TRUSTEES' POWERS AND DUTIES

Transcription

1 The Law Commission Consultation Paper No 146 TRUSTEES' POWERS AND DUTIES A Consultation Paper London: The Stationery Office

2 THE LAW COMMISSION TRUSTEES' POWERS AND DUTIES CONTENTS Paragraph PART I: INTRODUCTION AND BACKGROUND Background The scope of this Consultation Paper Approach to reform Applicability Structure of the Consultation Paper Acknowledgements PART II: MANAGING TRUST ASSETS TODAY Investing in securities Financial services Protection of private investors The employment of nominees and custodians The practice and its advantages Disadvantages RISKS FOR THE BENEFICIAL OWNER LOSS OF SHAREHOLDER RIGHTS The employment of discretionary fund managers A typical discretionary fund management agreement CREST The legal background What is CREST? Electronic settlement Using CREST: contractual obligations Uncertificated securities CREST and trustees Five-day rolling settlement Land holdings Vesting title in nominees Delegation of estate management Rent reviews and sales at valuation Judicial attitudes to applications for additional powers PART III: TRUSTEES' POWERS OF DELEGATION - THE PRESENT LAW The functions that may be delegated The underlying principle: delegatus non potest delegare No delegation of discretions The justification for the rule Consultation with beneficiaries in

3 The circumstances in which trustees may delegate Legal and moral necessity The extent of the doctrine of necessity Delegation by trustees to one of themselves Statutory powers to employ agents Collective delegation: Trustee Act 1925, sections 23(1) and (2) NO DELEGATION OF FIDUCIARY POWERS EXCEPT IN RELATION TO PROPERTY ABROAD NO SUB-DELEGATION EXCEPT IN RELATION TO AGENTS ABROAD THE ACT DELEGATED MUST BE ONE WHICH IS "REQUIRED TO BE TRANSACTED OR DONE" NO POWER TO EMPLOY AN AGENT ON A RETAINER? Paragraph: THE TERMS ON WHICH AGENTS MAY BE EMPLOYED Collective delegation: Trustee Act 1925, section 23(3) Delegation by individual trustees: Trustee Act 1925, section Delegation by individual trustees: Enduring Powers of Attorney Act 1985, section 3(3) Charitable trusts Pension trusts PENSIONS ACT 1995, SECTION 34 THE GOODE REPORT AND THE RATIONALE OF SECTION PART IV: TRUSTEES' POWERS OF DELEGATION: THE STANDARD OF CARE REQUIRED IN THE SELECTION AND EMPLOYMENT OF AGENTS The selection of agents Directions to employ an agent The standard of supervision The meaning of "prudence" Exclusion of liability and the meaning of "wilful default" Lord St Leonards'Act 1859 The meaning of "wilful default" in courts of equity The meaning of "wilful default" in courts oflazv "Wilful default" and directors' indemnity clauses The Trustee Act 1925 and its interpretation : the four statutory provisions Trustee Act 1925, section 23(1) Trustee Act 1925, section 23(2) Trustee Act 1925, section 23(3) Trustee Act 1925, section 30(1) Inherent difficulties The decision in Re Vickery Proposition 1 Proposition 2 Proposition 3 Proposition IV

4 Reactions to Re Vickery Subsequent authority Orders under Charities Act 1993, section Pensions Act 1995, section 34 The general rule: no exclusion of liability for negligence by the trustees Exceptions where discretionary fund managers are employed Vicarious liability where there is delegation to some of the trustees PART V: TRUSTEES' POWERS OF DELEGATION - A CRITICAL SUMMARY OF THE PRESENT LAW Powers of delegation The present law and its practical consequences "Delegatus non potest delegare" Should powers of investment and management continue to be regarded as fiduciary? Summary Trustees' duties of care when delegating Summary of the present law Orders under the Charities Act 1993, section 26 Pension trusts under the Pensions Act 1995, section PART VI: TRUSTEES' POWERS OF DELEGATION - OPTIONS FOR REFORM 6.1 Is reform needed? 6.2 Previous Law Reform Proposals The Law Reform Committee's Report on the powers and duties of trustees 6.3 Powers of delegation: the Committee's recommendations 6.4 Powers of delegation: comment 6.7 Duties of care when delegating: the Committee's recommendations 6.12 Duties of care when delegating: comment 6.13 The Model Trustee Code for Australian States and Territories 6.15 Comment 6.18 National Conference of Commissioners on Uniform State Laws: Uniform Prudent Investor Act (USA) 6.19 Comment 6.22 The issues What powers of delegation should trustees have? Specific delegation powers Situations (1) and (2) Situation (3) Situation (4)

5 Duties of care To what matters should the duty of care relate? What should the standard of care be? GOOD FAITH VICARIOUS LIABILITY "SAFE HARBOUR" CRITERIA CONDUCT OF A REASONABLE PRUDENT PERSON DUTY OF CARE THAT IS BOTH SUBJECTIVE AND OBJECTIVE Applicability to express delegation powers To which trusts should any new power of delegation apply? Applicability: general principles Charitable trusts THE PARTICULAR PROBLEM IN WHAT CIRCUMSTANCES SHOULD CHARITY TRUSTEES BE ABLE TO DELEGATE THEIR FUNCTIONS? THE POWERS PROPOSED Pension trusts PART VII: TRUSTEES' POWERS TO EMPLOY NOMINEES AND CUSTODIANS The present law - private trusts Statutory exceptions to the common law rule Where the trustees act collectively TRUSTEE ACT 1925, SECTION 21 TRUSTEE ACT 1925, SECTION 7 PUBLIC TRUSTEE ACT 1906, SECTION 4 Where trustees act individually TRUSTEE ACT 1925, SECTION The special position of charitable trusts The Official Custodian for Charities 7.12 The case for reform Powers to employ nominees and custodians Protection for beneficiaries Possible options Restricting the persons that can act as nominees and custodians TRUSTS OTHER THAN CHARITABLE TRUSTS CHARITABLE TRUSTS Power to insure against the defaults of the nominee or custodian Duties of care To which trusts should the new power apply? PART VIII: TRUSTEES' POWERS TO PURCHASE LAND The present law Powers of trustees of personal property VI

6 Powers of trustees where land is held in trust Settled land Land held on a trust of land Criticisms of the present law To which trusts should the new powers apply? PART IX: TRUSTEES' POWERS TO INSURE THE TRUST PROPERTY The present law Statutory powers Criticisms of the present law Specific criticisms Uncertainty Conflict with trustees' duties to the trust Unsatisfactory nature of the statutory powers to insure and their application The approach in other jurisdictions The proposals of the Law Reform Committee The issues The power to insure A duty to insure? Bare trusts Should premiums be paid out of income or capital? Application of the proposed powers and duties PART X: PROFESSIONAL CHARGING CLAUSES The present law The general rule and its exceptions Charging clauses The Law Reform Committee's Twenty-third Report No professional charging clauses Attesting witnesses and charging clauses The case for reform The issues Should there be a statutory charging clause? Other defects in the law Statutory charging clause Other reforms PART XI: SUMMARY OF ISSUES FOR CONSULTATION Applicability Powers of collective delegation Should trustees' powers of collective delegation be reformed? vn

7 The proposed new power to delegate Conditions for exercising the power Specific delegation powers Duties of care Application of the new power In general Charitable trusts Powers to employ nominees and custodians The powers proposed Protection for beneficiaries Power to purchase land Power to insure Professional charging clauses APPENDIX A: EXTRACTS FROM THE PRINCIPAL STATUTES AND OTHER MATERIALS REFERRED TO IN THE PAPER 181 APPENDIX B: MEMBERS OF THE TRUST LAW COMMITTEE 191 Vlll