|
|
|
|
|
| The law |
Refer to a lawyer |
Refer to an accountant |
| |
|
| |
1. Trustee responsibility for review |
| |
Trustees are required to review the actions of agents, nominees and custodians, whether appointed: |
| |
|
| |
- under a power in the charity's governing document; or
|
| |
- under any enactment or subordinate legislation.
|
| |
However, the Act's requirement to review the actions of agents etc. appointed by the second and third of these methods does not apply if the Act's review requirements, described in section 2 below, are inconsistent with any provisions of the governing document, enactment or subordinate legislation under which the agent etc. was appointed. |
| |
Subordinate legislation means Orders in Council, Orders, rules, regulations, Schemes, warrants, bye laws and other instruments made or to be made under any Act. |
| |
The review duty applies in the case of a nominee/custodian even though the nominee/custodian has been selected by the discretionary investment manager on behalf of the trustees. |
 
| |
2. Review of agents, nominees and custodians |
| |
2.1 General principles
2.2 The first element
2.3 The second element
2.4 The third element |
| |
|
| |
2.1 General principles |
|
|
While the agent, nominee or custodian continues to act for the charity, the trustees must meet the general review requirements set out in section 22(1), to which there are three elements as follows. (See section 3 below for some requirements that apply specifically to trustees' review of agents who are exercising asset management functions). The general requirements are that trustees must: |
|
|
- keep under review the arrangements under which the agent, nominee or custodian acts and how those arrangements are being put into effect;
|
|
|
- if the circumstances are appropriate, consider whether there is a need to exercise any power of intervention that they have; and
|
|
|
- if they consider that there is a need to exercise such power, to do so.
|
| |
|
| |
2.2 The first element |
| |
The first of these elements requires that the trustees must keep under review the terms of the appointment and how the appointed person is performing. This obligation means that the trustees will need to keep under review whether the appointed person remains a suitable person to carry out the function and that the terms of the appointment remain appropriate. In addition the trustees must keep under review the manner in which the appointed person is performing his or her functions. |
| |
The duty to "keep under review" does not oblige trustees to review the arrangements at specific intervals or in a particular way. The way in which this duty should be discharged will depend upon what is reasonable in the circumstances. |
| |
Circumstances themselves may indicate that the appointed person is not carrying out their functions effectively, or cause the trustees to doubt the suitability of the person appointed. Where this is the case the second element becomes relevant. |
| |
|
| |
2.3 The second element |
| |
The second of these elements provides that where circumstances make it appropriate to do so, the trustees must consider using any powers of intervention that they have, for instance: |
|
|
- a power to give direction to the agent, nominee or custodian; and
|
|
|
- a power to revoke the authorisation or appointment.
|
| |
The Act itself does not give the trustees any powers of intervention, but requires them to consider using any powers of intervention that they have under the written agreement between themselves and their agent, nominee or custodian or under general law. |
| |
|
| |
2.4 The third element |
| |
The third element provides that where the trustees consider that there is a need to use the powers of intervention, they are under a positive duty to do so. |
| |
When carrying out duties under section 22, trustees are subject to the statutory duty of care (subject to any indication to the contrary in a trust instrument). |
| |
3. Review where an agent has been authorised to exercise asset management functions |
| |
Section 22(2) makes clear that the trustees, when they are reviewing agents authorised to exercise asset management functions, must specifically consider whether: |
| |
|
| |
|
| |
Where they consider that the policy statement should be revised or replaced they are under a duty to do so. Any revision or replacement of the policy statement must be in, or evidenced in, writing and must be formulated with a view to ensuring that the functions will be managed in the best interests of the trust. |
| |
Again, when carrying out these duties, trustees will be subject to the statutory duty of care (subject to any indication to the contrary in a trust instrument). |
| |
4. Liability for agents, nominees and custodians |
| |
Section 23 clarifies the position of when a trustee will be liable for the acts or defaults of any agent, nominee or custodian or their permitted substitute. The provision enhances the protection of beneficiaries and replaces the unsatisfactory provisions of sections 23 and 30 of the Trustee Act 1925 (as interpreted in Re Vickery [1931] 1 Ch 572) with the statutory duty of care under section 1. |
|
|
Section 23 provides that a trustee is not liable for any act or default of the agent, nominee or custodian unless in: |
|
|
- entering into the arrangements under which the person acts as agent, nominee or custodian; or
|
|
|
- carrying out the duties of review etc under section 22;
|
|
|
the trustee has failed to comply with the statutory duty of care. |
|
|
"Entering into arrangements" includes: |
|
|
- the selection of the person to act;
|
|
|
- determining the terms on which the person is to act; and
|
|
|
- where the person is to exercise asset management functions, the preparation of the policy statement.
|
|
|
Similarly, if the trustee has agreed a term (ie as part of the agreement with the agent, nominee or custodian) under which the agent, nominee or custodian is permitted to appoint a substitute, the trustee is not liable for any act or default of the substitute unless in: |
|
|
|
|
|
- carrying out the duties to review in so far as they relate to a substitute;
|
|
|
the trustee has failed to comply with the statutory duty of care. |
| |
5. Effects of trustees exceeding their powers |
| |
Section 24 provides that the appointments of agents, nominees and custodians are not invalidated by any failure of the trustees to act within the limits of their powers to make such appointments. This provision will secure dealings of third parties with agents, nominees and custodians, so long as the third party is not aware of any irregularity. It has the effect that third parties will not need to satisfy themselves that the trustees have complied with the requirements of the Act in making their appointments. |
| |
Examples of errors made by trustees might be where trustees appoint as a nominee or custodian someone who does not meet the statutory conditions for the appointment, or perhaps an agent is authorised to carry out a function that is not a delegable function. |
|
|
This provision does not, of course, relieve trustees of any of their obligations under the Act. They will still be liable for any loss incurred by the trust as a result of an appointment made outside the limits of the trustee powers. Additionally, where a person takes on, as an agent, the discharge of a function which they know that the trustees are not allowed to delegate then they risk becoming jointly and severally liable with the trustees for any loss incurred by the charity. Both parties to the appointment therefore have an interest in ensuring that the appointment can be properly made. |
|