was odd and improbable that he would have left it to the defendant to
deal with the representatives of Bunya Holdings or Heritage Bank (see paras 15, 17,
19 & 22).

(2) The omission of the defendant to seek relief under s 63 of the Act by way of
a counterclaim precluded her from raising this. In any event, there was no evidence
to show that the investment in Heritage Bank had culminated in a loss to enable the
defendant to seek this relief. Nor was there evidence to show that she had acted
honestly and reasonably in investing in Heritage Bank through Bunya Holdings (see
para 28).

2.9.9 Trustee Exemption clauses

The question that arises here is whether a settlor can exempt a trustee from liability.

Exemption clauses are usually construed strictly against trustees. Perhaps, we can
allow exemption clauses for unpaid non-professional family trustee but even then
not in the face of bad faith, recklessness or deliberate breach of duty or fraud. English
law allowed gross negligence to be exempted as LJ Millet pointed out in Armitage v
Nurse [1998] Ch 241, said:

“ the irreducible core of obligations” owed by trustees included the duty to act
honestly and in good faith but did not include any duty or skill or care, thus it was
not repugnant to their duties, nor contrary to public policy, to allow exemption from

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liability for gross negligence, which differed only in degree from ordinary
negligence. … Older cases appearing to suggest that it was not possible to exclude
liability for gross negligence turned in the wording of particular clauses…”

In England, if any action goes too far, Parliament intervenes…Note, in the UK the
Unfair Contract Terms Act 1977 applies to professional trustees appointed by the
settlor, where the validity of the exemption clause will be examined under Section 2
(3) of the 1977 Act.

2. Negligence liability.
(1)A person cannot by reference to any contract term or to a notice given to
persons generally or to particular persons exclude or restrict his liability for
death or personal injury resulting from negligence.
(2)In the case of other loss or damage, a person cannot so exclude or restrict
his liability for negligence except in so far as the term or notice satisfies the
requirement of reasonableness.
(3)Where a contract term or notice purports to exclude or restrict liability for
negligence a person’s agreement to or awareness of it is not of itself to be
taken as indicating his voluntary acceptance of any risk.
2.9.10 Unanimity

Every trustee is to be active in the administration of a trust as equity does not

recognize a “sleeping trustee.” A Trustee who concurs with the other trustees, has as
much “acted” as the others and is as liable for breach of trust that may occur. Note,
that though there is no rule that trustees are vicariously liable for the acts of co-
trustees, a non –active trustee who does not take the necessary steps to prevent the
breach is as liable for neglecting to take those steps to prevent the breach. Trustees
cannot act by majority but by unison, Re Mayo [1943] Ch 302.

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3. DUTIES OF TRUSTEES

3.1. Duty to Invest: The duty of trustees to invest trust property is paramount and is
regulated by sections 4 – 15, Trustee Act 1949. Trustees have both a duty to invest
soundly and a power to choose the investment wisely.

 Duty to Invest: The duty of trustees to invest trust property is paramount

and is regulated by sections 4 – 15, Trustee Act 1949. Trustees have both
a duty to invest soundly and a power to choose the investment wisely.
 Duty to monitor- Re Thompson – NCPT – fox hunting – residuary
legatee was Trinity Hall, Cambridge got supervisory powers over the
NCPT.

Read through these provisions. There are duties and powers of investment under the
Trustee Act 1949. More of these principles under the powers of trustees. For
statutory power of sale of property including land: see section 16, Trustee Act 1949.

Equity imposes a duty of even handedness, requiring the trustee to balance the
different interests fairly when making investment decisions between income and
capital beneficiairies.

The trustee has a duty to invest the trust rights so that, though the value of the rights
is preserved from risk, and a reasonable return on capital is made.

In Cowan v Scargill, it was held that the trustees cannot ignore the financial interests
of their beneficiaries.

In Re Wragg, the term 'investment' in the law of trusts refers to property which will
produce an income yield.

The trustees must not favour one beneficiary over another or one group of
beneficiaries over another group. For example, they cannot choose investments that
will benefit capital interested beneficiaries at the expense of income interested
beneficiaries. The trustees must strike a balance between these two sets of
beneficiaries.

The trustees must discharge their duties, adopting the same standard of care as an
ordinary prudent man of business would take in managing similar duties of his own.
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See classic statement of this duty found in the judgment of Sir George Jessel MR in
Re Speight (1833) 22 Ch D 727 (affirmed in Speight v Gaunt (1883) 9 App Cas 10

But when making investments the trustee is subject to additional restrictions.

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. This was held in Learoyd v Whiteley (1887) 12 App Cas
727 by Lord Watson.

For English law of investments see, The Trustee Act 2000. Trustee is still subject
to the general duty and standard of care in Section 1. This will only operate where
there is no provision to the contrary provision in the trust instrument.

2. Duty to monitor- Re Thompson – NCPT – fox hunting – residuary legatee was

Trinity Hall, Cambridge got supervisory powers over the NCPT.

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4. POWERS OF TRUSTEES

4.1. Understand that the powers of a trustee are set out (at least in part) in the trust
instrument - how to deal with trust property and how to deal with treatment of
beneficiaries.

4.2. Understand the range of statutory provisions in the Trustee Act: in the UK there
are the Trustee Acts 1925 and 2000 and the Trusts of Land and Appointment of
Trustees Act 1996;

4.3. Understand the main powers of a trustee. Trustees powers may or may not
be mandatory. They are not under an obligation to use a power and if they use a
power the manner in which they exercise it, is entirely a matter for them. The court
will interfere with a decision to exercise or the manner of exercise only if the trustees
have taken their decisions in bad faith or if the rule in Hastings –Biss applies. [1974]
2 All ER 193.

The rule in Hastings –Biss: it appears that the court may interfere where there have
been mistakes made by the trustees when exercising a discretion or making other
types of decisions, though the precise limits of this power are as yet unclear. The
exercise of a power may be ineffective, if the trustees

(a) failed to take into account something which they ought to have or have taken into
account something which they should not, and

(b) would not have exercised the power in the way that they did had they taken
account of the thing they ignored.

Buckley LJ:

“Where by the terms of a trust… a trustee is given a discretion as to some matter

under which he acts in good faith, the court should not interfere with his action
notwithstanding that it does not have the full effect which he intended unless:

(1) what he achieved is unauthorized by the power conferred upon him; or

(2) it is clear that he would not have acted as he did

(a) had he not taken into account considerations which he should not have taken into
account or
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(b) had he not failed to take into account consideration which he ought to have taken
into account.

This is formulated in a negative form.

In Mettoy Pension Trustees Ltd v Evans [1991] 2 All ER 513 Warner J set out the
rule in a positive form:

Where a trustee acts under a discretion given to him by the terms of the trust, the
court will interfere with his action if it is clear that he would not have acted as he did
had he not failed to take into account considerations which he ought to have taken
into account.”

Example of such considerations are tax and other fiscal consideration.

4.4. Every professionally drafted trust will have specific express powers which are
broader than their statutory counterpart provisions.

4.5. Trustees must discharge their role personally. They must personally make the
decisions in the course of administering the trust. In some situations the trustee may
delegate. Sometimes the delegation is simply implementing the decisions made by
the trustees but in other cases the trustees are able to delegate the exercise of their
discretion or decision-making. There is a statutory provision on this. Find out what
the settlor wants and give the trustee the power (or duty) accordingly.

4.6. The trust instrument must be read together with the statutory provisions to assess
the true ambit and scope of the trustee’s powers. Trustee can apply to the High Court
through an Originating Summons for directions relating to their powers and duties
in the management of the trust property.

4. 7. Power of delegation:

One of the most important powers of a trustee is the power to delegate his functions.

In Malaysia, Sections 28, 30 and 35 of the Trustee Act 1949 encapsulate the
provisions on delegation:

• Section 28(1) of Trustee Act 1949 is in pari materia with section 23(1)
English Trustee Act 1925;

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• Section 35 of Trustee Act 1949 is in pari materia with Section 30(1) English
Trustee Act 1925.

Under Section 28, a trustee has the power to delegate his functions to an agent.
These functions are of two types: (1) execution of decisions taken by the trustee and
(2) delegation of trustees discretion. Under Section 28 of the Trustee Act 1949,

• the agent need not be a professional;

• the type of work that can be delegated includes transaction of any business
including the payment and receipt of money;

• the agent has to be paid all charges and expenses; and

• finally the trustee is not liable if the agent who is appointed in good faith
defaults.

Section 28(2) allows agents to exercise their discretion in relation to trust property
outside Malaysia.

Section 35 speaks of the implied indemnity of trustees.

Background to this Radical Change in Sections 28 & 35:

A trustee’s office is personal to him and the general rule is that the trustee must
discharge the duties personally and may not delegate : delegatus non potest delegare.
Recognition of the power of delegation of a trustee was a radical change in the laws
of England because before 1925 the law did not allow a trustee to delegate except if
the trust instrument allowed the delegation and the agent was properly appointed and
supervised. Problem areas are the proper appointment and supervision of agents.
The change in English law came in 1925 when English law allowed for delegation
under sections 23 and 30 of the Trustee Act 1925.

Justice Maugham in Re Vickery [1931] said that:

Section 23 (1) revolutionizes the position of a trustee where appointing agents is

concerned. He need not do any work himself and he need not show any necessity for
the employment of the agent. In this case, the meaning of willful default under
section 23 (1) & (3) and section 30(1) of the English Trustee Act 1925 arose for
consideration, which the court explained as follows:
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“…in the case of trustees there were definite and precise rules of law as to what a
trustee could or could not do in the execution of his trust, and that a trustee in general
was not excused in relation to a loss occasioned by a breach of trust merely because
he honestly believed that he was justified in doing the act in question. Willful default
under section 23 (1) meant as the Court of Appeal decided, a consciousness of
negligence or breach of duty, or a recklessness in the performance of a duty. …”.

In Re Lucking’s WT (1968), the trustee appointed an agent but failed to supervise the
agent. Large losses were incurred. Although the agent was appointed in good faith,
the Court held the trustee concerned was liable and responsible. The Court said that
the trustee was liable for failing adequately to supervise the agents withdrawal of
money from the fund after the time at which there was reason to suspect the agent’s
honesty. The standard applied was that in which “an ordinary prudent man would
conduct a business of his own”.

In Re Pauling’s Settlement Trusts [1964], the court held that where a banker
undertook to act as a paid trustee of a settlement created by a customer and so
deliberately placed himself in a position where his duty as trustee conflicted with his
interest as banker, the court should be slow to relieve him under section 61 of the
Act.

4. 8. Maintenance: Power to maintain a beneficiary who is a minor:

4.8.1 Powers of maintenance and advancement of beneficiaries before the

beneficial interest becomes vested in the beneficiaries are found in Sections 36
and 37 of the Trustee Act 1949, see also Molyneux v Fletcher, Binwani v Binwani
[1951]

Explanation: Jack, a minor, has an interest under the trust which is contingent on
attaining the age of 21. It is no comfort to know that if and when he reaches 21 he
will become entitled to the property, if in the meantime there is little money to pay
for his school fees and other expenses. The settlor may well not have directed what
is to happen to any income arising under the trust until Jack attains the age of 21 and
his interest becomes vested. Here the statutory power of maintenance could be used
to apply income towards paying the school fees and other expenses.

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4.8.2 Dispositive powers of Maintenance of beneficiaries:

Section 36 of the Trustee Act 1949, provides for the routine necessities of minor
beneficiaries like education, food and shelter, where money is paid to the parent or
guardian as the minor cannot give valid receipt for the money received from the
trustee. Section 36 gives trustees the power to apply income for the maintenance of
beneficiaries and to accumulate surplus income during the minority of beneficiaries.
Generally, all beneficiaries are given a maintenance allowance all through their
minority irrespective of whether they have a contingent or vested beneficial interest
so long as the gift carries the intermediate income. If settlor says income is to be
accumulated, then no maintenance. Go to court and assess whether the settlor’s
direction is offending any rule of perpetuity then it can be set aside. If so, the court
may still uphold the settlor’s intention to exclude maintenance. Generally, a minor
beneficiary can exercise the power of maintenance if he carries the right to the
intermediate income irrespective of whether he has a vested or contingent interest.

In deciding how much of the income must be paid towards the maintenance, the
trustees under section 36(1) shall have regard (i) to the age of the minor; (ii) his
requirements; (iii) generally to the circumstances of the case; and (iv) in particular
to other sources of income available for the same purposes.

In Molyneux v Fletcher, the trustee was required to exercise his power of

advancement in a fiduciary manner, he made an advance to a daughter-beneficiary
to enable her to pay her father's debt to one of the trustees and this was held to be an
improper exercise of the power since trustees should not make an advancement to
benefit themselves.

In English law, the income beneficiary is called the life tenant.

With regard to the age of the minor beneficiary, the case of Binwani v Binwani said
that in the case of a vested interest where the condition to be fulfilled was the
attainment of an age greater than 21, the condition may be disregarded and the legacy
paid over as soon as the legatee becomes sui juris. However, in Re the Trusts of the
Will of Ong Lai (decd), the Court found that because of the particular wording of the
clauses of the will (cls 4 & 8), the trustee in that case had no power to apply
intermediate income for the maintenance of infants.

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Judges also have an inherent power to order maintenance for beneficiaries under the
age of majority. On rare occasions, capital may be used. Sometimes, adults may be
maintained from income: Revel v Watkinson (1748) 1 Ves Sen 93. In Douglas v
Andrew (1849) 12 Beav 310, Lord Langdale said: where the father can afford it, the
court will not allow maintenance however large the child’s fortune. This is because,
the court would not allow the father to avoid discharging his duty and throw the
burden onto the child.

A beneficiary under a discretionary trust is not entitled to income, so is not entitled

to the power of maintenance.

4.8.3 Note: shortcomings for trustees

 Minors cannot give a good receipt for any income paid over to him.
 A minor has a contingent interest only and if he died before his interest had
vested the trustees could be asked to repay that income by those entitled to the
property in the event of the minor’s interest failing to vest.

4. 9. Dispositive power of Advancement of beneficiaries:

Section 37 of the Trustee Act 1949 allows payment of part of the capital of the trust
property for certain non-recurrent purposes such as setting up the beneficiary in life
before the beneficial interest becomes vested. The money paid for the advancement
cannot exceed RM 10,000/ - or ½ of the share of the beneficiary in the trust capital
whichever is greater. See also the case of Molyneux v Fletcher – where it was held
that the money advanced could not be used to pay off a debt owed to the trustee.

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5. BREACH OF FIDUCIARY DUTY RESULTING IN BREACH OF TRUST

Understand the fiduciary position occupied by trustees and the impact of this
on the ways in which they administer and manage the trust.

The case of Chan v Zacharia made it clear that there are four types of fiduciary
relationships that raise special duties and responsibilities of which the first was the
relationship between a trustee and the beneficiary based primarily upon the case of
Keech v Sandford. (for the rest see Constructive trusts) (Other fiduciaries include:
solicitors, doctors, accountants and company directors).

5.1 Trustees must act in good faith towards their beneficiaries who are dependent on
them.. They must not favour one beneficiary over another or one group of
beneficiaries over another group. For example, they cannot choose investments that
will benefit capital interested beneficiaries at the expense of income interested
beneficiaries. The trustees must strike a balance between these two sets of
beneficiaries.

5.2 The personal interest of a trustee should not come into conflict with his duties
towards his beneficiaries.

5.3 No conflict will be allowed to prejudice the beneficiaries.

Lord Herschell in Bray v Ford (1896] AC 44: “It is an inflexible rule of a court of
equity that a person in a fiduciary position … is not, unless otherwise expressly
provided, entitled to make a profit; he is not allowed to put himself in a position
where his interest and duty conflict.”

In Tito v Waddell (No 2) [1977] 1 All ER 442, Megarry VC described it as a rule

against self-dealing, saying that if a trustee purchases trust property for himself, any
beneficiary may have the sale set aside ex deito justiae, however, fair the transaction.
He said that he regarded the law as putting the trustee under a disability.

The trustee is not liable if he was placed in the position of conflict by the settlor or
the testator.

5.4 The trustee may not purchase trust property – the rule against self-dealing. The
purchase of the beneficial interest by a trustee is carefully watched by the Court.
Trustee cannot buy trust property as laid down in Wright v Morgan.

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5.5 Where there is purchase of a beneficial interest by the trustee by paying the full
market price– the fair-dealing rule, it could be voidable. In Thomson v Eastwood, it
was ruled where a beneficial interest was so purchased, the onus was on the trustee
to show that he gave full value, and that all information was laid before the
beneficiary when it was sold. The principles of undue influence apply; but it is open
to the trustee to show that the whole transaction was conducted at arms length. This
must be distinctly proved.

5.6 Trustee must not compete with the trust.

5.7 A trustee may not profit from his trust.

William v Barton – trustee must explain where profit/ gain / commission came
from.

Re Francis – explain where he acquired director’s fees whilst acting in the

capacity of a trustee.

Re Dover Coalfield Extension – exception to the rule that trustee/ director

must account for director’s fees received as director first and trustee later.

Re Gee- trustee voted himself in as director and was not accountable for
remuneration received as director to the trust.

5.3. The general rule is that trustees act without payment and there are common
law exceptions to the rule.

5.3.1 Trustee must act without remuneration unless

(1) (a) authorized by the trust instrument through a charging clause;

(1) (b) in a will a charging clause operates as a legacy/ gift; (note that where the
trustee is also a witness he will be denied the charging clause legacy);

(2) there is a contract with the beneficiaries where all the beneficiaries are sui juris,
of full age, and absolutely entitled to the trust property, they may agree with the
trustee that he shall be paid; or

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(3) under court order as in Boardman v Phipps [1966] 3 All ER 721and Re Duke of
Norfolk’s ST [1981] 3 All ER 220. Or

(4) if there is any statutory provision to this effect, see for example, UK, Section 29
of Part V, Trustee Act 2000, and

(5) under the Rule in Craddock v Piper (1850) 1 Mac and G 664. If a solicitor -
trustee is acting as a trustee he is permitted to receive payment for work done in
relation to litigation conducted on behalf of himself and his co-trustees. Recovery
can only be made to the extent that costs have not been increased by the solicitor
acting for himself and his co-trustees. A rather odd rule, Lord Upjohn in Re
Worthington (deceased) [1954] 1 All ER 677 described it as “exceptional and
anomalous and not to be extended.”

Craddock v Piper – Is exception to the Rule that a solicitor-trustee cannot be

paid for work done.

Re Gates – a solicitor –trustee may employ his partner to do litigious work

provided he gets no benefit from the transaction but cannot employ his own
firm.

Barrett v Hartley – trustee/executor also cannot be paid for his time and
trouble in looking into the administrative affairs of the testator.

5.4. Power to relieve trustee from personal liability & Power to make
beneficiary indemnify for breach of trust, see sections 63 & 64 Trustee Act 1949

Section 63: Ong Soo Keok & Ors v Ong Soo Kwee (suing as executor of the state of
Loh Ah Moy @ loh Siew Keng (P) [2015] 5 MLJ 389 (CA)

5.4.4 Statutory standard of care as seen - In the UK, section 1 (1) Trustee Act 2000.

CIMB Bank Bhd v Maybank Trustees Bhd and other appeals (FCt) [2014 3 MLJ
169, see paras 148 & 150.

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