Validity of certain transactions and documents
70.Section 43 of the Act implements recommendations 62 and 65. The effect of subsections (1) and (2) is that the validity of an onerous transaction (or contract) between the trustees and another party is not subject to challenge on either of two grounds: first, that the purported exercise of the trustees’ power conflicted with the actual terms and purposes of the trust or, secondly, that the procedures adopted by the trustees were flawed. This clarifies the current law: section 43(2)(a) replaces section 2(1) of the 1961 Act, whilst section 43(2)(b) is in substitution for section 7 of the 1921 Act. (Both of these provisions are repealed, so far as relating to trustees, by section 87 and schedule 2.) Section 43(3), which makes special provision for situations in which trustees are acting under the supervision of the accountant of court, is a re-enactment of the proviso to section 2(1) of the 1961 Act. By section 43(4), the earlier subsections do not affect any liability of the trustees between themselves. This is the position under the current law. The current law also places beneficiaries in the same position as trustees, with the result that a beneficiary who transacts with the trustees is unable to rely on the equivalent protections to those in subsections (1) to (3). This section adopts a different approach and extends such protection to beneficiaries, on the basis that the provision is restricted to transactions which are onerous. The trustees will therefore have received value and so the transacting party, including a beneficiary, is worthy of protection against challenge on the grounds in subsection (2). In line with recommendation 65, the current requirement, contained in section 7 of the 1921 Act, of good faith on the part of the other party is not reproduced in this section (on the basis that the onerous character of the transaction should ensure that the trust property is not prejudiced). Section 43 applies irrespective of when the trust was created, but only to transactions entered into after commencement of the section (subsection (5)).
71.Section 44 of the Act clarifies the current law on the execution of documents by trustees. It is a default rule. At present, while it is clear that a decision – for example, to sell trust property – can validly be made by a majority of the trustees, it is less clear how many trustees are required to execute the disposition or other document. Subsection (1) provides that, for the document to be validly executed, it is sufficient that a majority of the trustees have signed it(12). Subsection (2) indicates that, alternatively, the trustees may authorise an agent to execute a document on their behalf (under section 22(1)(b)). This may be particularly useful where a decision of a majority of trustees under section 14 cannot otherwise be implemented by executing a document where an absolute majority is required due to incapability or being untraceable. By subsection (3) the rule in subsection (1) applies irrespective of when the trust was created but only as respects documents executed after commencement of the section.
This is different from the SLC recommendation 64 which disregarded incapable or untraceable trustees from what constituted the majority. Concerns were raised that such a rule would mean those relying on the signed document would have to look behind the trust deed and inquire as to the traceability and capability of trustees.
