Primary purpose of visit

Trustees are commonly also beneficiaries of family trusts.  However, where sibling rivalry or other family disputes compromise the proper administration of a trust, Court assistance can be necessary to determine whether trustees have been properly removed, or whether some or all of the trustees should be removed.

In Lim v Lim-Yip the Court was required to determine the validity of the removal and appointment of trustees where the sibling beneficiaries comprised two factions.  The background of the disharmony included:

• an historic loan to Ming who later appointed himself as a trustee of a family trust
• related family trust proceedings
• unfulfilled requests for trustee information, and
• the probate of one of the sibling’s mother’s will.

While the Court was satisfied that the removal of the former trustees was valid the question for the Court was whether Ming and Hong (who held the power of appointment) were correct in appointing themselves as trustees.  The relevant considerations are set out as follows at [44] to [47]:

[44]           Ming plainly did have a conflict. This is not necessarily a problem. Trustees of family trusts often have conflicts, and they are nevertheless entitled to act and exercise all the powers conferred on them. Importantly, however, the conflict here was highly salient because the beneficiaries of the SWLT had divided into two groups and had longstanding and strongly held opposing views about repayment of the loan.

[45]           I accept that obtaining information was a consideration, but I do not think it was Ming and Hong’s primary purpose. The timing of the change of trustees does not fit. They gained the power of appointment when Mrs Lim died in February 2019. Even though they had been requesting information for some time and continued to do so periodically through 2019, they took no steps. It was only when the debt collector made demand in December 2019 and January 2020 that they acted.

[46]           Further, their solicitor’s letter of 24 February 2020 notifying Suey, Steven and Shue-Wah Lim Trustees Ltd of their removal did call upon them to promptly deliver all trust documents to the solicitor’s office, but this general request for trust documents was the only demand that Ming and Hong made for information after they appointed themselves. Had their primary purpose been to obtain information, I would have expected them to have made a more expansive demand for information and to have followed up with a further demand when the information was not forthcoming.

[47]           I also do not think that Ming and Hong appointed themselves merely to “steady the ship”. They could have achieved that objective by appointing someone other than Ming or an independent corporate trustee.

The Court determined that Ming and Hong had acted improperly  because in the court’s view the primary purpose of their appointment “…was to benefit Ming by halting the calling in of the loan and revoking the demand for payment. This delayed the obligation to pay, prevented interest from continuing to accrue, and put to an end the dispute concerning the demand.”

The consequence of the Court’s determination that their purpose was improper was to invalidate their appointment as trustees.  Relevantly, as noted by the court at [59]:

[59]        As I have indicated, the dispute in these proceedings is part of a wider conflict between the parties. However, my role is not to judge the rights and wrongs in the wider conflict. I am simply required to determine whether Ming and Hong acted with an improper purpose when they appointed themselves as trustees. In my view, they did.

Vicki Ammundsen will discuss this case together with other topical cases in a current trust issues webinar on 2 December 2024.

References

• Lim v Lim-Yip [2024] NZHC 3012
• Grand View Private Trust Company Limited v Wong UKPC [2022] 47
• Grand View Private Trust Company Ltd v Wong Civil Appeal No 5A of 2019
• Pitt v Holt [2013] 2 AC 108
• Re Manisty’s Settlement [1974] Ch 17
• Vacher v Paul [1915] 1 A..C. 372, 379
• Arnold v Britton and Wood v Capita Insurance Services Ltd [2017] UKSC 24
• Anthony Grant, “How the ‘proper purpose’ rule should be applied to trusts” published in the Law News May 12, 2023, Issue 14: