Topic 2: Trust
Meaning of Trust
• Halsbury’s Laws of Malaysia
Meaning of "trusť". Where a person has property or rights which he holds or is bound to exercise for or on
behalf of another or others, or for the accomplishment of some particular purpose or particular purposes, he
is said to hold property or rights in trust for the other or those others, or for that purpose or those purposes,
and he is called a trustee. A trust is a purely equitable obligation and is enforceable in the High Court.
• Underhill
A trust is an equitable obligation binding a person (who is called a trustee) to deal with property over which
he has control (which is called the trust property), for the benefit of persons (who are called beneficiaries or
cestui que trust), of whom he may himself be one, and any one of whom may enforce the obligation. Any act
or neglect on the part of a trustee which is not authorised or excused by the terms of the trust instrument,
or by law, is called a breach of trust.
Westdeutsche Landesbank Girozentrale v Islington LBC
Once a trust is established, the beneficiary’s interest is proprietary in character.
Re Scott (Deed)
Trust relationship cannot exist where the legal and equitable title merge: a person cannot be a trustee and
thus be under fiduciary duty in law if it is for himself alone.
The trust refers to the duty or obligations that rest upon a person described as a trustee. The responsibilities
are in relation to property held by him, or under his control. He will be compelled by a court in its equitable
jurisdiction to administer that property in a manner lawfully prescribed by the trust instrument, or where
there be no specific provision written or oral, to the extent that such provision is invalid or lacking, in
accordance with equitable principles. As a consequence the administration will be in such a manner that the
consequential benefits and advantages accrue, not to the trustee, but to the person called cestui que trust
or beneficiaries, if there be any, if not, for some purpose which the law will recognise and enforce.
Settlor, Trustee, Beneficiaries
Settlor” is a person or company who transfers legal title of specific assets to the trustee. This transfer is effected
under the terms the settlor and trustee have agreed and which are documented in the trust deed.
“Trustee” is a person or company who becomes the legal owner of the assets transferred into trust without
obtaining the right of economic enjoyment of those assets. A trustee is responsible for the administration of the
trust in accordance with the terms set out in the trust deed and the law governing the trust. A trustee is under a
fiduciary obligation to administer the trust in the best interests of its beneficiaries.
“Beneficiary” is a person or company who has equitable title to the assets held in trust and the right to benefit from
them. A settlor may be included among the beneficiaries of a trust.
Formalities in Creation of Trust
Knight v Knight
This test specified that for a valid trust to be created, there must be three certainties:
(1) Certainty of intention: there must be intention to create a trust;
(2) Certainty of subject matter: the assets constituting the trust must be readily determinable;
(3) Certainty of objects: the people to whom the trustees are to owe a duty must be readily determinable.
Trust in Contrast to other Legal Relationships
1. Trust and Contract
A contract comes into being on account of consensus between contracting parties; trust on the other hand is
primarily founded on the intention of the settlor. There is little to stop the parties to a contract from making
provisions to impose a contractual obligation on one party so as to protect the other, thus giving rise to a
situation akin to a fiduciary relationship.
Norberg v Wynrib
The foundation and ambit of the fiduciary obligation are conceptually distinct from the foundation and ambit
of contract and tort. Sometimes the doctrines may overlap in their application, but that does not destroy
their conceptual and functional uniqueness. In negligence and contract the parties are taken to be
independent and equal actors, concerned with their own self-interest. The essence of a fiduciary
relationship, by contrast, is that one party exercises power on behalf of another and pledges himself or
herself to act in the best interests of another.
2. Trust and Debt
The principles that govern the relationship of debt is between a creditor and a debtor. The usage of the word
"trust" and the fact that money is kept in separate accounts and not mixed with money from other sources
are normally strong indications suggesting the creation of a trust, but these are not always conclusive: the
crucial question is whether the parties have reached an agreement to the effect that both legal and
equitable rights and remedies should exist together in respect of the transaction in question.
3. Trust and Bailment
It involves the transfer of possession of goods to a person (bailee) who holds the goods for the direction of
the bailor, to whom they will return.
MMC Proceeds Inc v Lehman Bros Intl (Europe)
Only a person with legal interest can be a bailor.
4. Trust and Power
The 2 importance characteristic features of power distinguishing from trust are (1) power are discretionary,
(2) beneficiaries own the beneficial ownership in the relevant property.
• Re Gulbenkian’s Settlement Trusts
The result is in [mere power] even if the class of appointees among whom the donees of the power may
appoint is clear and ascertained and they are all of full age and sui juris, nevertheless they cannot compel
the donees of the power to exercise it in their collective favour. If, however, it is a trust power, those
entitled are entitled (if they are all of full age and sui juris) to compel the trustees to pay the fund over to
them unless the fund is income and the trustees have power to accumulate for the future.
