Unit Trusts
| Date | 01 March 1960 |
| DOI | http://doi.org/10.1111/j.1468-2230.1960.tb00580.x |
| Author | H. A. J. Ford |
| Published date | 01 March 1960 |
THE
MODERN LAW REVIEW
Volume
23
March
1960
No.
2
UNIT
TRUSTS
THE recent proliferation of unit trusts recalls attention to Maitland’s
dictum that of all the exploits of equity, “the largest and most
important is the invention and development
of
the Trust.” He
added,
“It
is an
‘
institute
’
of great elasticity and generality;
as elastic, as general, as contract.” Not least among the diversity
of
purposes for which the trust concept has been employed
is
the
purpose
of
business investment.
Basically a unit trust is an arrangement whereby property is
held on trust for a large number of investors.
It
is constituted
by
a deed2 regulating the rights, powers and duties of the parties to
the arrangement. These parties are usually a manager, a trustee
and investors, the last being commonly known as unit holders. The
manager purchases property and vests the title to
it
in the trustee
who, at the outset, holds
on
trust for the manager. Sometimes
the property is an estate in land
or
a mortgage thereof but most
unit
trusts-are in respect of a portfolio of shares. In the ensuing
discussion the former will be called a land-unit trust and the latter
a shareunit trust. The beneficial interest is divided into a large
number of units which are sold by the manager to investors. Share-
unit trusts are
of
two kinds: fixed and flexible. In the fixed unit
trust the portfolio of shares is fixed and not, except in special cir-
cumstances, subject to variation. The first portfolio of investments
in a fixed unit trust is described as a unit and the beneficial in-
terest is divided into sub-units which the manager sells to investors.
A
fixed unit trust deed will usually provide for the constitution
of
additional units matching the first portfolio which will be vested in
the trustee and divided into the same number of sub-units.
In
the
flexible unit trust the manager and the trustee have power under
the deed to vary the nature and proportions of the shares comprising
the trust fund. Unlike the fixed trust the portfolio in a flexible
trust cannot be divided into rigidly constituted units but the
1
Leotufes
on
Equity,
‘2.3
(1936).
a
For
a
precedent
of
a
fixed
or
flexible
unit
trust
deed Bee
(1956)
20
Conoeyames
(N.s.)
765.
VOL.
23
129
9
130
TEE
MODERN
LAW
REVIEW
VOL
28
beneficial interest in the trust fund whatever its constitution from
time to time is divided into parts described as units.
In
both land-
unit trusts and share-unit trusts the sale of units
(or
sub-units) is
at a price fixed
on
the market value plus a service charge
to
cover
the expenses of the manager, a profit for the manager and the re-
muneration
of
the trustee.
The manager agrees to buy back units from any unit holder
desiring to sell. These units may be resold by the manager. The
trust deed will usually provide that the trust is to come to an end
at a fixed date and one of several modes of dissolution will operate:
the property may be realised and the proceeds distributed amongst
the unit holders, the trust may be converted into an investment
company
or,
if
the property admits of division
in
specie,
it may
be
so
divided between unit holders.
The idea of vesting property
in
a trustee for a large number of
investors is not new. The unincorporated trading company,
common in England at the end
of
the eighteenth century, was
organised in such a way that the property of the company was
held by trustees for the benefit of the investors
on
the terms of a
deed
of
settlement which prescribed the rights, duties and powers
of
the members of the trading compan~.~ When the legislation
regulating trading companies was enacted in the middle of the
nineteenth ceatury the provisions of the deed
of
settlement in the
earlier unincorporated trading companies became the model for the
articles of association of the new registered companies. The develop
ment of unincorporated business enterprises in the
form
of unit
trusts provides an interesting example
of
a throwback in the
evolution
of
legal institutions.
In
America the adaptation
of
the trust to the purpose of
organising business enterprises has been carried out to a much
greater extent. Because American law governing corporations had
a different development from that
of
England
or
Australia in the
nineteenth century, many large and well-known businesses have
been organised as unincorporated trusts.4 This practice began in
Massachusetts because of the difficulty
of
obtaining a corporate
charter
for
the acquisition and development of real estate without
a special Act of the legislature.' Because
of
this, these business
trusts are sometimes referred to as
''
Massachusetts Trusts."
A
UNIT TRUST DISTINGUISHED
FROM
AGENCY
There can be
no
trust unless one person has the title to specific
property for the benefit of another person
or
some charitable
J
Cooke,
Corporation, Trust and Company
;
Gower,
Modern Company Law,
4
e.g.,
North American Pulp and Paper Company; Adams Express Company;
See
156
American
5
Wrightington,
21
Yale
L.J.
311, 312;
State Street Trust Company
v.
Hall
2nd ed., 31-34.
American Express Company
;
American Trust Company.
Law Reports
29,
note
17.
(1942) 311
Mass.
B9;
41
N.E.
(ad)
30:
156
American
Law
Reports
13.
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