TRUSTS ORDINANCE

Arrangement of Sections

CHAPTER I

PRELIMINARY

1. Short title.

2. Application of English law.

3. Interpretation.

CHAPTER II

OF THE CREATION OF TRUSTS

4. Lawful purpose.

5. Trust of immovable property.

6. Creation of Trust.

7. Who may create Trusts.

8. Subject of Trust.

9. Who may be beneficiary.

10. Who may be Trustee.

CHAPTER III

OF THE DUTIES AND LIABILITIES OF TRUSTEES

11. Trustee to execute Trust.

12. Trustee to inform himself of state of Trust property.

13. Trustee to protect title to Trust property.

14. Trustee not to set up title adverse to beneficiary.

15. Care required from Trustee.

16. Conversion of perishable property.

17. Trustee to be impartial.

18. Destructive used property.

19. Accounts and information.

20. Investment of Trust money.

21. Savings as to existing investments and investment in Government Savings Banks or National Savings Bank.

22. Sale by Trustee directed to sell within specified time.

23. Liability for breach of Trust.

24. No set-off allowed to Trustee.

25. Non-liability for predecessor's default.

26. Non-liability for Co-Trustee's default.

27. Several liability of Co-Trustees.

28. Non-liability of Trustee paying without notice of transfer by beneficiary.

29. Liability of Trustee where beneficiary's interest is forfeited to Government.

30. Indemnity of Trustees.

31. Relief of Trustee from consequences of breach of Trust.

CHAPTER IV

OF THE RIGHTS AND POWERS OF TRUSTEES

32. Right to title deed.

33. Right to reimbursement of expenses.

34. Right to indemnity from gainer by breach of Trust.

35. Right to apply to Court for opinion in management of Trust property.

36. Right to settlement of accounts.

37. General authority of Trustee.

38. Power to lease.

39. Power to sell in lots and either by public auction or private contract.

40. Power to sell under special conditions.

41. Power to convey.

42. Power to vary investments.

43. Power to apply property of minors for their maintenance.

44. Power to give receipts.

45. Power to compound.

46. Power to several Trustees of whom one disclaims or dies.

47. Suspension of Trustee's power by decree.

CHAPTER V

OF THE DISABILITIES OF TRUSTEES

48. Trustee cannot renounce after acceptance.

49. Trustee cannot delegate.

50. Co-Trustees cannot act singly.

51. Control of discretionary power.

52. Trustee may not charge for services.

53. Trustee may not use Trust property for his own profit.

54. Trustee for sale or his agent may not buy.

55. Trustee may not buy beneficiary's interest without permission.

56. Co-Trustees may not lend to one of themselves.

CHAPTER VI

OF THE RIGHTS AND LIABILITIES OF THE BENEFICIARY

57. Right to rents and profits.

58. Right to specific execution.

59. Right to inspect and take copies of instrument of Trust, accounts.

60. Right to transfer beneficial interest.

61. Right to sue for execution of Trust.

62. Right to proper Trustees.

63. Right to compel to perform any act of duty.

64. Wrongful purchase by Trustee.

65. Following Trust property into the hands of third persons.

66. Saving of right of certain transferees.

67. Acquisition by Trustee of Trust property wrongfully converted.

68. Right in case of blended property.

69. Wrongful employment by partner Trustee of Trust property for partnership purposes.

70. Liability of beneficiary joining in breach of Trust.

71. Rights and liabilities of beneficiary's transferee.

CHAPTER VII

OF VACATING THE OFFICE OF TRUSTEE

72. Office how vacated.

73. Discharge of Trustee.

74. Petition to be discharged from Trust.

75. Appointment of new Trustees on death.

76. Appointment by Court.

77. Vesting of Trust property in new Trustees.

78. Survival of Trust.

CHAPTER VIII

OF THE EXTINCTION OF TRUSTS

79. Trust how extinguished.

80. Revocation of Trust.

81. Revocation not to defeat what Trustees have duly done.

CHAPTER IX

CONSTRUCTIVE TRUSTS

82. Where obligation in nature of Trust is created.

83. Where it does not appear that transferor intended to dispose off beneficial interest.

84. Transfer to one for consideration paid by another.

85. Trust incapable of execution or executed without exhausting Trust property.

86. Transfer for illegal purpose.

87. Bequest for illegal purpose.

88. Transfer pursuant to rescindable contract.

89. Debtor becoming creditor's representative.

90. Advantage gained by fiduciary.

91. Advantage gained by exercise of undue influence.

92. Advantage gained by qualified owner.

93. Property acquired with notice of existing contract.

94. Purchase by person contracting to buy property to be held on Trust.

95. Advantage secretly gained by one of several compounding creditors.

96. Constructive Trusts in cases not expressly provided for.

97. Obligor's duties, liabilities, and disabilities.

98. Saving right of bona fide purchasers.

CHAPTER X

CHARITABLE TRUSTS

99. Special definitions.

100. General Powers of the Court.

101. Actions for carrying into effect Trusts for public charity.

102. Suits by persons interested in religious Trusts.

103. Power to refer matter for arbitration or inquiry.

104. Powers of Commissioners.

105. Power of Court as to accounts.

106. Application of religious law.

107. De facto Trusts.

108. Special powers of Court.

109. Exclusion of Trusts under the Buddhist Temporalities Ordinance and the Muslim Mosques and Charitable Trusts or Wakfs Act.

CHAPTER XI

MISCELLANEOUS

110. Rule against perpetuities.

111. Prescription.

112. Vesting orders.

113. Devolution of Trust property.

114. Incorporation of Trustees.

115. Persons may assign property in Trust to themselves and others.

116. Procedure.

117. Costs.

9 of 1917,

4 of 1918,

1 of 1934.

7 of 1968,

30 of 1971.

AN ORDINANCE to define and amend the law relating to Trusts.

[Date of Commencement: 16th April, 1918]

CHAPTER I

PRELIMINARY

1. Short title.

This Ordinance may be cited as the Trusts Ordinance.

2. Application of English law.

All matters with reference to any Trust, or with reference to any obligation in the nature of a Trust Law arising or resulting by the implication or construction of for which no specific provision is made in this or any other enactment, shall be determined by the principles of equity for the time being in force in the High Court of Justice in England.

3. Interpretation.

In this Ordinance, unless the context or the subject-matter otherwise implies—

(a) "Trust” is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another person, or of another person and the owner, of such a character that, while the ownership is nominally vested in the owner, the right to the beneficial enjoyment of the property is vested or to be vested in such other person, or in such other person concurrently with the owner;

(b) a Trust does not include a 1fideicommissum;

(c) the person who reposes or declares the confidence is called the "author of the Trust”;

(d) the person who accepts the confidence is called the "Trustee”;

(e) the person for whose benefit the confidence is accepted is called the "beneficiary”;

(f) the subject matter of the Trust is called "Trust property” or "Trust money”;

(g) "the beneficial interest” or "interest” of the beneficiary is his right against the Trustee as owner of the Trust property; and

(h) the instrument, if any, by which the Trust is declared is called the "instrument of Trust”;

(i) the expression "instrument of Trust” includes a scheme settled under Chapter X of this Ordinance;

(j) a breach of any duty imposed on a Trustee, as such, by any law for the time being in force is called a "breach of Trust”;

(k) a person is said to have "notice” of a fact either when he actually knows that fact, or when, but for willful abstention from inquiry or gross negligence, he would have known it, or when information of the fact is given to or obtained by any person whom the Court may determine to have been his agent for the purpose of receiving or obtaining such information;

(l) every person is "competent to contract” who is of the age of majority, or has otherwise acquired the status of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified by law from contracting;

(m) a "married woman” is competent to contract:

Provided that in any case in which the consent, concurrence, acquiescence, or ratification of a beneficiary is referred to, the power of consent, concurrence, acquiescence, or ratification of a married woman who is a beneficiary shall be subject to the same conditions and limitations as her power to contract with reference to the matter in question;

(n) "Court” means the District Court having jurisdiction in the matter in question, or a District Court upon which the Court of Appeal, on the application of any party interested, may confer jurisdiction for the purposes either of the Trust generally or of the matter in question;

(o) "notarially executed” means executed in the manner prescribed by section 2 of the Prevention of Frauds Ordinance, and any reference to "notarial execution” shall be deemed to include a reference to execution in accordance with the Deeds and Documents (Execution before Public Officers) Ordinance.

CHAPTER II

OF THE CREATION OF TRUSTS

4. Lawful purpose.

(1) A Trust may be created for any lawful purpose. The purpose of a Trust is lawful, unless it is—

(a) forbidden by law; or

(b) is of such a nature that, if permitted, it would defeat the provisions of any law; or

(c) is fraudulent; or

(d) involves or implies injury to the person or property of another; or

(e) the Court regards it as immoral or opposed to public policy.

(2) Every Trust of which the purpose is unlawful is void. And where a

Trust is created for two purposes, of which one is lawful and the other unlawful and the two purposes cannot be separated, the whole Trust is void.

Explanation

In this section the expression "law” includes where the Trust property is immovable and situate in a foreign country, the law of such country.

Illustrations

(a) A bequeaths property to B in Trust to employ it in carrying on a smuggling business, and out of the profits thereof to support A's children. The Trust is void.

(b) A, while in insolvent circumstances, transfers property to B in Trust for A during his life, and after his death to B. A is declared an insolvent. The Trust for A is invalid as against his creditors.

5. Trust of immovable property.

(1) Subject to the provisions of section 107, no Trust in relation to immovable property is valid unless declared by the last will of the author of the Trust or of the Trustee, or by a non-testamentary instrument in writing signed by the author of the Trust or the Trustee, and notarially executed, Trust of movable property.

(2) No Trust in relation to movable property is valid unless declared by the last will of the author of the Trust or of the Trustee, or by a non-testamentary instrument in writing signed by the author of the Trust or the Trustee, or unless the ownership of the property is transferred to the Trustee by delivery.

(3) These rules do not apply where they would operate so as to effectuate a fraud.

6. Creation of Trust.

Subject to the provisions of sections 5 and 107, a Trust is created when the author of the Trust indicates with reasonable certainty by any words or acts—

(a) an intention on his part to create thereby a Trust;

(b) the purpose of the Trust;

(c) the beneficiary;

(d) the Trust property, and

(unless the Trust is declared by will or the author of the Trust is himself to be the Trustee) transfers the Trust property to the Trustee.

Illustrations

(a) A bequeaths certain property to B, "having the fullest confidence that he will dispose off it for the benefit of” C. This creates a Trust so far as regards A, and

(b) A bequeaths certain property to B, "hoping he will continue it in the family”. This does not create a Trust, as the beneficiary is not indicated with reasonable certainty,

(c) A bequeaths certain property to B, requesting him to distribute it amongst such members of C's family as B should think most deserving. This does not create a Trust, for the beneficiaries are not indicated with reasonable certainty,

(d) A bequeaths certain property to B, desiring him to divide the bulk of it among C's children. This does not create a Trust, for the Trust property is not indicated with sufficient certainty,

(e) A bequeaths a shop and stock in trade to B, on condition that he pays A's debts and a legacy to C. This is a condition, not a Trust, for A's creditors.

7. Who may create Trusts.

A Trust may be created—

(a) by every person competent to contract; and

(b) with the permission of the Court by or on behalf of a minor;

but subject in each case to the law for the time being in force as to the circumstances and extent in and to which the author of the Trust may dispose off the Trust property.

8. Subject of Trust.

The subject-matter of a Trust must be property transferable to the beneficiary. It must not be a merely beneficial interest under a subsisting Trust.

9. Who may be beneficiary.

(1) Every person capable of holding property may be a beneficiary.

Disclaimer by beneficiary.

(2) A proposed beneficiary may renounce his interest under the Trust by disclaimer addressed to the Trustee, or by setting up, with notice of the Trust, a claim inconsistent therewith.

10. Who may be Trustee.

(1) Every person capable of holding property may be a Trustee; but, where the Trust involves the exercise of discretion, he cannot execute it unless he is competent to contract.

No one bound to accept Trust.

(2) No one is bound to accept a Trust.

Acceptance of Trust.

(3) A Trust is accepted by any words or acts of the Trustee indicating with reasonable certainty such acceptance.

Disclaimer of Trust.

(4) Instead of accepting a Trust, the intended Trustee may, within a reasonable period, disclaim it, and such disclaimer shall prevent the Trust property from vesting in him.

(5) A disclaimer by one of two or more Co-Trustees vests the Trust property in the other or others, and makes him or them sole Trustee or Trustees from the date of the creation of the Trust.

Illustrations

(a) A bequeaths certain property to B and C, his executors, as Trustees for D, B and C prove A's will. This is in itself an acceptance of the Trust, and B and C hold the property in Trust for D.

(b) A transfers certain property to B in Trust to sell it and to pay out of the proceeds A's debts. B accepts the Trust and sells the property. So far as regards B, a Trust of the proceeds is created for A's creditors.

(c) A bequeaths a lakh of rupees to B upon certain Trusts and appoints him his executor. B severs the lakh from the general assets and appropriates it to the specific purpose. That is an acceptance of the Trust.

CHAPTER III

OF THE DUTIES AND LIABILITIES OF TRUSTEES

11. Trustee to execute Trust.

(1) The Trustee is bound to fulfill the purpose of the Trust, and to obey the directions of the author of the Trust given at the time of its creation, except as modified by the consent of all the beneficiaries being competent to contract.

(2) Where the beneficiary is incompetent to contract, his consent may, for the purposes of this section, be given by the Court.

Explanation

Unless a contrary intention be expressed, the purpose of a Trust for the payment of debts shall be deemed to be—

(a) to pay only the debts of the author of the Trust existing and recoverable at the date of the instrument of Trust, or, when such instrument is a will, at the date of his death; and

(b) in the case of debts not bearing interest, to make such payment without interest.

Illustrations

(a) A, a Trustee, is simply authorised to sell certain land by public auction. He cannot sell the land by private contract.

(b) A, a Trustee of certain land for X, Y, and Z, is authorised to sell the land to B for a specified sum. X, Y, and Z, being competent to contract, consent that A may sell the land to C for a less sum. A may sell the land accordingly.

(c) A, a Trustee for B and her children, is directed by the author of the Trust to lend, on B's request, Trust property to B's husband C, on the security of his bond. C becomes insolvent, and B requests A to make the loan. A may refuse to make it.

12. Trustee to inform himself of state of Trust property.

A Trustee is bound to acquaint himself, as soon as possible, with the nature and circumstances of the Trust property; to obtain, where necessary, a transfer of the Trust property to himself; and (subject to the provisions of the instrument of Trust) to get in Trust moneys invested on insufficient or hazardous security.

Illustrations

(a) The Trust property is a debt outstanding on personal security. The instrument of Trust gives the Trustee no discretionary power to leave the debt so outstanding. The Trustee's duty is to recover the debt without unnecessary delay.

(b) The Trust property is money in the hands of one or two Co-Trustees. No discretionary power is given by the instrument of Trust. The other Co-Trustee must not allow the former to retain the money for a longer period than the circumstances of the case required.

13. Trustee to protect title to Trust property.

A Trustee is bound to maintain and defend all such suits, and (subject to the provisions of the instrument of Trust) to take such other steps as, regard being had to the nature and amount or value of the Trust property, may be reasonably requisite for the preservation of the Trust property and the assertion or protection of the title thereto.

Illustration

The Trust property is immovable property, which has been given to the author of the Trust by an unregistered instrument. The Trustee's duty is to cause the instrument to be registered.

14. Trustee not to set up title adverse to beneficiary.

The Trustee must not for himself or another set up or aid any title to the Trust property adverse to the interest of the beneficiary.

15. Care required from Trustee.

A Trustee is bound, subject to the provisions of the instrument of Trust, to deal with the Trust property as carefully as a man of ordinary prudence would deal with such property if it were his own; and, in the absence of a contract to the contrary, a Trustee so dealing is not responsible for the loss, destruction, or deterioration of the Trust property.

Illustrations

(a) A, living in Colombo, is a Trustee for B, living in London. A remits Trust funds to B by bills drawn by a person of undoubted credit in favour of the Trustee as such and payable at London. The bills are dishonored. A is not bound to make good the loss.

(b) A, a Trustee of leasehold property, directs the tenant to pay the rents on account of the Trust to a banker, B, then in credit. The rents are accordingly paid to B, and A leaves the money with B only till wanted. Before the money is drawn out, B becomes insolvent. A, having had no reason to believe that B was in insolvent circumstances, is not bound to make good the loss.

(c) A, a Trustee of two debts for B, releases one and compounds the other, in good faith, and reasonably believing that it is for B's interest to do so. A is not bound to make good any loss caused thereby to B.

(d) A, a Trustee directed to sell the Trust property by auction, sells the same, but does not advertise the sale, and otherwise fails in reasonable diligence in inviting competition. A is bound to make good the loss caused thereby to the beneficiary.

(e) A, a Trustee for B, in execution of his Trust, sells the Trust property, but from want of due diligence on his part fails to receive part of the purchase money. A is bound to make good the loss thereby caused to B.

(f) A, a Trustee for B of a policy of insurance, has funds in hand for payment of the premiums. A neglect to pay the premiums and the policy is consequently forfeited. A is bound to make good the loss to B.

(g) A bequeaths certain moneys to B and C as Trustees, and authorises them to continue Trust moneys upon the personal security of a certain firm in which A had himself invested them. A dies, and a change takes place in the firm. B and C must not permit the moneys to remain upon the personal security of the new firm.

(h) A, a Trustee for B, allows the Trust to be executed solely by his Co-Trustee. C misapplies the Trust property. A is personally answerable for the loss resulting to B.

16. Conversion of perishable property.

Where the Trust is created for the benefit of several persons in succession, and the Trust property is of a wasting nature or a future or reversionary interest, the Trustee is bound, unless an intention to the contrary may be inferred from the instrument of Trust, or unless the Court otherwise directs, to convert the property into property of a permanent and immediately profitable character.

17. Trustee to be impartial.

(1) Where there are more beneficiaries than one, the Trustee is bound to be impartial, and must not execute the Trust for the advantage of one at the expense of another.

(2) Where the Trustee has a discretionary power, nothing in this section shall be deemed to authorise the Court to control the exercise reasonably and in good faith of such discretion.

Illustration

A, a Trustee for B, C, and D is empowered to choose between several specified modes of investing the Trust property. A in good faith chooses one of these modes. The Court will not interfere, although the result of the choice may be to vary the relative rights of B, C, and D.

18. Destructive used property.

Where the Trust is created for the benefit of several persons in succession, and one of them is in possession of the Trust property, if he commits, or threatens to commit, any act which is destructive or permanently injurious thereto, the Trustee is bound to take measures to prevent such act.

19. Accounts and information.

A Trustee is bound—

(a) to keep clear and accurate accounts of the Trust property; and

(b) at all reasonable times, at the request of the beneficiary, to furnish him with full and accurate information as to the amount and state of the Trust property.

20. Investment of Trust money.

Where the Trust property consists of money and cannot be applied immediately or at an early date to the purposes of the Trust, the Trustee is bound (subject to any direction contained in the instrument of Trust) to invest the money on the following securities, and on no others—

(a) in promissory notes, debentures, stock, or other securities of the Government of Sri Lanka or of the Government of the United Kingdom, or of the Government of India;

(b) in bonds, debentures, and annuities charged by the Parliament of the United Kingdom on the revenues of India;

(c) in any colonial stock which is registered in the United Kingdom in accordance with the provisions of the Colonial Stock Acts, 1877 to 1900, and with respect to which there have been observed such conditions (if any) as the Lords Commissioners of the Treasury of the United Kingdom may, by Order notified in the London Gazette, prescribe;

(d) in the debenture or rent charge or guaranteed or preference stock of any railway company in Great Britain or Ireland incorporated by special Act of Parliament and having during each of the ten years last past before the date of investment paid a dividend at the rate of not less than three per centum per annum on its ordinary stock;

(e) in stock or debentures of or shares in any railway or other company the interest whereon shall have been guaranteed by the Governments of India or Pakistan;

(f) on a first mortgage of immovable property situated in Sri Lanka or the United Kingdom:

Provided that the property is not a leasehold for a term of years, and that the value of the property exceeds by one-third, or if consisting wholly or mainly of buildings, exceeds by one-half the mortgage moneys;

(g) in debentures issued by the 2Ceylon State Mortgage Bank;

(h) on any other security authorised as a Trustee investment by the law of England for the time being (other than real or heritable securities);

3(i) on any other security expressly authorised by the instrument of Trust or by any rule which the Minister may from time to time prescribe in that behalf.

21. Savings as to existing investments and investment in Government Savings Banks or National Savings Bank.

Nothing in section 20 shall apply to investments made before the commencement of this Ordinance, or shall be deemed to preclude a deposit of that money in a Government Savings Bank or in the National Savings Bank.

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