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appointment and removal of trustees, Appointor; power of appointment, Trustee liability, Trustee retirement

It’s not a beauty parade

Trusts are commonly used for secession planning  providing, at least conceptually, for long-term asset ownership that will not be disrupted by death.  That’s the theory anyway.  However, the passage of time and the appointment and removal of trustees can mean that once harmonious relationships and arrangements are no longer so.

The decision in Guest v Warner relates to an application for the removal and appointment of trustees in circumstances of family disharmony where one of the questions for the court to determine is whether the removal of the accountant trustee was “properly motivated.”

Also raised (but not answered) at [18] is the question as whether “a nominated settlor’s power to appoint and remove trustees is a fiduciary power (to be exercised with a view to the interests of the beneficiaries of a trust), or a personal power (without any such constraints but nonetheless to be exercised in good faith for the purpose for which it was given). The contest is between viewing that power as sourced in the trust deed, or as a necessary adjunct to settlement of the trust.”

Helpfully addressed is the professional trustee’s resistance to being removed.  In this regard Jagose J notes at [23]:

Nonetheless, Anne Warner should not actively have resisted her removal, but only have sought the Court’s directions if there was a basis to do so.  An application for such directions could have relied on s 51(1) of the Act, which 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 the 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 trustee.

‘Substitution’ necessarily infers a power of removal, which the Court has in its inherent jurisdiction in any event.”

Where a court is considering the removal of a trustee relevant considerations include:

  • expedience, which imports considerations of suitability, practicality and efficiency
  • a trustee should not be removed lightly: the motivating reason for trustees’ removal must be some “detriment to the administration of the trusts.”  See Green v Green (CA)

When considering who to appoint the general principle as noted at [26] is “to appoint the person or persons best suited to administer the Trust in the circumstances prevailing”.  See Mendelssohn v Centrepoint Community Growth Trust.

Specifically the court is guided by three prevailing considerations:

  • the Settlor’s intentions – the Court will give considerable weight to the expression of the settlor’s intentions as to the identity of the trustees, if such can be discerned. But the Court is not bound by them, and may depart from them “if good cause is shown” [26 (a)]
  • neutrality between beneficiaries – spouses, relative or conflicted advisers should not expect appointment
  • promotion of the purposes of the trust

As was the case in Guest v Warner a pragmatic solution is desirable.  Appointment as trustee should not be considered a right.  Guiding principles include:

  • serving the interests of all of the beneficiaries
  • securing / protecting trust property
  • animosity is a disincentive

In deciding who a new trustee should be the starting point is the settlor’s wishes.  However where these cannot be discerned with any particularity, the next consideration is to infer from appointment made by the settlors. Neutrality is important.  As noted at [37]:

“The weight the courts place on neutrality as between beneficiaries, and the courts’ refusals to appoint even people with indirect interests in trust property, strongly favours appointment of a professional trustee. That would tend to exclude [related party nominations] … While I have no reason to think [professional trustee] would be partial to its nominator’s interests, I acknowledge appearances of partiality are still material, and its particular appointment was opposed by the plaintiffs.”

As noted at [38]:

” … promotion of the [Trust’s] purposes requires the trustee to stand back from the present contests, objectively to consider exactly what those purposes are and how they are best to be promoted. To my mind, that is presently best achieved by appointment as trustee of an experienced trust lawyer, desirably with experience in negotiation and mediation techniques as means of dispute resolution.”

In Guest v Warner the preliminary view on costs was that each party bears their own costs and that this beauty parade should not be to the cost of the Trust.  However, on appeal the Court of Appeal held that the trial judge departed incorrectly from the basic rule that the costs follow the event.  As noted at [26] in the Court of Appeal decision “It is settled law that an award of costs may be made against a non-party.  Further as set out at [27] to [28]:

[27] There is no doubt Mr Livingstone has been heavily involved. He swore several affidavits and has given evidence. He advanced at least $260,000 to the Trust and has been involved in many of the key decisions along the way. Through his company, Guest Trustee Ltd (the second respondent), Mr Livingstone acted as a trustee of the Trust. Guest Trustee Ltd is a corporate shell with no assets or income. It exists solely to be trustee of the Trust, and Mr Livingstone accepted he had formed it solely to insulate himself from liability as a trustee.
[28] We do not accept the proposition advanced on appeal that Mr Livingstone was merely a loyal brother assisting his sister. That may have been the initial motivation, but it is clear his involvement has been much greater. He has been as equally involved as his nieces Melissa and Joanne. He is a significant creditor of the Trust, and is aligned with the other trustees who are also beneficiaries. There can be no doubt he is interested in the matter in all respects. That of recent times he formally acts through a corporate entity should not in all these circumstances insulate him from a costs liability he would bear if a trustee in his own name. We accordingly consider it is appropriate to include him in the costs liability.

Significantly the costs awarded ($104,367 ) were to be paid by the first, second and third respondents, together with Mr Basil Ian Livingstone (director and shareholder of Guest Trustee Limited), are jointly and severally liable to meet this costs award.

References:

  • Guest v Warner [2018] NZHC 666
  • Carmine v Ritchie [2012] NZHC 2279, (2012) 3 NZTR 22-025 at [3]-[4]
  • Green v Green [2015] NZHC 1218, (2015) 4 NZTR 25-017 at [598] and [600]
  • Peng v Rothschild Trust (Schweiz) AG [2017] NZHC 25, (2017) 4 NZTR 27-001 at [38]
  • Green v Green [2016] NZCA 486, [2017] 2 NZLR 321 at [146] and [153]
  • Mendelssohn v Centrepoint Community Growth Trust [1999] 2 NZLR 88 (CA) at 9
  • Guest v Guest NZCA [2019] 64

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