Most investors in a unit trust sign nothing but an application form; the deed was executed years earlier between the trustee and the fund’s founder. Can a Port Moresby retiree who bought units last month insist that the trustee obey it? Under the Capital Market Act 2015 the answer is yes.
Section 212: enforceable between members and trustee
“The trust deed shall be a document that is legally enforceable as between the members and the trustee.”
The section does two jobs. It requires the deed to be drafted so that it is enforceable, which is why section 208 lets the Commission refuse or revise a deed. And it removes any argument that a member who was not a party to the deed cannot sue on it. In ordinary contract law only the parties can enforce a contract; section 212 settles that every member stands in a direct legal relationship with the trustee on the terms of the deed.
What trust and contract law add
A registered deed is still a trust instrument. Section 191(2) requires the trustee to hold the scheme property “in trust for the unit holders or members”, and the general law of trusts, applied alongside the Trustees and Executors Act, gives beneficiaries the right to have the trust administered according to its terms, to call for accounts and to trace misapplied property. The deed also operates as a contract, so a member may claim damages for breach of its promises. Section 191(1)(k) folds the deed into the trustee’s statutory duties by requiring it to comply with “any other duty, not inconsistent with this Act, that is conferred on the trustee by the trust deed”; breach of section 191(1) is an offence carrying a fine of up to K10 million or ten years’ imprisonment, or both. See the trustee’s duties.
The statutory remedies
| Provision | What a unit holder can do |
|---|---|
| s 262 | Recover loss caused by trustee conduct that contravenes the Act, whether or not the trustee has been convicted; the action must start within six years |
| s 256(1) | Ask the Court for “any order which it considers appropriate to protect the interests of existing or prospective members” |
| s 256(2) | Where the trustee seeks directions on its functions or members’ interests, the Court may give directions, declarations and consequential orders |
| s 195 | Demand copies of book entries and inspect contract notes for the member’s own transactions free of charge |
| s 196 | Complain to the Commission, which may check the trustee’s compliance with the deed and the Act |
| ss 201, 265, 267 | Requisition a meeting to remove the trustee, direct a winding up by special resolution, or apply to the Court to wind the scheme up |
Section 262 is drafted as applying to a contravention of “a provision of this division”, yet Division 8 contains only sections 262 and 263. It makes sense only if read as referring to the Part, so members should plead the general law of trusts as well until a court clarifies it. See suing the trustee.
The trustee answers for its agents
Deeds often hand day-to-day investment to a fund manager. Section 190(3) ensures the member’s remedy is not lost: when deciding whether “there is a liability to the members” or whether the trustee has properly performed its duties for the fee purposes of section 210(3), the trustee “is taken to have performed (or failed to perform)” whatever its agent did, “even if such duties or functions were performed fraudulently or outside the terms of their engagement”. The unit holder sues the trustee; the trustee pursues the manager. See trustee and fund manager.
The Pacific Balance Fund example
The clearest local illustration is the removal of the Pacific Balance Fund’s manager in 2006, decided under the Securities Act 1997 but on principles that still hold. Clause 21.1 of the 2001 deed obliged the trustee, where the manager was in material breach, to convene a meeting of unit holders within 42 days to consider removing it, and expressed that covenant as being for the benefit of the unit holders jointly and each of them separately; clause 23.3 dealt with removal itself. When Nasfund, holder of 21 percent of the units, alleged breaches, the trustee called a meeting. In National Superannuation Fund Ltd v Pacific Equities and Investments Ltd [2006] PGSC 12; SC845, Lay J stayed a National Court injunction so far as it stopped the meeting, holding it arguable that the manager’s future was not a matter for the Court “when the Trust Deed quite clearly gave that right and responsibility to the Unit Holders”, and that transparency in the use of public investors’ funds outweighed the interests of the corporations administering the trust. The meeting of 14 July 2006 voted to remove the manager, and in Pacific Equities and Investment Ltd v Melanesian Trustee Services Ltd [2007] PGNC 24; N3122 Hartshorn J refused the manager an injunction against that resolution, finding no serious question to be tried where it had five weeks’ notice of the meeting and was heard through its lawyer. See the 2006 case and the 2007 case.
Get the deed: it is lodged with the Registrar of Companies under section 209 and held for inspection at the trustee’s registered office under section 129(3). Use the complaints procedure the deed must contain under section 210(1)(c), then the Commission, then the Court. Members can also require a meeting under Division 5.
Sources
- Capital Market Act 2015 — ss 129(3), 190(3), (5), 191, 195, 196, 201, 208–210, 212, 256, 262, 265, 267, 272(1)(b)
- Trustees and Executors Act (Ch 289)
- Securities Act 1997 (repealed)
- National Superannuation Fund Ltd v Pacific Equities and Investments Ltd [2006] PGSC 12; SC845
- Pacific Equities and Investment Ltd v Melanesian Trustee Services Ltd [2007] PGNC 24; N3122
Before relying on anything here, read the current text of the Capital Market Act 2015 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.