Equity & Trust’s Law applications in Malaysia, UK and US - In tandem
Dr Noor Mohammed**
Ng Yih Miin***
The paper focuses on the comparison of Trust laws in three countries, the
United Kingdom (“UK“), Malaysia and the United States of America
(“US“), as the author would like to enlighten the public about the existence
of different trust laws in three different nations. The comparison will help
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readers and legislators to analyse the advantages and disadvantages of
existing trust lawsin other developedcountrieswhich couldbe
implemented into Malaysian law. Thus, in order to know the law well, the
authors started with the historical background and development of the law
and gradually proceeded to an understanding of the current law. It is crucial
to unravel the spirit of the legislation from an in-depth understanding of the
way the law evolves. The paper also emphasises the differences and
similarities of the current legislations of three countries starting from the
power as well as duties of a trustee followed by the discretion of the trustee.
As the paper develops further into the area of trust law, it is inevitable for
the authors to acknowledge the issue of breach of trust. There are many
issues discussed about the evidence and procedures of the different
jurisdictions in the area of breach of trust. Finally, the authors concludes
with the defences against the charges of breach of trust available in each of
the three countries.
Historical Background and Development in UK, Malaysia and US
In the UK, the history of trust was developed from the principle of equity.
During the 12thto 13thcentury, ownership of land in England was based on
a feudal system. When people left to fight in the Crusade, he had to pass
over his land to be handled and taken care of by someone else during his
absence. However, usually when the land owner came back, the one taking
care of the land would not return the land ownership back to the owner. The
courts could not order that the land be returned to the true owner of the land
because England did not recognize the principle of equity at the time. When
the real land owner failed in claiming back the land from the courts, they
usually made petition to the King. When the matter was referred to the Lord
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Chancellor, the principle of equity was born and cases were decided in a
just and equitable way. Since then, the principle of trust was brought in as
well, when the Lord Chancellor recognized the legal owner as trustee of the
land, and the original owner as the beneficiary. When requested, the trustee
has to transfer the land back to the beneficiary.
As for the development of trust law in Malaysia, it is necessary to trace the
history of the development of the law in Malaysia. Before independence of
Malaysia, our country was under the influence of the British and indirectly
or directly, the laws were influenced by the British. After independence,
when the Federal Constitution was adopted, matters regulated at Federal and
State level were divided into 2 lists, which are the Federal List and the State
List. For trust law, List II of the Federal Constitution clearly stated that:
“Except with respect to the Federal Territories, Islamic law and personal and
family law of persons professing the religion of Islam including the Islamic law
relating to succession, testate and intestate, betrothal, marriage, divorce, dower,
maintenance, adoption, legitimacy, guardianship, gifts, partitions and non
charitable trusts; wakafs and the definition and regulation of charitable and
religious trusts, the appointment of trustees and for the incorporation of
persons in respect of Islamic religious and charitable endowments, institutions,
trusts, charities and charitable institutions operating wholly within the State...
This shows that unlike England, where the trust law was regulated by the
Lord Chancellor, Malaysian trust law is regulated by the Federal
Constitution and the State. Before the colonial powers came into existence
in Malaysia, the States were regulated by Syariah Law, which was also
mixed with Malay custom.Thus, after independence, the laws of Malaysia
had changed and there was confusion when it came to the matter of trust.
Some argued that trust law should be regulated by the Syariah Law and not
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Civil Law because trust law had always been regulated under waqf by
Muslims. However, it is stated that matters related to trusts are always dealt
with by the civil courts.
The US, on the other hand, has a very interesting history on the
development of trust law. From research, trust law in the US was initially
created by Patrick Henry in the year 1765.At that period of time, the trust
law that was being created was known as the Pure Common Law Trusts.
However, the climax to the issue of trust law was raised in 1890 when
Sherman Antitrust Act was created.
The origins of the Sherman Antitrust Act has to be determined by tracing
back to the earlier times of the US after the period of 1861 until 1865, when
American was engaged in Civil War.After the incident, the economy in
America developed in a very fast way. Industrialization caused the market
to expand, and competition was increasing as well. As a consequence, it
caused monopolization of business by a few powerful people. They would
control a variety of industries at the same time, and control the prices of
products in the market as well. This was where trusts were created. The way
the trusts worked was that, when there were competitors entering the
market, the parties that entered into the trusts arrangements would decrease
the price of products until the competitors left the market, after which, the
prices would be increased again. This incident, indirectly caused barriers to
the economy, and it prohibited competition in the market as well. And this
was the reason why Sherman Antitrust Act came into existence.
The Antitrust Act was challenged only when the case of United States v.
E.G. Knight Cowas filed. The case was regarding a sugar trust that
controlled 98 percent of the market of the nation, but still, the court rejected
the challenge to the trust.
From the discussion above, it is clear that for trust law in the UK, Malaysia
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and the US, each of the countries have a different history and development.
The UK trust law was basically developed from the principle of equity in
land matters; in Malaysia, trust law was specified only after independence
and the creation of the Federal Constitution. Prior to independence,
Malaysia’s trust law was regulated mainly by Malay custom and Syariah
Law, which is also known as wakaf; in the US, trust was accepted only
after struggles and arguments on the Antitrust Law.
Regarding the legislation being used in the UK, it was found that trust law
was initially regulated by the Trustee Act 1925, which was very long time
ago. But this particular Act has now been repealed and replaced by the
Trustee Act 2000, which was only enacted 10 years ago. From research, it
was established that the Trustee Act 2000 is now the most comprehensive
trust law in England and Wales. It touches on the regulations of the trustees
and trusts in the country.After the creation of the Trustee Act 1925, the
Trustee Act 2000 was revised in 1982, and was finally presented to the
House of Lords in 2000. It is a set of regulations which state the duties of
trustees, and has effect throughout England and Wales. From research, it
was found that in the Trustee Act 2000, there are basically 5 aspects of trust
law, among those areas are the duty of trustees, power of trustee to invest,
power of trustee to appoint nominee, power of trustee to acquire land, and
the power of trustee to receive remuneration for the work he had done.
Besides the Trustee Act 2000, it is also important to take note that in the
UK, there is another trust law that regulates the country, which is the UK
Trust of Land Appointment of Trustee Act 1996. According to a reliable
website, it was found that the Act deals particularly in land matters, for
instance, trusts and trustees in land dealings.After reviewing the Act, it
was found that the Act not only defines the meaning of trusts of land,but
also states the conversion of land,and even the powers of the trustees.
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In addition to that, there is another Act that regulates trust law in England.
The Act is known as the UK Perpetuities and Accumulations Act 2009. It
only consists of 24 provisions, and from the provisions, it is stated that the
Act is applicable when there are some limitations to the property in trusts to
the successive estates.Therefore, we can see that in UK, there are
various types of rules regulating trust law in England and Wales.
However, in Malaysia, there are merely 2 legislations that clearly governs
trust law in the country. The main statute that regulates trust law is the
Trustee Act 1949, which came into force in West Malaysia on 31stof
December 1949, and came into force in East Malaysia on 30thJune 1965.
The Act which consists of 69 provisions, focuses on matters of trust,
executorships and also administratorships.In order to have a clearer
picture of the current situation of Malaysia from the aspect of trust law, it is
important to raise the issue that the judiciary in our country does not only
apply the Trustee Act 1949 as our source of law. For instance, in the case of
Liew Choy Hung v. Fork Kian Seng,where the case was about the
claiming of a house by a couple after their relationship broke down, both
parties claimed they had contributed to the purchase of the house. NH Chan
JCA in his judgment referred to English authorities. The principles of law
established in some UK cases were applied in Malaysian cases. As proof of
this statement, in this particular case, the judge referred to Springgette v.
Defoe,Pettit v. Pettit,and even Halsbury’s Laws of England. This
shows that in Malaysia, the courts still apply English principle when it
comes to trust law.
It should be noted that the Civil Law Act 1956 states that the Malaysian
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judiciary is allowed to apply UK common law in a situation when it is
appropriate and provided that it is confined to the cut-off date.Thus, this
is the reason why in our country, even though the Trustee Act 1949 is
provided to regulate trust law, UK authorities are also important as it is
often used as references in deciding cases. We can therefore conclude that,
even though in the UK there are several laws that regulate trust law, more
comprehensively if compared to Malaysia, but since the Malaysian judiciary
applies UK common law as well in trust law, it shows that the principles of
trust law of both the UK and Malaysia have not many differences. The most
obvious difference is that the UK provides a more sufficient set of laws to
regulate different areas of trust laws, while Malaysia only uses the Trustee
Act 1949 as the main source of trust law. As long as it is permitted and
necessary to do so, English common law is always allowed to be referred to,
especially when there are some loopholes in the local law.
In the US, the Uniform Trusts Code 2000 was enacted to regulate the entire
country. From research, it was found that the Code was enacted based on the
California Trust Law, and the purpose of the creation of the Code was to
make uniform trust laws scattered around the US. The Code consists of 11
Articles, which provide definitions and general provisions, duty of trustees,
trust proceedings and even creation, validity, modification and termination
of trusts.Besides that, there is another rule adopted in the US, i.e. the
Uniform Prudent Investor Act (UPIA). Unlike the Uniform Trusts Code
2000, UPIA was not being adopted by all the states in the US, it is applied
by 44 states, and some of the states only applies part of the Act.UPIA
mainly focuses on the way to manage the trust’s assets prudently. It states
the fiduciary duty owed by the trustee to the beneficiaries, and the way to
make prudent decisions regarding an investment on behalf of the trust
beneficiaries. Even though it is not compulsory to adopt it, but it is
considered as important guideline to trustees in the US.
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After discussing the authorities of all the 3 countries above, we are of the
opinion that UK has the most comprehensive set of rules to regulate trust
law. As what was mentioned above, UK trust law consists of different
statutes regulating different areas of trust law. Moreover, it is also very
advanced, as the statutes are always up-to-date. This scenario is different in
Malaysia, as the only statute that is being applied is the Trustee Act 1949,
which was enacted more than 60 years ago. It may not be as good as the law
in the UK, as society keeps changing, and the laws should also be updated.
However, it should be taken note that even though the law is not often
updated in Malaysia, judges always refer to the UK common law and cases
when it comes to the issue of trust law. This is important to ensure that
when the Trustee Act 1949 is unable to assist the judges in deciding the
cases, or when the judges think it is fit and appropriate to do so, they may
apply the UK cases and authorities.
In the US, on the other hand, the sources of trust law are also quite
complete. Even though there are generally 2 statutes only to regulate trust
law in the US, but the Uniform Trust Code is significant, as it collects the
best trust law in the states, and makes it a uniform law. This may help to
improve the efficiency of law in the country, and also to avoid confusion
when it comes to the issue of trust.
As for the question of an assignment, the US trust law is different from the
UK trust law. This is because in the UK, different aspects of trust law has
been divided into different statutes. For instance, besides the UK Trustee
Act 2000, UK Trust of Land Appointment of Trustee Act 1996 was enacted
for land issues. In the US, both the Uniform Trust Code and UPIA are
significant, as each of it has its own advantages. The Uniform Trust Code is
just like the Trustee Act in the UK and Malaysia, whereby it regulates trust
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matters in the country. Furthermore, the US provides UPIA as guidelines for
trustees to act in a proper way while holding a trust on behalf of their
beneficiaries. This is the point that makes US trust law unique, as we cannot
find this in both the UK and also Malaysia.
Even though the UK and Malaysian Trustee Act also provide provisions
stating the duties and powers of the trustees, but UPIA is more
comprehensive as it not only states the fiduciary duties of the trustees
towards their beneficiaries, but also lists out some rules for the trustees to
make decisions prudently in order to prevent trustees from causing any
losses to beneficiaries. This is the main thing that, in our opinion, should be
treated as role models by other countries.
Trustee’s Discretions, Powers and Duties
Duties of trustee
Now we will look into the duties of the trustee in the US, UK and Malaysia.
As we know, Malaysia has adopted mostly UK law and therefore, there will
likely be an overlap in the duties of a trustee. The vast differences will be
between the US and the UK.
We will first look into the US. The duties of trustees are governed by title
11, chapter 7, and subchapter I section 704 of the United States Code.
This section basically states the duties of a trustee. It is stated in this section
that a trustee “shall be accountable for all property received,furnish such
information concerning the estate and the estate’s administration as is
requested by a party in interest, make a final report and file a final
account of the administration of the estate with the court and with the
United States trustee”.
From here we can see that, a trustee is under a fiduciary duty to make full
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and frank disclosure when needed to do so and also the trustee has an
administrative duty to make a final report and file the final account with the
court and also the United States trustee.
Next we will look into the duties of the trustee in the UK. The duties of the
trustee can be found in the United Kingdom Trustee Act 1925 and also the
United Kingdom Trustee Act 2000. A trustee is under a fiduciary duty. One
of it is purchasing of the trust estate. The principal is that when a trustee
purchases trust property, the beneficiary can set aside the sale and this is
found in the case of Wright v. Morgan. In this case, the will stated that
the property was to be offered for sale to the trustee beneficiary at a price
fixed by an independent valuer. The trustee beneficiary assigned this option
to purchase to another trustee who purchased the property at a fixed price
by an independent valuer. The court held that there was a conflict of duty
and interest and the sale would be set aside on the application of a
Besides that, a trustee is under the duty not to compete against the trust
which can be seen in the case of Re Thomson. In this case, the trustees
were directed to look after the testator’s business of a yacht broker and later
on, one of the trustees wanted to set up a similar business but the court held
that the trustee would not be allowed to set up the business which would
compete with the business of the trust as it is against the fiduciary duty of a
Part 1 of the Trustee Act 2000(revised),states that a trustee is under a
duty of care. It further explains that when a trustee is under a duty of care,
the trustee ought to exercise such care and skill which is reasonable.
A trustee is under a duty not to claim for remuneration which is stated in
part 5 of the Trustee Act 2000 (revised).A trustee is not to make profit
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from his position as a trustee but there are exceptions to this rule. The
exception is when there is a provision in the trust instrument entitling the
trustee to receive payment from the trust fund or if the trustee is a trust
corporation or is acting in a professional capacity.
An example of a trustee receiving remuneration when he or she is acting in
a professional capacity can be seen in the case of Craddock v. Piper.In
this case one of the trustees who was a solicitor acted on behalf of himself
and his co-trustees in two legal actions with regard to the trust property.
Later, the trustee-solicitor was not allowed to claim for the costs incurred
for professional work. The court held that the solicitor who was also a
trustee was entitled to claim for the cost of the litigation.
From this point it is clearly seen that the differences between the UK and
the US regarding the duty of the trustee is that in the US the duty of care of
a trustee is not mentioned whereas in the UK it is stated and secondly, in the
US under duties of the trustee, remuneration is not mentioned whereas in
the UK it is stated.
In Malaysia, the duties of the trustees can be seen in the Trustees
(Incorporation) Act 1952(revised 1981). Section 9is in pari materia with
Section 3 of the United Kingdom Trustee Act 1925 whereby all powers
conferred on the trustee shall be carried out according to his discretion but
are subject to consent or direction. In Re D’Epinoix’s Settlement, D’Epinoix
v. Fettes,it was held that the court will inquire whether an investment has
to be reserved.
Section 15is similar with title 11, chapter 7, subchapter I section 704 of
the United States code. Section 704(9) states that the trustee is to keep
accounts and to render annual returns of accounts.
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The similarities between these countries in relation to the duties of the
trustee are: duty of loyalty, duty to collect and protect trust assets, duty to
identify assets as trust property, duty not to commingle trust funds, duty not
to delegate, and also duty not to delegate.
Not only that, a trustee also has to comply with general administrative
duties. The trustee must administer and distribute the trust estate according
to the provisions of the trust. Besides that, a trustee has to pay all the trust
expenses required by the trust document. All expenses that have been paid
must be reasonable. Besides paying the expenses, the Trustee also has the
duty to keep record of all receipts, expenditures and any other important
documents relating to the trust and these documents should be easily
accessible to the beneficiaries.
Powers of Trustee
At common law the trustee may appoint a broker or solicitor to do that
which in the ordinary course of business other people would employ brokers
and solicitors to do and would not be liable if the broker or solicitor turns
out to be dishonest. In the case Speight v. Gaunt,the House of Lords held
that the trustee was not liable to the beneficiary for the loss of the trust
funds caused by the broker’s dishonesty. However, prior to the Trustee Act
2000 the trustee was liable for the default or misconduct of an agent only if
the trustee had been guilty of wilful default. This was stipulated in the case
of Re Vickerywhere it was held that an executor who had employed an
agent to receive monies belonging to the estate under s. 23 of the Trustee
Act 1925, would not be liable if the money is lost through the agent’s
misconduct, unless the executor is guilty of willful default in accordance
with s. 30 of the Trustee Act 1925. On the facts of the case, the defendant
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was only guilty of an error of judgment which, as the losses were due to the
solicitor’s dishonesty, did not amount to willful default.The trustees’
liability for the default or misconduct of an agent is based on the test of the
ordinary man of business. In the case of Re Lucking’s Will Trust,the
conduct of the trustee was judged on the basis of the ordinary prudent man
of business as set out in Speght v. Gaunt. Lucking was liable as he failed to
supervise Dewar, when he had known that the latter was dishonest.
In comparison to the US, the conventional rule in the US is that trustees
may hand over “administrative” responsibilities, but they are not allowed to
delegate their “discretionary” duties.
The new Uniform Trust Code provides: “A trustee may delegate duties and
powers that a prudent trustee of comparable skills could properly delegate
under the circumstances.”
In terms of decision making in the UK, “before making decisions, the
trustees should acquaint themselves fully with all the relevant facts, and
consider whether they need expert advice from lawyers, accountants,
investment advisers or other specialists. After considering any expert advice
that they think is necessary, the trustees must ensure that they turn their own
minds to the question in hand, acting honestly and in good faith. The
decision must be theirs, and not that of their expert advisers, as trustees are
not permitted to delegate their decision-making power, except when this is
authorized by the trust deed.
“In general, trustees should not commit themselves in advance as to how
they will exercise discretion in the future. Trustees can apply to the courts
for directions concerning any of the trust property, or the management or
administration of the trust property, or the exercise of any power or
discretion vested in them. In this way trustees who are in doubt about the
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legality of an intended course of action can get the court’s approval and be
protected from any liability for the action.
Trustee decisions must be unanimous, unless the trust deed allows for
majority decisions. The trustees should record all their decisions. They
should also record the reasons for their decisions, and attach all the relevant
documents including any expert advice given. Next, a trustee’s investment
power is the trust instrument governing his particular trust. The terms of the
trust instrument in relation to investment powers are always to be given
their natural construction. Subject to what the trust instrument might say to
the contrary, one would expect a trustee, as legal owner of the trust
property, to have the same powers as any other legal owner of property. In
fact it was only recently that the law was reformed to allow trustees to make
‘any kind of investment’, as if they were ‘absolutely entitled to the assets’
of the trust. Pension trustees were the first to benefit from these wide
investment powers. Now, subject to certain exceptions, the Trustee Act 2000
extends them to all trustees including trustees who, prior to the Trustee Act
2000, were authorized to invest without limitation in accordance with the
Trustee Investments Act 1961. (Any limitations set out in trust instruments
prior to the 2000 Act will, however, still apply unless made before 3 August
“All that can be required of a trustee to invest, is, that he shall conduct
himself faithfully and exercise a sound discretion. He is to observe how
men of prudence, discretion and intelligence manage their own affairs, not
in regard to speculation, but in regard to the permanent disposition of their
funds, considering the probable income, as well as the probable safety of
the capital to be invested” as in the American leading case of Harvard
College v. Amory(1830).
Breach of Trust and Remedies
i. Definition of Breach of Trust
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Generally, a breach of trust is defined as an action of a trustee which results
in a contravening of his or her duties. It can also be in the form of excess of
his or her powers.This is so whether the duties arise from the trust
instrument itself, where there is none, or whether they arise from
obligations imposed by equity. Failures of such may be in the form of some
positive action, e.g. investing in unauthorized securities; or in the form of
omission, e.g. “neglecting to have the trust property placed in the trustee’s
name”. Even a minor act of maladministration may imposed liability if it
causes loss to the trust estate.According to the American Uniform Trust
Code, Section 1001 provides that “A violation by a trustee of a duty the
trustee owes to a beneficiary is a breach of trust. A breach of trust may
occur by reason of an action or by reason of a failure to Act”.
overview, there is no difference in the meaning of breach of trust between
Malaysia, the UK and the US jurisdictions.
ii. Defenses for Breach of Trust.
In the UK and Malaysia, a trustee may rely on exclusion clauses to validly
exclude liability should there be any act on the part of the trustees that
amount to a breach of trust. Such position in the UK can be found in the
case of Armitage v. Nurse.In this case, the English Court of appeal stated
the position as to whether such exclusion clause stands valid to exclude a
trustee from any liability. This case concerned a settlement where a lady
was entitled to the remainder of a certain property conditional on her
mother’s life tenancy. In an action alleging a breach of trust, the trustee
relied on the provision in the instrument where it was said that “no trustee
shall be liable for any loss or damage which may happen to the fund”. The
questions before the court included whether such clause validly excluded
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liability for gross negligence. Millet LJ answered in the affirmative and as a
result of it, an exemption clause may legitimately protect a trustee from
gross negligence, but if such exemption is so extensive that it gives the
trustee no rights, then there is no trust. As for the position in the United
States, the Section 1008 of Uniform Trust Code 2000provides that:
“(a)A term of a trust relieving a trustee of liability for breach of trust is
unenforceable to the extent that it:
(1) Relieves the trustee of liability for breach of trust committed in
bad faith or with reckless indifference to the purposes of the trust or the
interests of the beneficiaries; or
(2) Was inserted as the result of an abuse by the trustee of a fiduciary
or confidential relationship to the settler.”
As can be seen from the two approaches from the two jurisdictions, we can