Under traditional trust law, one of the duties of a trustee is to act personally. This means that:
- the powers, authorities and discretions of the trustee must be exercised by the trustee personally, and
- the trustee is responsible and liable for the performance of the trust and cannot seek to discharge itself by placing the obligation on another person.
As we know, however, trustees are not experts in every aspect of a trust’s operation, especially superannuation trusts which often affect thousands of persons and have complex accounting and investment structures.
How can the obligation to act personally be observed when trustees cannot always be ‘hands on’ and do not have the professional knowledge to make the required decisions?
Delegates and agents
Under the general law it is recognised that it is often impracticable and undesirable for trustees to perform every act in the conduct of the trust themselves. It is more important that the trust be operated properly than that the trustee perform every action related to the trust.
However, under the general law, there is a distinction between:
- mere ‘ministerial’ (eg, administrative) acts for which the trustee may engage an agent (subject to exercising the requisite standard of care), and
- acts relating to the execution of the trust or exercise of the trustee’s powers and discretions which cannot be given to another (ie, delegated) without some express power under a trust deed or statute.
Whether a person is (as a matter of law) an agent or a delegate depends on whether the person has the ability to make decisions which relate to the execution of the trust or the exercise of the trustee’s powers and discretions. An agent, in general, carries out only administrative functions. In contrast, a delegate is able to exercise the trustee’s powers and discretions which have been properly delegated. It is usually said that an agent is ‘appointed’ and a power is ‘delegated’.
Some entities, such as an administrator, may act as an agent in certain capacities and as a delegate in other capacities. Often the terms ‘agent’ and ‘delegate’ are used interchangeably but they are not synonymous and each word has different implications legally.
Statute allows agents to be appointed
The Trustee Acts of most states and territories recognise that a trustee might be compelled to use agents in the performance of its duties. (For example, refer to section 28 of the Trustee Act 1958 (Vic).) Unless the governing rules of the fund expressly prohibit the use of agents, this statute would enable a trustee to appoint an agent.
Further, section 52(3) of the Superannuation Industry Supervision Act 1993 (Cth) (SIS Act) states that the covenant in section 52(2)(e) (prohibiting a trustee from doing anything that would prevent the trustee from properly performing or exercising its functions and powers) should not be taken to preclude the trustee from engaging or authorising persons (eg, agents) to do acts or things on behalf of the trustee.
Governing rules must allow delegation
Where a trust is created by a trust deed, the powers of a trustee are derived primarily from that trust deed. In that circumstance, the general law and statute have a residual function (ie they ‘fill in’ any gaps in the trust deed); they are not a source of power in themselves.
A trustee does not have the power to appoint a delegate under general law and cannot do so unless the trust deed expressly allows. A trustee who appoints a delegate without the authority of the trust deed will generally have breached its duty to act personally.
Under a valid delegation, the delegate has, within the scope of the delegation, the same powers, authorities, discretions and responsibilities as if he or she were the trustee. Generally, an effective decision of a delegate is taken to be a decision of the trustee. However, ultimate accountability to beneficiaries rests with the trustee (rather than its delegates).
We do not think that section 52(3) of the SIS Act (mentioned above) enables trustees to make delegations; rather, the governing rules of the fund must still allow delegations to occur.
Proper selection and supervision of a trustee’s delegates and agents are essential. A trustee will be liable if it is not diligent in monitoring its delegates’ and agents’ performance and activities. If a trustee ensures that its delegations are properly in place and are valid, it will not be necessary for the trustee to ‘ratify’ the delegate’s decision.
‘Ratification’ is the trustee’s retrospective approval of an act where the agent or delegate lacked the authority to bind the trustee whether because of a defective delegation or appointment or because the delegate or agent acted outside their authority.
When preparing minutes of meetings, the recording secretary needs to be mindful of what ‘ratification’ means as a matter of law and use it appropriately as the term highlights the fact that the act of the agent or delegate is not valid for some reason.
A trustee should keep the following points in mind with respect to agents and delegates:
- An agent and a delegate are not the same thing.
- The authority being delegated (eg, in an instrument of delegation) must accurately reflect the relevant power or duty in the fund’s governing rules.
- Ensure that the delegate is properly exercising the delegated power or duty through proper training and supervisory measures such as regular reporting and compliance checks.
- Ratification is not required unless the agent or delegate has acted improperly, eg, has acted outside the authority given to them by the trustee.