The exercise of discretion by trustees under Maltese law

Abstract

The aim of this study is to shed new light on the implications of the granting of powers and discretions in a trust scenario under Maltese law. This study will start off with an indepth analysis of the context where powers and discretions can emerge in a fiduciary relationship under civil law. It is interesting to compare and contrast the obligations (loan, lease, deposit, mandate), offices (director, tutor, liquidator, administrator) and institutes (fiducie, fideicommissum, community of acquests, benefit of inventory). After this analysis the study aims at reaching a conclusion on the significance of the level of powers and discretions needed in each scenario depending on the level of obligation that there exists. On a progressive scale we can see that mandate is the lowest degree in terms of obligations because the mandatary is being told what action he is to undertake and how he should carry it out. The general power of attorney is an illustration of this in that one can actively move on with the carrying out of a power in order to achieve the main context of the obligation. The trust is at the other end of the spectrum because it is the highest of fiduciary obligations which grants even ownership. The trust being the most complex obligation necessitates more powers and discretions. Even at this stage one can identify that the more rights of action are being granted, the bigger is the obligation and the more powers and discretions are needed in order to carry out one’s duty. In the first chapter we will see that mandate does not have any element of discretion. The mandatary carries out whatever he is asked to do. In a sense we therefore have a passive response to a duty that has been imposed on him. Contrary to this in a trust scenario the trustee has a role of active participation and his power has been elevated to a discretion in order to achieve the ends in the best possible manner. As the discussion develops the need is felt to identify the source of the trustee’s discretion. The main sources are the law and the trust deed with particular reference to the drafting style.