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Beneficiaries, Relationship Property, Removal of trustees, Trustee liability, Trustees

Unanimity deadlock

The default decisioin making position with a trust is that trustee decisions must be unanimous unless there is a provision in the deed of trust that specifically permits majority decisions.  Where discretionary trusts permit majority decision making, trustees can find themselves liable for decisions that they were not party to.  However, where unanimity is required (and this is not a blog knocking unanimity) one trustee can force what might be a minority decision simply by refusing to vote.  However, this strategy can back-fire.  Given the number of family trusts whose sole asset is a family home, if the settlors’ relationship ends, not surprisingly the trustees can be at loggerheads over how the family home should be dealt with.  Where one trustee wants to retain the home and another does not, a requirement for unaniminity can necessarily mean that the trustee that doesn’t want anything to happen is likely to prevail.  However, that need not be the end of the matter.  Increasingly where trustees reach such a deadlock, the thwarted trustee is seeking the assistance of the court, not to “make” the other trustee agree, but seeking the removal of one or more trustees so that the trust can function.

Before making such an appointment the court must be satisfied that, amongst other things:

  • the trustees cannot work together in the best interests of the beneficiaries
  • a suitable replacement trustee or trustees have been identified

The power for the court to remove and replace a trustee is either pursuant to its inherent jurisdiction (due to the court’s principal duty to ensure the proper execution of trusts for the benefiti of the trust’s beneficiaries) or the Trustee Act.

In the case known as Anderson v Anderson the trust’s principal asset was a house in a desirable school zone.  The children spent half their time in that house with one parent and the other half of their time with their other parent in a small apartment.  The apartment dwelling trustee/parent wanted the house sold so that each parent could obtain suitable accommodations for the children.  However, as the other parent was of the view that the trustees had previously committed to providing a house in the relevant school zone, this plan should not be devidated from, regardless in the change of the trustee/parent’s circumstances.  When the matter came before the court the court took the view that the matter should not be determined by the court, but that suitable replacement trustees should be identified who could objectively determine the matter.

The case usefully highlights a number of important points about trust management:

  • while trustees might obtain an asset for a good reason, the trustees need to roll with the punches when things change and review matters objectively
  • the court will not normally make or review trustee decisions, but it will review the suitability of the trustees making the decisions, based on the decisions being made, or not made, as the case may be.

It is noted that in some instances an independent trustee can assist trustees to make decisions.  However, where one or more trustees have an intractable position, sometimes the only way to unlock the deadlock is with court assistance.  Trustees who fail to appreciate this may run the risk of later being found liable for the consequences of failing to do so.

References:

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