Introduction
This essay aims to advise the Beneficiaries of a trust, established by Zaidi with a capital of RM 5 million, on potential remedies against Firdaus, the former accountant, and the Trustees, Tahir and Termizi, under Malaysian law. The trust instrument includes an express investment clause allowing the Trustees to invest in technology start-ups specialising in Artificial Intelligence (AI). Two critical issues arise: first, Firdaus’s acceptance of bribes totalling RM100,000 for recommending investments, and second, the Trustees’ loss of RM 4 million due to an investment in Pettifogger’s company, which resulted in misappropriation of funds. Using the IRAC (Issue, Rule, Application, Conclusion) method, this essay will analyse the Beneficiaries’ remedies against Firdaus for bribery and against the Trustees for breach of fiduciary duties. The analysis will consider relevant Malaysian legal principles, focusing on trust law, fiduciary obligations, and potential equitable remedies.
Remedies Against Firdaus for Bribery
Issue
The first issue is whether the Beneficiaries can seek remedies against Firdaus for accepting bribes of RM100,000, which he used to purchase land now valued at RM200,000, despite his insolvency.
Rule
Under Malaysian law, an agent or fiduciary who accepts a secret commission or bribe in connection with their duties commits a breach of fiduciary duty. According to Section 4 of the Malaysian Anti-Corruption Commission Act 2009, bribery is a punishable offence, and any benefits derived from such actions can be subject to recovery. Furthermore, in equity, as seen in the principle established in English case law like *Attorney General for Hong Kong v Reid* (1994), which is persuasive in Malaysia, a fiduciary who receives a bribe holds the benefit on constructive trust for the principal or beneficiaries. This allows for tracing the proceeds of the bribe into assets purchased with the funds.
Application
Applying these principles, Firdaus, as the accountant appointed by the Trustees, owed a fiduciary duty to act in the best interests of the trust and its Beneficiaries. By accepting bribes of RM100,000 to recommend investments in specific Malaysian companies, he breached this duty. Although the investments currently generate good income, this does not mitigate the wrongdoing, as the integrity of his recommendations was compromised. Following the equitable principle of constructive trust, the Beneficiaries can argue that the RM100,000 and any traceable assets, such as the land now worth RM200,000, are held on trust for them. Tracing allows recovery of the increased value of the land, provided the funds can be directly linked to the bribe.
However, Firdaus’s insolvency poses a practical challenge. Under Malaysian insolvency law, governed by the Insolvency Act 1967, unsecured creditors, including the Beneficiaries seeking equitable remedies, may face difficulties in recovering assets if they are part of the insolvent estate. Despite this, the Beneficiaries’ claim in equity for a constructive trust may take precedence over general creditors, as the land is arguably not part of Firdaus’s personal estate but trust property.
Conclusion
In conclusion, the Beneficiaries have a strong equitable claim against Firdaus for the recovery of the land valued at RM200,000 through a constructive trust. However, Firdaus’s insolvency may complicate enforcement, and legal advice on priority in insolvency proceedings is recommended.
Remedies Against the Trustees for Loss of RM 4 Million
Issue
The second issue is whether the Beneficiaries can hold the Trustees, Tahir and Termizi, liable for the loss of RM 4 million invested in Pettifogger’s company, which was misappropriated.
Rule
Under Malaysian law, trustees are bound by strict fiduciary duties to act in the best interests of the beneficiaries, exercise reasonable care and skill, and adhere to the terms of the trust instrument. Section 23 of the Trustees Act 1949 (Malaysia) provides that trustees must act prudently when making investments, even where wide discretionary powers are granted. A breach of trust occurs if trustees fail to exercise due diligence or act outside the scope of their powers, as reiterated in Malaysian case law such as *Khoo Tek Keong v Ch’ng Joo Tuan Neoh* (1934). Additionally, trustees are jointly and severally liable for breaches, meaning inaction or negligence by one trustee does not absolve the other.
Moreover, equitable remedies such as compensation for loss or account of profits may be sought. However, under Section 59 of the Trustees Act 1949, beneficiaries who consent to or acquiesce in a breach may be estopped from claiming remedies.
Application
Applying these rules, several factors indicate a potential breach of trust by Tahir and Termizi. First, the trust instrument permits investments in AI technology start-ups, which arguably covers Pettifogger’s company. However, the manner of investment raises concerns. Tahir’s decision to invest RM 4 million, a significant portion of the trust capital, in a pre上市 company described as a “risky investment” suggests a failure to exercise the prudence required under Section 23 of the Trustees Act 1949. Furthermore, issuing a cheque to Pettifogger personally, rather than the company, without proper due diligence (e.g., verifying listing plans on Bursa Malaysia), indicates negligence. Indeed, the lack of formal documentation or independent advice exacerbates this breach.
Termizi’s role must also be scrutinised. Despite his illness and two-month absence from active administration, his failure to question the payment upon signing the cheque suggests a dereliction of duty. As joint trustees, both Tahir and Termizi are liable for the loss, as Malaysian law does not excuse inaction by one trustee if it contributes to a breach.
A complicating factor is the Beneficiaries’ response to Tahir’s consultation. By stating they would “leave the decision to the Trustees” as they “know what is good for us,” the Beneficiaries may be seen as consenting to the investment under Section 59 of the Trustees Act 1949. However, this consent appears general rather than specific, lacking full information about the risky nature of the investment or the personal payment to Pettifogger. Therefore, it is unlikely to constitute valid consent or acquiescence sufficient to bar their claim.
Conclusion
In conclusion, the Beneficiaries have a strong case against Tahir and Termizi for breach of trust due to negligence and failure to act prudently in the RM 4 million investment. They can seek equitable compensation for the loss, holding both Trustees jointly and severally liable. The Beneficiaries’ apparent consent is unlikely to estop their claim given the lack of informed agreement.
Conclusion
This essay has evaluated the Beneficiaries’ remedies against Firdaus and the Trustees under Malaysian law using the IRAC framework. Against Firdaus, the Beneficiaries can pursue a constructive trust over the land valued at RM200,000, tracing the proceeds of the RM100,000 bribe, though his insolvency may hinder recovery. Against the Trustees, Tahir and Termizi are likely liable for the RM 4 million loss due to breaches of fiduciary duty and negligence, despite the trust instrument’s wide investment powers. The Beneficiaries’ general consent does not appear to preclude their claim. These findings underscore the importance of strict adherence to fiduciary obligations in trust administration. Practically, the Beneficiaries should seek legal counsel to navigate insolvency proceedings against Firdaus and enforce equitable remedies against the Trustees, highlighting the protective yet stringent nature of trust law in Malaysia.
References
- Malaysian Anti-Corruption Commission Act 2009 (Act 694). Government of Malaysia.
- Trustees Act 1949 (Act 208). Government of Malaysia.
- Insolvency Act 1967 (Act 360). Government of Malaysia.
- Attorney General for Hong Kong v Reid [1994] 1 AC 324. Privy Council.
- Khoo Tek Keong v Ch’ng Joo Tuan Neoh [1934] MLJ 102. Malaysian High Court.
