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Appointment and Removal of Trustees

It is common for modern deeds of trust to provide for the appointment and removal of trustees.  However, where the deed of trust does not make provision for appointment or removal, or where the provision in the deed cannot be used, it is necessary to consider what other options are available.

Trustee Act, s 51

Section 51 of the Trustee Act confers power on the Court to remove a trustee if the Court is appointing a new trustee.

Section 51 provides:

“51 Power of Court to appoint new trustees

(1) 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.

(2) In particular and without prejudice to the generality of the foregoing provision, the Court may make an order appointing a new trustee in substitution for a trustee who—

(a) Has been held by the Court to have misconducted himself in the administration of the trust; or

(b) Is convicted … of a crime involving dishonesty as defined by section 2 of the Crimes Act 1961; or

(c) Is a mentally disordered person within the meaning of the Mental Health (Compulsory Assessment and Treatment) Act 1992, or whose estate or any part thereof is subject to a property order made under the Protection of Personal and Property Rights Act 1988; or

(d) Is a bankrupt; or

(e) Is a corporation which has ceased to carry on business, or is in liquidation, or has been dissolved.

(3) An order under this section, and any consequential vesting order or conveyance, shall not operate further or otherwise as a discharge to any former or continuing trustee than an appointment of new trustees under any power for that purpose contained in any instrument would have operated.

(4) Nothing in this section shall give power to appoint an executor or administrator.

(5) Every trustee appointed by the Court shall, as well before as after the trust property becomes by law, or by assurance, or otherwise, vested in him, have the same powers, authorities, and discretions, and may in all respects act as if he had been originally appointed a trustee by the instrument, if any, creating the trust.”

Guidance on when it is  it is expedient that a new trustee is appointed by the Court or inexpedient, difficult, or impracticable to appoint a new trustee without the assistance of the Court in the context of a licenced securities trustee is provided in Perpetual Trust Limited v Lombard Finance & Investments Limited where the trustees licence to act as a corporate trustee was due to expire. Further it was “inexpedient, difficult and impracticable” to appoint a new trustee without the assistance of the Courts because the investors had to agree to the appointment of a new trustee by way of an extraordinary resolution and there were geographically diverse groups of investors ranging from  230 to 13,000.

Further as the investors had lost vast sums of money there were concerns that the investors might boycott or stymy the process.  Although it might appear that the assistnace of the court was sought to avoid the invetors’ input an amicus was appointed to represent the investors’ interests.  The amicus noted at [23]

“under the trust deeds Perpetual is entitled to retire by giving notice. The investors’ resolution is about the replacement trustee, not Perpetual’s retirement. The only link is that the retirement is subject to the investors’ approval of the replacement trustee. Through declining to approve the new trustee, investors could delay Perpetual’s retirement. The consequence of dispensing with investor meetings is, therefore, not that investors are denied an opportunity to approve Perpetual’s retirement. Rather that they will not have a say on whether Corporate Trust is the appropriate replacement trustee.”

The Court considered whether there might be any prejudice to investors, creditors or others if Perpetual is permitted to resign and satisfied itself that this had been adequately addressed.

It is important to appreciate that when a new trustee is appointed pursuant to s. 51 that it may also be necessary for vesting orders to be made transferring any trust property to the new trustee.

Section 51 cannot be used only to remove a trustee:  Thurston v Thurston

Inherent jurisdiction 

Where there is no suitable statutory provision (and the deed cannot assist) the Court has the ability to remove a trustee pursuant to its inherent jurisdiction to control a trust.

The leading cases regarding the nature of the jurisdiction and as to the circumstances in which the Court has ordered the removal of a trustee in the exercise of that jurisdiction are Letterstedt v Broers, Miller v Cameron and Hunter v Hunter .

The following passge from Letterstedt v Broers (pp 385 – 286) provides some useful guidance on the application of the Court’s inherent jurisdiction:

“The But in cases of positive misconduct, Courts of Equity have no difficulty in interposing to remove trustees who have abused their trust; it is not indeed every mistake or neglect of duty, or inaccuracy of conduct of trustees, which will induce Courts of Equity to adopt such a course. But the acts or omissions must be such as to endanger the trust property or to shew a want of honesty, or a want of proper capacity to execute the duties, or a want of reasonable fidelity.

It seems to their Lordships that the jurisdiction which a Court of Equity has no difficulty in exercising under the circumstances indicated by Story is merely ancillary to its principal duty, to see that the trusts are properly executed. This duty is constantly being performed by the substitution of new trustees in the place of original trustees for a variety of reasons in non-contentious cases. And therefore, though it should appear that the charges of misconduct were either not made out, or were greatly exaggerated, so that the trustee was justified in resisting them, and the Court might consider that in awarding costs, yet if satisfied that the continuance of the trustee would prevent the trusts being properly executed, the trustee might be removed. It must always be borne in mind that trustees exist for the benefit of those to whom the creator of the trust has given the trust estate.”

The Court of Appeal referred to these passages in its decision in Kain v Hutton confirming that the inherent jurisdiction is derived from the Court’s general supervisory powers in equity relating to the supervision of trusts for the welfare of beneficiaries.

The Court’s principal duty is to see that trusts are properly executed and it is from this that the power to remove trustees flows. 

Costs

Where a vesting order is required following the removal of a trustee, questions may arise as to who should meet the costs.  While as a general rule, costs follow the event, this cannot be presumed where a trustee has been removed, or has retired under pressure.  Even if a vesting order is required, if the trustee has good reason to question the removal – or accepts it and retires but will not sign a transfer authority (authority and instruction form (A & I) ) in respect of any real property owned – care is requried before seeking a costs order.  See Broderick v Broderick where the court found that the trustee who was removed in contentious circumstances (a relationship break up) was entitled to refuse to sign an A & I until a suitable indemnity was provided.

References:

  • Perpetual Trust Limitd v Lombard Finance & Investments Limited [2013] NZHC 3521
  • Thurston v Thurston [2013] NZHC 1886
  • Letterstedt v Broers (1884) 9 App Cas 371 (PC)
  • Miller v Cameron (1936) 54 CLR 572 (HCA)
  • Hunter v Hunter [1938] NZLR 520 (CA)
  • Kain v Hutton  CA23/01, 25 July 2002.
  • Broderick v Broderick [2015] NZHC 1038

Discussion

2 thoughts on “Appointment and Removal of Trustees

  1. I am one of 7 trustees who preside over a charitable trust as the structure for a post settlement governance entity. For the past two years one of the 7 trustees has lead and constructed campaigns to remove people from the trust board essentially because she does not like some of the employees working for the trust or the previous chairperson and wants to be the chairperson herself.

    Her mode of destruction has been gaining control of social media like facebook and commenting criticising and inciting division amongst some of the member beneficiaries that the trust is now divided. To date because of this divsion she has costed the organisation nearly $250 thousand dollars of consultant and legal fees to manage her accusations demands and just sheer misinformation.

    I want to know would we have grounds to remove this trustee if we can substantially show by evidence that she has constructively planned to be disruptive for the past two years?….

    Posted by Terase Macdonald | September 4, 2016, 10:33 pm
    • Thank you for your enquiry. Your stating place is likely the trust deed to establish who has the power to appoint and remove trustees. You may also find the decisions in Time v Fagalilo (2010) 3 NZTR ¶20-024 and Fagalilo v Time [2012] NZSC 28 useful.

      Posted by vickiammundsen | January 2, 2017, 5:34 pm

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