Source: http://holbech.co.uk/removal-of-trustees/
Timestamp: 2017-02-20 02:00:01
Document Index: 246766583

Matched Legal Cases: ['art 7', 'art 8', 'art 8', 'art 7', 'art 8', 'art 36']

trusts United Kingdom | probate, United Kingdom | tax, United KingdomCharles Holbech | Barrister
by Charles Holbech • March 2, 2010 • Trusts •
Comments (0) • 1106	Removal of trustees
NOTE: This article was published in March 2010 and reflects the law as it stands on the date of publication and not at any later date.
The aim of this paper is to explore the remedies of beneficiaries and/or trustees, where they wish to remove a trustee or trustees, concentrating on the position where the trustee(s) is or are unwilling to be removed.
A trustee may be removed from office against his will:
by the court pursuant to its inherent jurisdiction, even without appointing a new trustee;
by the court appointing a new trustee or trustees in substitution for an existing trustee, when it is expedient to do so, and inexpedient, difficult or impracticable to do so without the assistance of the court: s. 41 of the Trustee Act 1925;
by the persons nominated for the purposes of appointing new trustees appointing a new trustee or trustees in the place of a trustee who remains out of the U.K. for more than 12 months, or refuses or is unfit to act, or is incapable of acting: s. 36 of the Trustee Act 1925;
under an express power of removal in the trust instrument;
by the written direction of all the beneficiaries who (taken together) are of full age and capacity and absolutely entitled to the trust property, where there is no person nominated for the purpose of nominating new trustees: s. 19 of the Trusts of Land and Appointment of Trustees Act 1996;
in place of a mentally incapable trustee, by the written direction of all the beneficiaries who (taken together) are of full age and capacity and absolutely entitled to the trust property, where there is no person who is both entitled and willing and able to appoint a new trustee: s. 20 of the Trusts of Land and Appointment of Trustees Act 1996.
The court has an inherent jurisdiction to supervise and, if necessary, intervene in the administration of trusts (Schmidt v Rosewood Trust Ltd [2003] AC 79) including jurisdiction to remove trustees to protect the interests of the beneficiaries. A trustee can be removed without his consent, and without another trustee being appointed in his place. However, an adequate number of trustees must be left in place after the trustee’s removal (probably two trustees or a trust corporation, unless the trust deed allows for a sole individual trustee); or the need for removal must be urgent, in which case the court will normally appoint a receiver pending an appointment of new trustees.
The leading case is Letterstedt v Broers (1884) 9 App Cas 371 from which the following principles can be derived:
The court’s main guide is the welfare of the beneficiaries.
In cases of positive misconduct the court will have no difficulty in removing trustees who have abused their trust.
It is not every mistake or neglect of duty, or inaccuracy of conduct of trustees, which will induce the court to remove the trustee. The trustee’s acts or omissions must be such as to endanger the trust property, or to show a want of honesty, or a want of proper capacity to execute the duties, or a want of reasonable fidelity.
Removal will be appropriate when the continuance of the trustee would prevent the trust being properly executed.
Friction or hostility between trustees and beneficiaries is not of itself a reason for the removal of trustees. However, it should not be disregarded if the hostility is grounded on the mode in which the trust has been administered, such as where it has been caused wholly or partially by substantial overcharges against the trust estate.
Other cases have elaborated on these general principles:
Disagreement between the beneficiaries and the trustees, or a disinclination on the part of the beneficiaries to have the trust property remain in the hands of a particular trustee, is not a sufficient ground for the removal of the trustees. You must find something which induces the court to think either that the trust property will not be safe, or that the trust will not be properly executed in the interests of the beneficiaries (Re Wrightson [1908] 1 Ch 789, at 800).
The jurisdiction to remove a trustee is exercised with a view to the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee. In deciding to remove a trustee court forms a judgement based upon considerations, possibly large in number and varied in character, which combine to show that the welfare of the beneficiaries is opposed to his continued occupation of the office. Such a judgement must be largely discretionary. A trustee is not to be removed unless circumstances exist which afford ground upon which the jurisdiction may be exercised (Miller v Cameron (1936) 54 CLR 572, at 580-1).
A trustee will not normally be removed merely because certain beneficiaries desire his or her removal. Indeed, it may be insufficient to demonstrate that all of the beneficiaries require such removal. A conflict of interest will not necessarily lead to removal. Nor will a breach of trust necessary lead to such an order (Titterton v Oates [2001] WTLR 319, at 335-6).
The removal of a trustee is quite a drastic step, and should only be taken in a clear case (Isaac v Isaac [2005] EWHC 435 (Ch), at para. 66). The removal must be based on “cogent grounds” (Re Edward’s Will Trusts [1982] Ch 30, at 42).
The overriding consideration is, therefore, whether the continuation in office of the trustee would endanger the trust property, or prevent the trust being administered effectively, contrary to the welfare of the beneficiaries. If the trustees have been guilty of dishonesty, disloyalty or lack necessary skill or diligence, the trusts cannot be administered efficiently, and the trustee should be removed.
In cases of serious breaches of trust, the trustee will invariably be removed, especially where those breaches of trust have caused a significant barrier to communications between the trustee and the beneficiaries and/or the beneficiaries have lost faith in the trustee’s ability and/or willingness to administer the trust fairly and efficiently (see Titterton v Oates [2001] WTLR 319). In Titterton the defendant trustee was found to have been guilty of a prolonged dereliction of duty in failing to provide adequate information to a beneficiary, together with a repeated failure to make distributions of income to that beneficiary as required by the trust. The trustee was removed even though she had otherwise acted honestly and prudently in the general administration of the trust.
However, the mere fact that the trustee has committed a breach of trust will not justify removal. In Re Wrightson the trustees of a Will trust had been guilty of a breach of trust in connection with the advance of part of the trust fund upon mortgage. Warrington J refused to remove the trustees, even though they had admitted that they were guilty of a breach of trust. It was not enough that the claimant beneficiaries wanted the trustees removed; nor was it necessary to order their removal to secure the welfare of the trust. Nothing remained for the trustees to do but to distribute the estate amongst beneficiaries who were absolutely entitled. The court had power to see that the winding up was carried out properly by the trustees. Other beneficiaries, representing about one-half of the estate, objected to the removal. There would be extra expense and loss to the trust estate which would be occasioned by a change of trustees.
The court, therefore, looks forward, not back, in order to ascertain whether anything would, in fact, be achieved for the benefit of beneficiaries as a whole by the removal of the trustees. Where, for instance, the trustee has committed a breach of trust, innocently or even negligently, there may, in fact, be little or no risk of the trustee committing future breaches of trust. The trustee may, in those circumstances, be allowed to remain in office.
In Re Pauling’s Settlement Trusts (No 2) [1963] Ch 576 the court declined to remove trustees, even though they had been held liable for a substantial but innocent breach of trust. The trustees were of high standing and integrity; the finding of breach of trust was under appeal; a premature removal might prejudice the protection of the trustees against possible future liabilities; and the trustees were prepared to give an undertaking to consult with the claimant beneficiaries about future investments. The case illustrates that is a drastic step to order the removal of trustees. They may often be given the benefit of the doubt.
Conversely, a trustee may be removed even though no breach of trust has been committed, or at least proved, if the conduct of the trustee has given rise to reasonable hostility on the part of the beneficiaries. In Letterstedt v Broers the beneficiary made allegations of fraudulent breach of misconduct in the administration of a trust against the trustee. The allegations of fraud and concealment were not substantiated. However, the Privy Council nonetheless ordered the removal of the trustee. Even though the charges of misconduct were not made out, or were exaggerated, so that the trustee was justified in resisting them, the trustee was still be removed, since the continuance of the trustee would prevent the trustees being properly executed. The trustees had substantially overcharged the trust estate, and had been obstructive in dealing with reasonable inquiries relating to their charges. The beneficiary’s hostility was grounded on the mode in which the trust had been administered, i.e. the overcharging. Having regard to the unfortunate hostility, and “the difficult and delicate duties that have yet to be performed”, it was necessary, for the welfare of the beneficiaries, to remove the trustee. In short, the court will often remove trustees where there has been a history of friction with the beneficiaries.
However, the court will not remove a trustee at the behest of hostile beneficiaries if the hostility of the beneficiaries is not founded on a genuine concern about the administration of the trust or the welfare of the beneficiaries. In Isaac v Isaac (No 2) [2009] WTLR 265 the court found that there were no grounds to remove a trustee who had done nothing to endanger the trust property, and against whom there was no maintainable allegation of want of honesty, want of capacity or want or reasonable fidelity. The beneficiaries were simply dissatisfied with the trustee because they felt that were not getting the advantages they would like to get through personally owning shares in a company of which the trustee was the chairman and managing director. They wanted the company sold so that they could receive large capital sums for their personal shareholdings. Although the trust owned shares in the company, their complaints against the trustee were not raised in their capacity as beneficiaries, but in their personal capacity.
A trustee may be removed on the grounds of “unfitness”, i.e. that he is not up to the job, or that he suffers from some defect rendering him unfit to act as a trustee. In Jones v Firkin-Flood [2008] EWHC 2417 (Ch) the court removed trustees who were guilty of a total abdication of their duties as trustees both individually and collectively, apparently because they had failed to ascertain the extent of their duties. They were, therefore, “unfit” to continue as trustees, even though they had not committed deliberate breaches of trust.
The court will remove a trustee who has advanced his own personal interests contrary to those of the trust. In Thomas and Agnes Carvel Foundation v Carvel [2007] 4 All ER 81 the court removed a personal representative (accepting that the same principles applied as on the removal of a trustee). The defendant had pursued a number of claims against the estate, in her personal capacity, for her own benefit. Her every act had been calculated to promote her own personal interests and to prejudice those of the principal beneficiary of the estate. Her hostility to the beneficiary rendered it quite impossible for her to fulfill her fiduciary duties.
A trustee may be removed if he is in a position of conflict of duty and interest, even if no breach of trust has been committed. In Moore v M’Glynn [1894] 1 IR 74 a trustee was removed where he had set up a business in direct competition to the business interests of the trust. In Monty Financial Services v Delmo [1996] 1 VR 65 an executor had a disputed claim in debt against the estate. He was removed. The claim was undocumented. The executor would have to accept or reject his own truthfulness. However, it may be that the conflict is so serious that it can be managed, if necessary by an application by the trustee to the court for authorisation to carry out a particular act, or surrendering the trustee’s discretion (see Public Trustee v Hart [2001] WTLR 901).
The court may also order the removal of a trustee as a pre-emptive measure. In the Australian case of Miller v Cameron (1936) 54 CLR 572 the trustee had assigned all his assets to his creditors. Latham CJ order his removal stating:even though [the trustee] has been guilty of no misconduct, if a trustee is in a position so impecunious that he would be subject to a particularly strong temptation to misapply trust funds, the court may properly remove him from office as a trustee.
By the same token, the bankruptcy of a trustee is usually a good ground for removal. However, it may not be necessary to ask the court to remove the trustee if there is a person entitled to appoint a new trustee in place of the bankrupt trustee pursuant to s. 36 of the Trustee Act 1925.
Proceedings for removal, pursuant to the inherent jurisdiction, should be commenced by a Part 7 claim form, unless there is unlikely to be a substantial dispute of fact in which case the Part 8 procedure should be used. The court may order the removal of a trustee, pursuant to its inherent jurisdiction, even if that claim is not pleaded in the claim form.
Section 41 of the Trustee Act 1925
Section 41 of the Trustee Act 1925 provides:The court may, whenever it is expedient to appoint a new trustee or new trustees, and it is found inexpedient difficult or impracticable so to do without the assistance of court, make an order appointing a new trustee or new trustees, either in substitution for or in addition to any existing trustee or trustees, or although there is no existing trusteeIn particular … the court may make an order appointing a new trustee in substitution for a trustee who lacks capacity to exercise his functions as trustee, or is a bankrupt, or is a corporation which is in liquidation or has been dissolved.
The application may be made by a beneficiary or a trustee (s. 58 of the Trustee Act 1925). The jurisdiction does not apply to personal representatives (s. 41(4)). However, there is a separate jurisdiction relating to the appointment and removal of personal representatives under section 50 of the Administration of Justice Act 1985.
The court, therefore, has power to appoint a new trustee or trustees in substitution for any existing trustee or trustees provided that (a) it is expedient to make the appointment and (b) it is inexpedient, difficult or impracticable to do so without the assistance of the court. The court, therefore, has a statutory power to remove a trustee, but only in conjunction with the appointment of a new trustee or trustees.
Section 41 is not primarily directed to a case where there is a dispute between the beneficiaries and trustees, and the beneficiaries want one or more of the trustees removed. It is directed to cases of “expediency”, where the court’s assistance in appointing new trustees is required. This will often arise where there is no person who can appoint a new trustee, e.g. where the appointor:
is incapable of acting due to mental disorder, age or infirmity;
is unable to act, e.g. because the appointor is abroad in enemy occupied territory;
is an infant;
has been convicted of a crime of dishonesty, or is insolvent, and refuses to concur in the appointment of a replacement trustee;
where there is no one to appoint new trustees, e.g. where the last surviving or sole trustee dies intestate, with no grant of letters of administration, and no one else is named in the settlement as entitled to appoint new trustees.
It follows that – where there is a person or persons able and willing to appoint new trustees (pursuant to an express power, or the statutory power under s. 36 of the Trustee Act 1925) – the court will not generally appoint a new trustee. In Re Higginbottom [1892] 3 Ch 132 the majority of the beneficiaries wanted two new trustees appointed in place of an illiterate trustee of no means who had no beneficial interest under the trusts. The trustee had a statutory power to appoint new trustees, which she wished to exercise in favour of new trustees selected by her. The court held that there was no power, under the statutory predecessor to s. 41 of the Trustee Act 1925, to appoint new trustees, against the wishes of an existing trustee who proposed to exercise her statutory power to appoint new trustees.
However, if there are two or more persons entitled to appoint new trustees, who cannot agree as to who should be appointed, the court may appoint a new trustee (Re Tempest (1866) 1 Ch App 485). The court also stepped in where a married couple were appointed jointly: they were judicially separated and living at the opposite ends of the world, with the result that it was inexpedient or difficult for them to consult and agree on the appointment of new trustees (Re Somerset [1887] WN 122).
Section 41 of the Trustee Act 1925 confers on the court jurisdiction to displace a trustee against his will and to appoint a new trustee in substitution (Re Henderson [1940] Ch 764). It is, therefore, potentially available in contested cases. However, this is subject to an important limitation: there must not be a dispute of fact (Re Henderson, at 767). This is because, where there is a dispute as to whether the trustee has committed breaches of trust or put himself in a position of conflict, justifying his removal, it cannot necessarily be said that it is “expedient” that he should be removed and a new trustee be appointed. The primary issue is not one of expediency, but whether the trustee has, in fact, committed the alleged breaches of trust. Where there is a dispute of fact, the appropriate course is to invoke the court’s inherent jurisdiction (but see para. 27 below).
In a case where the trustee has become bankrupt, or been convicted of a crime, or resides permanently abroad, or is mentally incapable, there will usually be no dispute of fact. The court can remove the trustee, and appoint a new trustee in his place, even if the trustee refuses to step down, or opposes the proposed appointment.
If the trustee has committed a breach of trust, in respect of which the facts are admitted or established, there will be no substantial dispute of fact. The court will have power to remove the trustee. Even if there is a dispute of fact, the beneficiaries could bring proceedings alleging breach of trust; and for an order, pursuant to s. 41 of the Trustee Act 1925, appointing new trustees in place of the existing trustees, if such breaches of trust are established (at which point there will be no dispute of fact).
In any event, the claimants can always plead the inherent jurisdiction, and s. 41 in the further or alternative. The claim form can plead that the trustee be removed pursuant to the inherent jurisdiction of the court and/or that a new trustee be appointed in place of the defendant trustee pursuant to s. 41 of the Trustee Act 1925. Even if there is a dispute of fact, the trustees can be removed pursuant to the inherent jurisdiction. The court can then appoint new trustees pursuant to s. 41 of the Trustee Act 1925 in addition to any remaining trustees, or even if there are no remaining trustees, if it is expedient to do so, e.g. because there is no person who can nominate new trustees.
The court will apply the same general principles, in determining whether to remove a trustee, whether the inherent jurisdiction, or s. 41, is invoked. If the trust property is endangered, or the trustee is guilty of a want of honesty, or a want of proper capacity to execute the duties, or a want of reasonable fidelity, it will no doubt be expedient that a new trustee be appointed in his place.
Where two factions of trustees were refusing to co-operate with each other in the management of a mosque, and there were no persons entitled to appoint new trustees, it was expedient for the court to appoint new trustees (Mohammed v Khan [2005] EWHC 599 (Ch)).
In Re Tempest (1886) 1 Ch App 485 the court laid down the following principles:
The court will have regard to the wishes of the persons by whom trust has been created, if expressed in the trust instrument, or clearly to be collected from it. If, for instance, the settlor has declared that a particular person, or a person filling a particular character, should not be a trustee, the court would not appoint such a prohibited person.
The court will generally not appoint a person to be a trustee, proposed by beneficiaries, in opposition to the wishes of the settlor or of the interests of others beneficiaries. It is the duty of every trustee to hold an even hand between the parties interested under the trust. However, the ultimate decision lies with the court. The fact that a beneficiary with a small interest objects to the appointment may not be sufficient objection (Re Dickinson’s Trusts [1902] WN 104).
The court will have regard to the question whether the appointment will promote or impede the execution of the trust. A trustee will not, for instance, be appointed if there would be a conflict between his interest and duty, unless the settlement contemplates the possibility of such a conflict, e.g. where the trustee of a pension fund is also a beneficiary (Re Parsons [1940] Ch 973).
The court may refuse to appoint a new trustee if the surviving or continuing trustee has a well-founded objection. The continuing trustee does not, however, have a power of veto. If he raises an unreasonable objection, he may himself be removed.
The court will not generally appoint trustees who are resident out of the jurisdiction, unless there is good reason, e.g. where the beneficiaries have settled permanently in a country where the proposed trustees are resident. A desire to avoid tax is generally not sufficient.
A beneficiary may be appointed a trustee were no independent trustee can readily be found, particularly if the beneficiary has an interest in capital. The beneficiary may, however, be required to give an undertaking that, if he becomes sole trustee, he will take immediate steps to appoint a co-trustee.
The court is not bound to appoint the same number of trustees as are removed. It may, for instance, appoint two trustees instead of one, or two instead of three. However, it is not its general practice to exercise its power so as to leave a sole individual trustee unless there was originally only one trustee and there are special circumstances (Lewin on Trusts, 18th Ed., para. 15-09).
The court will in general require evidence of the new trustee’s fitness. Appropriate CVs and consents to act should be provided to the court (Jones v Firkin-Flood [2008] EWHC 2417 (Ch), at para. [298]).
Proceedings under s. 41 of the Trustee Act 1925 should normally be commenced by way of a Part 8 claim form (on the basis that there is no substantial dispute of fact). If there is a substantial dispute of fact, the proceedings should be brought pursuant to the inherent jurisdiction of the court by way of a Part 7 claim form. However, those proceedings may include a claim for the appointment of new trustees pursuant to s. 41 of the Trustee Act 1925. The proceedings should be brought in the Chancery Division of the High Court (unless the value of the trust fund does not exceed £30,000, in which case it can be brought in the County Court).
Under the Part 8 procedure written evidence is served with the Claim Form. The defendants have 14 days within which to acknowledge service and file their evidence. However, this may be extended by written agreement by a further 14 days.
All the trustees should be parties. The beneficiaries should also be joined, unless perhaps they have consented to the application. The settlor (if alive) and any person nominated to appoint new trustees should also be joined.
Tactics/costs
In most cases a trustee, whom the beneficiaries, or a substantial body of beneficiaries, wish to remove, would be well advised to resign. As Lord Blackburn pointed out in Letterstedt v Broers (at 386), if it appears that “human infirmity would prevent those beneficially interested, or those who act for them, from working in harmony with the trustee”, the trustee would often be best advised to resign. If, without any reasonable ground, he does not do so, the court will often remove him. The court will have little sympathy with a trustee who insists upon clinging to office. As Lord Nottingham said in Uvedale v Ettrick (1682) 2 Ch Cas 130, at 131, he liked not that a man should be ambitious of a trust when he could get nothing but trouble by it.
An application for the removal of a trustee is a “trust dispute”, in respect of which the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party, as well as their own costs (Alsop Wilkinson v Neary [1996] 1 WLR 1220, at 1224B and G).
A trustee will, therefore, be in danger of having to pay the beneficiary’s costs, if the trustee is ultimately removed. A trustee who is found to be guilty of misconduct will no doubt be ordered to pay the costs of the beneficiaries.
If the trustee is in a position of conflict, or there is hostility between the trustee and the beneficiaries, but the trustee persists in clinging to office, he will be at risk of having to pay the beneficiaries’ costs of the application to remove him/appoint new trustees. In the Jersey case of In the matter of the Representation of Centre Trustees (CI) Limited and Langtry Trust Company (Channel Islands) Limited [2009] JRC 109 trustees applied to remove a protector, whose conduct was found to have been wholly unreasonable and in flagrant breach of his duties as protector. He was in a position of conflict with the trust. The protector did not resign, when initially asked to do so, although he expressed a willingness to do so. At the hearing he did not oppose his removal. The court considered that he was under a duty to resign from the moment that the conflict arose. It ordered the protector to pay the other parties’ costs on an indemnity basis. The moral of the tale is that a trustee or protector should resign at an early stage if his position is called into question on rational grounds.
The trustee may be removed, even if he has not committed any breach of trust, or is not in a position of conflict, e.g. because of friction with the beneficiaries. There is, therefore, always a danger that an “innocent” trustee may be removed, and have to pay the costs of the beneficiaries. In addition, the trustee may be deprived of the right to be indemnified in respect of his own costs out of the trust fund (Hunter v Hunter [1938] NZLR 520).
However, if the trustee is removed due to hostility from the beneficiaries, and has not acted unreasonably in defending the proceedings, the trustee is at less risk of having to pay the beneficiaries’ costs (Lewin on Trusts, 18th Ed., para. 21-102). In addition, the trustee may be entitled to be reimbursed his own costs out of the trust fund, on the basis that a trustee should only be denied an indemnity for his costs if he acted unreasonably (In Re E Trust 2008 JLR 360, at para. 29).
If the beneficiaries have made unsubstantiated claims of misconduct, they could be ordered to pay the trustees’ costs (see Passingham v Sherborn (1846) 9 Beav 424) or to pay their own costs (Letterstedt v Broers, supra, at p. 390), even if successful in obtaining the removal of the trustee on the grounds of friction with the beneficiaries.
A sensible option for a trustee facing a claim for his removal may be to apply to the court for directions. There may be any number of reasons for tension to have arisen between a trustee and the beneficiaries and it will often be reasonable for a trustee to seek a decision from the court before agreeing to retire or to oppose the application for his removal. In many cases, even where the court’s decision is that the trustee should retire or be removed, the court will not conclude that the trustee has acted in such a way that it should be deprived of its costs or remuneration. Everything will depend upon the facts of the specific case but the general approach remains that a trustee which is acting in good faith in what it perceives to be the best interests of the trust and the beneficiaries as a whole will not be deprived of its costs unless it has behaved unreasonably. That includes differences over whether or not the trustee should continue in office (In re E Trust 2008 JLR 360, at para. 42).
However, in In re E Trust the trustee made an application for directions. The court concluded that the trustee should have retired immediately on being requested to do so. He was in a clear position of conflict. There was no justification for the trustee seeking the directions of the court. The costs of the application had been unreasonably incurred, and the trustee was not entitled to recover its legal costs from the trust fund or to charge for time spent on the proceedings. It was also ordered to pay the costs of the other parties on a standard basis.
In Isaac v Isaac [2009] WTLR 265 the trustee initially defended the proceedings for his removal, but then agreed to resign. Each side maintained that the other should pay its costs. The court determined that the beneficiaries did not have good grounds for the removal of the trustee. Friction and hostility between trustees and beneficiaries was not of itself a reason for removal of a trustee. Park J indicated a provisional view that the beneficiary should pay the trustee’s costs on a standard basis. It is possible that the same costs order would have been made if the trustee had continued to contest the claim. However, the trusteee was no doubt well advised to agree to his removal on terms that costs be determined by the court, and without prejudice to his contention that there were no grounds for his removal.
In Levy v Perry (2007, unrep) beneficiaries unreasonably continued with an action for removal of a trustee who had agreed to resign. The beneficiaries were ordered to pay costs on an indemnity basis. This is further support for the view that is often wise to agree to resign.
A trustee, faced with a claim for his removal, should consider making an offer pursuant to CPR Part 36, proposing the appointment of a new independent trustee of good standing in his place.
However, it is appreciated that in many cases the trustees may consider that there are no grounds for their removal and/or that some of the beneficiaries are opposed to their removal and/or that they have some special skill or knowledge of the valuable to the trust and/or that any difficulties with the beneficiaries will not be resolved by their removal. The trustees might, therefore, feel compelled to defend the action. If successful, they will recover their costs.
The trust instrument may confer an express power of removal on a particular person such as a protector, or the settlor, or a person nominated to appoint new trustees. Such a power will usually be fiduciary in nature. In Von Knierman v Bermuda Trust Co Ltd (1996) 1 BOCM 116, Supreme Court of Bermuda, the protector of a trust had a power to remove and appoint trustees. The court concluded, following Re Skeats’ Settlement [1889] 42 Ch D 522, at 526, that a power was fiduciary if it could not be exercised for the benefit of the donee. There was express provision in the trust instrument that the protector was excluded from taking any benefit under the trusts. The court, therefore, concluded that the protector’s power of appointment and removal was a fiduciary power.
As a fiduciary power, the donee has a duty to exercise the power for the benefit of the beneficiaries, and not for the personal motives or benefit of donee, or for other improper reasons. The court found that there was no evidence that the protector had exercised the power corruptly for his personal benefit.
It is, however, submitted that, in the absence of any contrary indication, a power to appoint and remove trustees is a fiduciary power, whether or not the donee may himself benefit from the exercise of the power, e.g. by being appointed as a trustee (Thomas, Powers, 1st Ed., p. [29]). Furthermore, the donee of the power must act not only in good faith, but also in the interests of the beneficiaries (Re Osiris Trustees Ltd [2000] WTLR 933, Isle of Man). The donee must, therefore, take into account relevant considerations, and ignore irrelevant ones.
It is will, however, be sufficient if the donee of the power genuinely concludes, on the basis of relevant considerations, that the trustee is no longer the best that can be found, having regard to the interests of the beneficiaries as a whole (Lewin on Trusts, 18th Ed., para. 13-44). If the donee has doubts as to the propriety of removing the trustee, he should apply to the court for directions as to whether he should exercise his power of removal. If the power has been exercised, but the trustee has concerns as to whether it has been validly exercised, the trustee may apply to the court for directions, explaining the nature of and reason for his concerns.
If the power is fiduciary, the donee should periodically consider whether the trustees are performing adequately or ought to be removed and replaced. (The donee of a non-fiduciary power has no such obligation).
What, then, if the beneficiaries want one or more of the trustees to be removed, but the person with the express, fiduciary power of removal refuses to remove the trustee? The beneficiaries could apply to the court for an order that the protector re-consider, or directing that the power be exercised in a particular way. However, it would no doubt be necessary to prove that the donee has failed to give genuine consideration to the appointment, or no person directing his mind to the relevant considerations would have failed to make the appointment (see Lewin on Trusts, 18th Ed., para. 14-41).
Supervision of power of appointment
In Jones v Firkin-Flood [2008] EWHC 2417 (Ch) the court removed a number of trustees, including a trustee who had an express power of appointing new trustees. The judge stated that the power of appointment was subject to the supervision and control of the court. The court could prohibit the appointor from exercising his power, or supervise the exercise by subjecting that exercise to the approval of the court. The court appointed two new trustees proposed by the beneficiaries. The appointor was given leave to show cause, at a subsequent hearing, as to why the trustees appointed by the court should not continue in office on a permanent basis. He was also given liberty to propose an additional trustee or trustees. It is not clear from the report whether the court was acting pursuant to s. 41 of the Trustee Act 1925 in making the appointment, or whether the order appointing trustees was made pursuant to the supervisory jurisdiction of the court in respect of the appointor’s express power of appointment.
Section 36(1) of the Trustee Act 1925
Pursuant to section 36(1) of the Trustee Act 1925:
if there is no such person, or no such person is able or willing to act, then the surviving or continuing trustees or trustee for the time being; or
the personal representative of the last surviving or continuing trustee
have power, by writing, to appoint one or more persons (whether or not being the persons exercising the power) to be a trustee or trustees in place of a trustee, whether original or substituted, and whether appointed by the court or otherwise, who:
has remained out of the United Kingdom for more than 12 months;
desires to be discharged from all or any of the trusts or powers reposed in or conferred on him;
refuses to act;
is unfit to act;
is incapable of acting;
is an infant.
The power to remove a trustee is, therefore, one which can only be exercised in conjunction with an appointment of a new trustee or new trustees. The outgoing trustee must also fall within one of the specified categories.
The statutory power applies so far only as a contrary intention is not expressed in the trust instrument, and takes effect subject to the terms of the trust instrument (Trustee Act 1925, s. 69(2)). It will be of use where there is no express power of appointment/removal, or where the express power is not applicable in the circumstances. If both the express power and the statutory power are exercisable, but the express power imposes restrictions, it will no doubt be necessary to comply with the restrictions attached to the express power.
The power of appointment must be exercised in writing. It is, however, standard practice to appoint by deed, so as to vest the trust property in the new or continuing trustees without the need for any conveyance or assignment .
Section 36(1) will be of particular use where a trustee wishes to retire, and it is desired to appoint a new trustee in his place. A deed of appointment pursuant to s. 36(1) is the standard method of substituting a new trustee for a retiring trustee. Personal representatives, who have completed the administration of the estate, or executed an assent of land in favour of themselves as trustees, thereupon become trustees. If one or more of them then wish to be discharged as trustees, new trustees can be appointed in their place, pursuant to s. 36(1).
Section 36(1) will also be of use where the trustee is incapable, due to mental incapacity (Re East (1873) 8 Ch App 735) or age or infirmity (Re Lemann’s Trusts (1883) 22 Ch D 633). The remaining trustees can appoint another trustee in place of that trustee.
However, the statutory power is less obviously applicable where a capable trustee refuses to be removed or retire as a trustee. The relevant grounds for removal would then be: (a) remaining out of the U.K. for more than 12 months; (b) refusal to act; or (c) unfitness or incapacity to act.
A trustee, who has remained out of the U.K. for an unbroken period of more than 12 months, can be removed without his consent, even if he was forced to be away (Re Walker [1901] 1 Ch 259). The persons entitled to exercise the statutory power will simply appoint a new trustee in writing in place of the absent trustee.
A trustee would be refusing to act if he has disclaimed the office of trustee or if, having accepted office, he refuses to carry out his duties as a trustee. No doubt he could be expected to agree to his removal or retirement. However, if he does not, a new trustee could be appointed in his place by a written appointment, even without his consent.
A trustee will be unfit to act if, for instance, he is has been convicted of a crime of dishonesty, or is insolvent. The meaning of “unfit” is, however, wider, including a case where the trustees have demonstrated that they are not up to the job having failed to ascertain the extent of their responsibilities (see Jones v Firkin-Flood [2008] EWHC 2417 (Ch), at para. 29 above). In theory, the trustee could be removed by the simple expedient of the appointor/trustee executing a written appointment of a new trustee in place of the unfit trustee. However, in a case where the trustee is alleged to be not up to, or is unsuitable for, the job, it would no doubt be advisable for an application to be made to the court for directions as to whether the power should be exercised, or whether an application should be made for removal pursuant to the inherent jurisdiction of the court; or simply to apply for removal pursuant to the court’s inherent jurisdiction.
It is permissible to exercise the statutory power so as to:
increase the number of trustees (s. 37(1)(a) Trustee Act 1925), but to no more than four in the case of land (s. 34 Trustee Act 1925);
appoint one trustee in place of an original sole trustee, or in place of a sole replacement trustee, where the trust is not a settlement or trust of land (s. 37(1)(c) Trustee Act 1925);
However, even in the case of b., it will be necessary to appoint a second trustee so as to give good receipt for capital moneys and to overreach the equitable interests of beneficiaries.
Where more than one trustee was originally appointed, a sole surviving trustee, even of pure personalty, cannot retire and appoint a sole trustee, not being a trust corporation, to act in his place (s. 37(1)(c) Trustee Act 1925). The sole surviving trustee must appoint at least two trustees, or a trust corporation, in his place, or he will not be discharged. However, the trust instrument can override this requirement by, for instance, providing that there may be a sole trustee (LRT Pension Fund Company Ltd v Hatt [1993] PLR 227).
There is authority to the effect that it is not permissible for two trustees, who wish to retire, to exercise their power under s. 36 Trustee Act 1925 to appoint one trustee in their place (Adam & Company International Trustees Ltd v Theodore Goddard [2000] WTLR 349). The reasoning (which was in any event obiter) was that s. 36 provides for an appointment “in place of” a retiring trustee. Evans-Lombe J considered that where there are two retiring trustees, the appointment of one new trustee, cannot be said to be in place of both of them. Section 36 refers to “a trustee” (singular) being dead etc, and to the appointment of “one or more other persons” to be “a trustee or trustee” in place of “the trustee” (singular) being replaced. However, the decision has been criticised, not least because, if correct, the appointment should be void, as opposed to merely failing to discharge the retiring trustees, as was common ground in Adam.
The safe course, following a suggestion of Evans-Lombe J in Adam, is for: (1) two new trustees to be appointed in place of the two retiring trustees, pursuant to s. 36(1); and (2) for one of those two new trustees then to retire pursuant to s. 39 Trustee Act 1925.
Section 19 of the Trusts of Land and Appointment of Trustees Act 1996
The beneficiaries of a trust, even if all of full age and capacity, and between them absolutely entitled to the trust fund, cannot, as a matter of general law, compel the trustees to retire. They have a choice. They can bring the trusts to an end (which may well have adverse CGT consequences, and which will involve giving full indemnities to the trustees) by directing the trustees to transfer the trust property to them, or to new trustees, under the rule in Saunders v Vautier (1841) Cr & Ph 240; or they must keep the trust on foot, in which case the trusts must continue to be executed by the duly appointed trustees (Re Brockbank [1948] Ch 206).
However, beneficiaries (of full age and capacity and taken together absolutely entitled to the trust property) may now in certain circumstances require a trustee to retire without terminating the trust, pursuant to section 19 of the Trusts of Land and Appointment of Trustees Act 1996. Where the section applies, the beneficiaries may give a written direction to a trustee of trustees to retire from the trust and/or to appoint by writing to be a trustee or trustees the person or persons specified in the direction. The trustee should then make a deed declaring his retirement. If the trustee refuses to retire the beneficiaries may apply to the court for a mandatory order. The trustee will, however, be at risk as to costs.
There are, however, important restrictions on the exercise of the statutory power.
Firstly, it is only exercisable where there is no person nominated for the purpose of appointing new trustees by the instrument, if any creating the trust (s. 19(1)(a)). In many cases the trust instrument will confer an express power on a nominated person, such as a settlor, protector or appointor, or the trustees, to appoint new trustees. If that person is unwilling or unable to exercise the power, section 19 will not apply. If, however, that person is dead, it will apply. However, section 19 will apply where the statutory power under section 36 of the Trustee Act 1925 applies to the trust, and there is no person nominated for the purpose of making an appointment under s. 36(1)(a).
Secondly, where there are infant, incapable or unborn beneficiaries of the trust, including (probably) objects of a discretionary trust or even of a fiduciary power of appointment, section 19 will not apply.
Thirdly, a trustee is only bound to retire:
where reasonable arrangements had been made for the protection of any rights of his in connection with the trust;
after he has retired there will be either a trust corporation or at least two persons to act to perform the trust; and
either another person is to be appointed to be a new trustee on his retirement or the continuing trustees by deed consent to his retirement.
The requirement that reasonable arrangements be in place for the protection of the trustee means that the trustee can, at the very least, require that his accounts be settled before he retires. Whether the trustee is entitled to an express indemnity, retention, or charge over trust assets, in respect of future and contingent liabilities is open to question, given that the trustee has an equitable charge or lien over the trust property as a matter of general law. Arguably, however, s. 19 confers on the outgoing trustee greater rights than under the general law, in recognition of the fact that he is being forced to retire, even without fault. However, there is potential for a dispute as to the reasonableness of the arrangements made for the protection of the trustee.
Fourthly, section 19 can be excluded by the trust instrument (s. 21(5) of the 1996 Act). In the case of a trust created before 1 January 1997, it can be excluded by a deed executed by the settlor or settlors being of full age and capacity (s. 21(6) of the 1996 Act).
Section 20 of the Trusts of Land and Appointment of Trustees Act 1996
The beneficiaries of a trust (of full age and capacity and taken together absolutely entitled to the trust property) may give a written direction to appoint by writing the person or persons specified in the direction to be a trustee or trustees in place of a trustee who is incapable by reason of mental disorder of exercising his functions as trustee. However, it is a requirement that there is no person who is both entitled and willing and able to appoint a trustee under section 36(1) of the Trustee Act 1996.
The direction may be given to a deputy appointed by the Court of Protection, an attorney under a registered EPA or LPA, or a person authorised for the purpose by the Court of Protection.
Section 20 can be excluded in any disposition on or after 1 January 1997 creating the trust (s. 21(5)). In the case of a trust created before that date, it can be excluded by a deed executed by the settlor or settlors being of full age and capacity (s. 21(6)-(8)).
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