Removing the Trustee

If a Trustee fails to properly administer the trust (ie Superannuation Fund) the Trustee can be removed from the role of Trustee.

In the State of Victoria, a Trustee can be appointed by the court, pursuant to the power contained in Section 48 of the Trustee Act 1958, when ever it is expedient to appoint a new Trustee. {Similar provisions apply in other states). This section however does not give the court the power to remove a trustee who desires to continue in office.

The court however has an inherent jurisdiction to remove a trustee where the welfare of the beneficiaries and the trust estate requires such as remedy.

For example where the court considers that the continuance of the trustee in the trust would prevent the proper execution of the trust {Letterstedt v Broers (1884), 9 App. Cas. 371; Hunter v Hunter, [1938]N.Z.L.R. 520}.

The jurisdiction to remove a trustee is exercised with the view to the interests of the beneficiaries, to the security of the trust property and to the efficient and satisfactory execution of the trust and a faithful and sound exercise of the  powers conferred upon the trustee” {Miller v Cameron [1936] HCA 13, (1936), 54 C.L.R. 572, at p580, per Dixon J.}

As the interests of the trust are of paramount importance to the court, this inherent jurisdiction will be exercised whenever the welfare of the beneficiaries requires it {Re Wrightson [1908] 1 Ch 789}, even if the trustees have been guilty of no misconduct { Letterstedt v Broers (1884) 9 App.Cas. 371}

In determining whether or not it is proper to remove a trustee, the court will regard the welfare of the beneficiaries as the dominant consideration. One of the factors which may be properly taken into account, is the impecuniosity of the trustee, subjecting him to strong temptation to misapply the trust funds {Miller v Cameron [1936] HCA 13, (1936), 54 C.L.R. 572, at p575, per Latham CJ}.

In Waterhouse v Waterhouse (1998)  46 NSWLR 499 reference was made to Story’s Equity Jurisprudence, 3rd ed (1988) vol 2 at 630-631, par 1287 and 1289:

“Courts of Equity will not only hold trustees responsible for any misapplication of trust property, and any gross negligence or willful departure from their duty in the management of it, but they will go further, and in cases requiring such a remedy, they will remove the old trustee, and substitute new ones. Indeed, the appointment of new trustees is an ordinary remedy, enforced by the Courts of Equity in all cases where their is a failure of suitable trustees to perform the trust, either from accident, or from the refusal of the old trustees to act, or from their original or supervenient incapacity to act, or for any other cause”.

“…..in cases of positive misconduct Courts of Equity have no difficulty in interposing to remove trustees who have abused their trust. It is not, indeed, every mistake, or neglect of duty, or inaccuracy of conduct of trustees, which will induce Courts of Equity to adopt such a course. But the acts or omissions must be such as to endanger the trust property, or to show a want of honesty, or a want of a proper capacity to execute the duties, or a want of reasonable fidelity”.

The passage was referred to with apparent approval in Letterstedt v Broers (1884) 9 App Cas 371 at 386-387, which is the authority usually referred to on the subject of the removal of trustees, where the following passage appears:

“It seems to their Lordships that the jurisdiction which the Court of Equity has no difficulty in exercising under the circumstances indicated by Story is merely ancillary to its principal duty, to see that the trusts are properly executed. This duty is constantly being performed by the substitution of new trustees in the place of original trustees fro a variety of reasons in non-contentious cases. And therefore, though it should appear that the charges of misconduct were either not made out, or were greatly exaggerated, so that the trustee was justified in resisting them, the court might consider that in awarding costs, yet if satisfied that the continuance of the trustee would prevent the trusts being properly executed, the trustee might be removed. It must always be borne in mind that trustees exist for the benefit of those to whom the creator of the trust has been given the trust estate“.

In Wallace v Naknok [2012] NZHC 382 Mackenzie J stated:

The Court does have an inherent jurisdiction to remove a trustee. The relevant power is summarised in Garrow and Kelly on Trusts in these terms:

The Court has inherent jurisdiction to remove a trustee if the welfare of the beneficiaries and of the trust property requires this. That is, when the Court considers that allowing the trustee to continue in office would prevent the proper execution of the trust.

That jurisdiction to remove a trustee is ancillary to the Court’s principal duty to see that a trust is properly executed. The main guide is the welfare of the beneficiaries In Letterstedt v Broers (1884) 9 App Cas 371, Lord Blackburn said:

“If satisfied that the continuance of the trustee would prevent the trusts being properly executed, the trustee might be removed. It must always be borne in mind that the trustees exist for the benefit of those to whom the creator of the trust has given the trust estate

.Any person beneficially interested in trust property may apply to have a new trustee appointed {Section 64 of the Trustee Act 1958}.

When a trustee is removed from the trust, he is not allowed his costs out of the trust estate, and may be ordered to pay all costs involved in the action {Attorney-General v Murdoch (1856) 2 K. & J. 571, at p. 573 per Wood, V.C., Palairet v Carew (1863), 32 Beav. 564}.

Vinelott J {McDomald v Horn {26 July 1993, unreported (Ref: Wilson v Law Debenture Trust Corp [1995] 2 All ER at 347)} considered an application by members of a pension scheme for the appointment of judicial trustees to the scheme. One of the factors Vinelott J took into account in favour of the appointment of judicial trustees was:

In the case of a pension fund, unlike a conventional trust fund, the beneficiaries have themselves contributed both in cash and in service to the employer. They are entitled to be satisfied that the trust fund to which they have contributed is administered in a way which reflects their legitimate expectations by trustees in which they have full confidence.

Also refer to Hunter v Hunter [1938] NZLR 520 for types of breaches of trust that will most likely justify an order for removal.

Also refer to Porteous v Rinehart (1998) 19 WAR 495 at 518 and 506-519.

Also see Monty v Delmo Financial Services Ltd [1996] 1 VR 65 at 83

The Prudential Regulator APRA is empowered under Section 133 of the Superannuation Industry (Supervision) Act 1993 to suspend or remove a Trustee of a Government Regulated Superannuation Fund if the Trustee breaches a condition of the Trustee’s RSE Licence.

Appointing New Trustees by the Court

Turner LJ in Re Tempest (1866) 1 Ch 485 (Court of Appeal in Chancery) stated:

“The following rules and principles, I think, safely be laid down as applying to all cases of appointment by the court of new trustees.

First, the court will have regard to the wishes of the persons by whom the trust has been created, if expressed in the instrument creating the trust, or clearly to be collected from it. It think that this rule may be safely laid down, because the author of the trust ha sin terms declared that a particular person, or a person of a particular character, should not be a trustee of the instrument, there cannot, as I apprehend, be the least doubt that the court would not appoint to the office a person whose appointment was so prohibited, and I do not think that upon the question of this description any distinction can be drawn between express and demonstrated intention …

Another rule which may, I think, safely be laid down is – that the court will not appoint a person to be trustee with a view to the interest of some of the persons interested under the trust, in opposition either to the wishes of the testator or to the interest of the others of the cestuis que trusts. I think so for that reason, that the essence of the duty of every trustee to hold an even hand between the parties interested under the trust. Every trustee is in duty bound to look to the interest of all, and not any particular member or class of members of his cestuis que trusts.

A third rule which, I think, may be safely laid down, is – that the court in appointing a trustee will have regard to the question, whether his appointment will promote or impede the execution of the trust, for the very purpose of the appointment is that the trust may be better carried into execution”

Young J of the Supreme Court of New South Wales in Morgan v 45 Fiers Avenue Pty Ltd (1986) 10 ACLR 692 said that:

Even though it is clear that where a person has a power to remove trustees without limitation that person need not show any cause for removal, it is also clear that at the suit of a beneficiary the court may restrain exercise of that power if it is for some corrupt purpose or is being exercised unconscionably and against the interests of the beneficiaries” (Id at 696).

This is an application of the principle that powers are to be used in good faith and for a proper purpose. The application of this principle in relation to powers of appointment over property is well supported by authority.

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