The trust has tremendous utility because it is flexible and easy to create. It is usually set up for the purpose of ‘the management of wealth’, where property may be put on trust for an individual, an infant, a person of unsound mind or a group (Hayton 1998).
The modern trust evolved as a response of equity to the shortcomings and the rigid formalities of the common law. The trust was originally used to protect landowners who had transferred their land to another on the understanding that the transferee was to hold and administer the affairs relating to the land for the benefit of the transferor’s family.
There would be no problem where the transferee kept his word, but when the transferee broke his promise, misused or administered the land for his own benefit, the question of rights and remedies would arise. Common law only recognises the ownership of the legal owner. In case of a breach, there would be no legal redress for the transferor and his family. The concept of the trust was a developed as a way of requiring the friend to fulfill his promise, on the basis that it was unconscionable for him to claim the land for himself. In other words, equity imposed a trust on the transferee, called the trustee, to hold the property for the benefit of the beneficiaries.
The reliance placed on the transferee to deal with the property for the benefit of the beneficiary gave rise to a relationship of confidence or a fiduciary relationship. The transferee could not deal with the property in a way that would conflict with the interest of the transferor or the equitable owner.
Today the trust has become a valuable device in commercial and financial dealings where the fundamental principles of equity that were originally formulated apply as much to commercial trusts as they do to the traditional trusts.
The significant feature of the trust is the dual ownership of the trustee (legal ownership) and the beneficiary (equitable ownership). There are four essential elements of a trust under ordinary principles of law:
There must be a trustee or somebody who holds the trust property.
There must be property, whether land or money, that is capable of being held on trust.
There must be an ascertained beneficiary or beneficiaries who could enforce their rights.
The trustee is under a personal (equitable) obligation to deal with the property for the benefit of the beneficiaries.
In 1840, Lord Langdale laid down three certainties in the creation of a trust, namely: the person establishing the trust (the settlor) must demonstrate a clear intention to create a trust; the subject matter (the beneficial interest) is clearly identified; and the beneficiaries as well as the quantum of entitlement must be certain.
Uncertainty of intention will cause the trust to fail, and the person on whom the gift is bestowed will take the gift absolutely unhampered by the trust. If the subject matter is not certain, no trust is created. It may be, however, that the property itself is certain but the beneficial shares are not. Unless the trustees have discretion to determine the amounts, the trust will fail and the property springs back to the settlor on a resulting trust (Martin 1997: 93). The beneficiaries of the trust must also be ascertainable, otherwise a trust would fail for uncertainty and the property reverts to the settlor (Hayton 1998: 82).
Apart from these three certainties, no rigid formalities are required. In Peninsular Malaysia, a trust concerning any property, including land and equitable interest in land, need not be in writing provided the words used in the transaction show a clear and unequivocal intention to create a trust.[15] In Sarawak, however, a declaration of trust in respect of any interest in land, whether legal or equitable, must be in writing signed by a person who is able to declare the trust or by his will.[16]
This ‘new model’ JVC is a type of development trust which is a ‘facilitative commercial trust’ (Bryan 2001). Creating a trust circumvents the requirements for a person or persons to be a party to the contract in order to enforce it. A third party cannot enforce the contract but he may enforce a trust even though he was not party to it. The beneficiaries include persons whose names appear in the appendix of the trust deed, their respective heirs, successors in titles, executors, administrators, personal representatives, trustees and any other person claiming title or interest in the name or on behalf of the native customary owners.
The trust also does away with the need to get into a partnership that will require the parties to contribute equally in order to share equally in the profits (Ladbury 1987). Most native landowners do not have the financial means to develop the land, so vesting the land in trustees is arguably one of the most appropriate mechanisms that can be used. Be that as it may, the intrinsic nature of native customary rights could give rise to problems peculiar to this kind of trust.
The terms of the trust deed presume that the native customary owners have acquired the rights through one of the means prescribed under Sections 5(2), 7A, 7B or 7C, or had obtained a permit under Section 10, of the Land Code , or that there is evidence or records kept by the Land Office pertaining to the land, so that a registrable document of title may be issued in favour of the company.
This arrangement is different from some property development ventures which are financed through the marketing of shares in land trusts where the shares have clear proportions. In this case, while the beneficiaries may be entitled to the land as set out in the appendix of the trust deed, their respective interests, rights, and shares are undivided. With one master title, the owners cannot apply for subdivision for as long as the company is the registered proprietor.
Applying the traditional requirements of certainty, there is no exhaustive listing of all beneficiaries entitled under customary law. The question in this case is: could the trust be challenged as void for uncertainty of objects? If so, who is responsible to ensure that the land reverts to the owners? And finally, what are the powers of the trustees?
The trustee’s powers are provided for by the trust deed, although general statutory powers are also provided by the Trustee Act 1949. The powers of a trustee are facilitative, enabling a trustee to act in a certain way but leaving the discretion to him as to whether to so act. Duties, on the other hand, are imperative. They compel or prohibit a trustee from acting in a certain way, failing which he may be liable for breach of duty.
The general powers of trustees under the Trustee Act include the powers to compound liabilities, to settle claims and to give receipts, to fix the value of trust property, to concur with co-owners of land in disposing of trust property, and to insure trust property.
The trustee cannot put himself in a position where there is a conflict of interest, nor can he profit from his position without authorisation by the trust deed or consent of the beneficiaries. It is his duty to administer the trust honestly and impartially for the benefit of the beneficiaries, to account to the beneficiaries and to distribute the income to those entitled to it.
A breach of duty may result in a claim by the beneficiaries. Any loss caused by the trustee or trustees wrongfully disposing of the assets or any diminution in the value of the trust fund may have to be borne by the trustees. The same liability may be imposed on a trust corporation, although the standard of care and business prudence expected of a trust corporation is higher than that of an ordinary trustee, particularly where it holds itself out as capable of providing certain expertise which cannot be provided by an ordinary prudent man. The reasonable standard of care is one for the courts to decide based on the facts of the case.
Underlying these powers and duties is the fiduciary obligation of the trustee to the beneficiary.
The word 'fiduciary' comes from the Latin fiducia meaning ‘trust’. Inherent in the nature of the fiduciary relationship is one party’s position of disadvantage or vulnerability which causes him to place reliance upon another and requires the protection of equity in acting upon the conscience of that other. It is important to determine whether a fiduciary relationship exists and, if so, whether any remedy is available in case of any breach of that fiduciary obligation.
The relationship between a trustee and the beneficiaries has been called the ‘archetypal’ fiduciary relationship.[17] It is an established principle that the trustee must not use his position to make a gain for himself. This has been extended to apply generally to all cases where one person stands in a position of influence over another, enabling the court to intervene in circumstances where the person occupying a position of trust or confidence took improper advantage of that position. The question is: would these principles of fiduciary duty apply to a government and its agencies?
Dal Pont and Chalmers (1996: 118) argue that the government, like a trustee, is concerned with the control and distribution of wealth. Having been sourced from the people, the exercise of a government’s power to affect the interests of its people is subject to an obligation to deal with this wealth for the benefit of its people. In this respect, the people can be characterised as ‘beneficiaries’ of the trust established by the conferral of their authority on the government to act on its behalf (Finn 1994: 45). The fiduciary duty that binds the Crown is similar to the duty that a constructive trustee owes to a beneficiary, which entails a duty not to compromise the beneficiary’s interest in transactions with third parties.
The highest courts in the United States, Canada, New Zealand and, to some extent, Australia have recognised the existence of a fiduciary relationship between the government and aboriginal persons. The issue of fiduciary obligation towards aboriginal people has also arisen in Malaysia. In one recent case,[18] the federal and state governments were both said to have owed a fiduciary duty to the Orang Asli (aborigines) of Peninsula Malaysia to protect them from unscrupulous exploitation and to safeguard their tribal organisation and way of life. That duty emanates from Article 8(5) of the Federal Constitution. This was affirmed by the Court of Appeal in 2005.
In the case of natives in Sarawak, Article 153 of the Federal Constitution also imposes a fiduciary obligation on the Yang di-Pertuan Agong (the King) to protect the interests of the natives of Sarawak and Sabah. Further preferential treatment as regards alienation of land by the state is contained in Article 161A(5), while protection of native law and custom is also enshrined under Article 150(6A), Clause 5.[19] Clearly, there is legal recognition that natives are especially vulnerable to the power of government, and this justifies their preferential treatment. For natives in Sarawak, this is a reflection of the Brooke government’s belief that Sarawak ‘is the heritage’ of its people and that land is their ‘lifeblood’. In the ‘Nine Cardinal Principles of the Rule of the English Rajahs’, the government held itself as ‘trustee’ of the people and policies for protection of native interests against outside exploitation were put in place.[20]
The state’s fiduciary duty also arises because of the inalienability of the property. The state’s power to impair native customary rights by way of alienation, and the fact that such rights are inalienable except to another native or by surrender to the state, gives rise to a fiduciary obligation on the state. The fiduciary obligation protects those rights so that they cannot be terminated without involving, informing, consulting and negotiating with the customary right holders in good faith, minimising the impact and detriment on the affected parties. It is imperative for the government to deal with the property surrendered to it with utmost good faith.
This means that, when native customary landowners surrender their rights to the LCDA as trustees, there is a clear fiduciary duty to protect the rights of the vulnerable right holders. A government agency that takes on the duties of a trustee under a commercial arrangement becomes a ‘trustees twice over’ (Finn 1992: 243), particularly where the vulnerable landowners depend on it to negotiate the best terms on their behalf (Lehane 1985: 98).
In the present JVC model, the relationship between the corporate developer and government agency (trustee) is contractual. Does a fiduciary relationship exist between them? It is suggested that the mutual confidence between the JVC and the LCDA (or its agents), in appropriate circumstances, does not exclude the possibility of a fiduciary relationship.
The Malaysian Federal Court has already held that the relationship between parties in a joint venture agreement is a fiduciary relationship.[21] Thus, if a right is not sustainable in breach of contract, there may be an avenue in equity where there is a breach of the fiduciary obligation.[22]
What remedies are available to beneficiaries should there be any unauthorised act or in case of a breach?
At the core of the trust concept is also a right of the beneficiaries to make the trustees accountable to the trust and to ensure that they act within the terms of the trust deed. The remedy for the breach of a fiduciary duty includes declaration of rights or a claim in damages and compensation.
Beneficiaries have a right to have the trust property invested in a way that will keep a balance between them. They have a ‘policing’ right, to see the trust accounts from time to time, and to require the trustees to make good any breach of trust. While trustees are not bound to give reasons in exercising their discretion, the absence of reasons could create a presumptive case that a trustee’s discretion has been miscarried or was not exercised upon real, sound and genuine consideration. Beneficiaries may also apply for an injunction to restrain a fiduciary from acting in a way that is detrimental to the trust.
The issue takes on a different angle where the trustee is a government agency. Section 29(1) and (2) of the Government Proceedings Ordinance 1956 debars an injunction being granted against a government or an officer of the state. An order for the preservation of property may be made if the plaintiff can show that irreparable damage not compensatable by damages would be caused. Despite the nomenclature, if the effect is the same as that of an injunction, it will not be granted. Thus, while it is open for claimants to take legal action to prove their claims, very few natives have the means to sustain such actions.
A fundamental aspect of the JVC is that native customary ‘owners’ become joint venture partners without having to provide financial capital. This means that ‘their equity in the joint ventures would be based on the area of their land; and the irresistible part of it all is that their land would be returned to them when the government has no more use for it’ (Jitab with Ritchie 1991: 66). To what extent can the beneficiaries be assured of the reversion of the Native Customary Land? The issue is not that ‘the government will not cheat its own people’; rather, the problem lies in the discharging of the onerous burden of proof that is on the claimant.
Since Native Customary Lands are not individually surveyed, there are latent uncertainties in terms of the specific shares in the land. At the expiration of 60 years, persons who have surrendered their rights may no longer be alive. This could cause problems for the successors unless they can work out a clear system of partition and inheritance of the land. If the native claimants are not able to settle their claims among themselves, there is a possibility and danger of them losing their rights to the legal owner who has a registered (master) title to the land.
The new Section 7A of the Land Code provides for registration of Native Customary Land but does not provide indefeasibility of title. In Fong’s words, it is treated merely as an acknowledgement of a claim to the land until the contrary is proved,[23] a certification to a right, and not a ‘proprietary right in land’. The onus of proving an interest remains on a native claimant.[24] The problem reverts to the question of the restrictive provisions under Section 5 and the clash between statute and native concepts of land.[25]
The commonly deployed method of determining the existence of native customary rights over a parcel of land is aerial photographs taken prior to 1 January 1958. However, these may not be available, and the claimant then has to show alternative physical evidence of occupation before 1958, or else show records of permits, which are virtually non-existent. Thus, upon amalgamation of all the contiguous lands by the Director of Lands and Surveys, land that is vested in the trustee becomes the legal property of the agency with no compensation paid to the claimant. With no payment of compensation at the point of amalgamation, is the amalgamation tantamount to summary taking of land without compensation?
One possible way to avoid this problem may be to survey the land and grant individual titles to the owners at the point of their joining the scheme. This would ensure that persons who join the scheme know their specific share and are able to stake a claim at the expiration of the 60-year provisional lease period. Before such a survey can be carried out, such rights must be fully investigated, demarcated and recorded before titles can be issued to replace the customary tenure (Goh 1969: 4). It has been argued that a full-scale statewide registration of native interests over land would be a time-consuming, tedious and costly operation (Fong 2000). However, in specific projects such as this, the advantages of a proper survey being done prior to implementation cannot be understated.
A prior grant of title to claimants would best serve the interest of the vulnerable owners and the sense of security would be an incentive for participation. It would go a long way in improving the implementation of Native Customary Land development (Songan and Sindang 2000: 251). With the passing of the Land Surveyors Ordinance 2002, the combined effect of Sections 20 and 23 entail that a person who is not a licensed surveyor cannot make, authorise or sign any cadastral map. Since map making by the communities themselves could be an offence, it is imperative that the authorities take steps to survey the land for the natives.