Trustees do not always get on as well as is necessary to do the job of being a trustee. Friction in the trustee relationship can arise for many reasons, often, but not always, the friction relates to the break down of a family relationship.
When trustees cannot get on the issue to be determined is not so much who did what, but who needs to go and who, if anyone, should stay so that the beneficiaries’ interests can be properly protected: Letterstedt v Broers
Outside the terms of the deed of trust, the jurisdiction for the court to remove and appoint trustees comes from its inherent jurisdiction and the Trustee Act 1956, s 51.
When an application for the removal of a trustee is made, and for a substitute trustee to be appointed, the Court is guided by what will best promote the welfare of the beneficiaries.
As these matters the Court must establish the relevant facts and then apply them to the trust in question.
The recent decision in Powell v Powell where the father settlor wanted his son removed as a trustee, and the son wanted his father removed, provides a considered example of how the Court approaches such applications.
The facts of Powell v Powell can be stated as follows:
- The trust in question (Daniel’s Trust) was settled by Daniel’s father John at the same time a trust was settled for Daniel’s sister Charlotte
- John and Daniel were the trustees and each had a power of appointment
- Daniel’s Trust owned shares in a company that owned a cool store and Charlotte’s Trust owned shares in another company that owned a cool store
- Each trust included the other sibling’s family as beneficiaries – it was accepted that this was so that the other sibling could benefit from the trust in the event of the death of the “primary” sibling before a family was established
- Each child was encouraged to grow their respective trust’s investment portfolio
- A dispute arose regarding whether or not it had been agreed that Daniel’s wife would be paid a salary from a related company
- Formal enquiries were commenced regarding Daniel’s actions as a trustee
- Relations between Daniel and his father deteriorated following an altercation between them
- Daniel’s father then refused to allow distributions from Daniel’s Trust for the benefit of Daniel and his family
- The deed of trust permitted the trustees to act in specified situations where a conflict might arise
- The trustees’ investment discretion were limited to Government Bonds, Call or Term Deposits and commercial property
Grounds to remove a trustee
The following paragraphs from Powell v Powell provide a useful background to the court’s power to remove trustees:
“ Importantly, while the grounds set out in s 51 include misconduct, a trustee does not need to have committed a breach of trust in order to be removed. As was stated in Attorney-General v Ngati Karewa and Ngati Tahinga Trust
 As our Court of Appeal pointed out in Hunter v Hunter (1938) NZLR 520, 529, the primary question is not whether the impugned trustees have committed breaches of trust. The jurisdiction to remove trustees is merely ancillary to the principal duty of the Court to see that the trusts are properly executed: Letterstedt v Broers (1884) 9 App Cas 371 (PC). While the specific grounds enumerated in s 51(2)(a)-(e) plainly form a basis upon which the Court may exercise its discretion, the section makes it clear that those particular grounds are without prejudice to the generality of the Court’s discretion under subs (1).
 Further relevant considerations when the Court is exercising its power to appoint new trustees include those articulated in Mendelssohn v Centrepoint Community Growth Trust,which are: consideration of the settlor’s intentions, neutrality between beneficiaries and promotion of the purposes of the trust.
 It is important to note, though, that “the Court will not however make an order removing a trustee lightly”, and “Courts are reluctant to remove trustees if other avenues can be found to remedy the perceived risk. This is particularly so in the case of a father where the beneficiaries of his trust are his infant children, both present and future”.“
Importantly the Court noted that it was not correct to presume that where a trust was deadlocked the Court would remove both trustees. In this regard the Court noted that many of the cases it was referred to related to separated spouses who were also beneficiaries and it should not be presumed that the same approach would apply to other relationships.
The Court reviewed various allegations made carefully and provided a more correct context for the positions put forward by each party. It was clear that neither party fully understood the terms of the trust deed. However, on balance the court was satisfied that the best course of action was to remove Daniel’s father and to appoint an independent. This may seem surprising given that Daniel’s father was the source of the trust’s initial wealth. However, the issue for the court is to determine the best option for all of the beneficiaries, not to play to the settlor.
The decision is worth reading to appreciate the impact of the relevant facts and the detail that is considered.
Note that the decision was upheld after it was appealed and remitted back to the High Court for further consideration.
- Letterstedt v Broers (1884) 9 App Cas 371 (PC)
- Trustee Act 1956, s 51
- Powell v Powell  NZHC 476
- Powell v Powell  NZHC 2096
- Attorney-General v Ngati Karewa and Ngati Tahinga Trust HC Auckland M2073/99 and CP 242/00, 5 November 2001
- Mendelssohn v Centrepoint Community Growth Trust  2 NZLR 88 (CA)
- Vincent v Stewart HC Auckland M671-IM02 and M1248-SD02 17 April 2003
- Clifton v Clifton HC Auckland CIV-2004-404-4185, 5 November 2004