Posted: Monday, 23 November 2020 @ 14:00
How Do You Go About Attacking the Conduct of an Errant
Trustee?
Here are some tips:
Option 1 First focus on the trust instrument.
This is a key document,
which trustees should disclose to beneficiaries if requested.
The same applies
to supplemental documents such as:
• Deeds of
appointment and retirement of trustees.
• Instruments
adding assets to the trust.
• Instruments
varying the trust.
The trust instrument is the document which creates or sets
out the terms of the trust. It can be something as straightforward as a will which
leaves assets to minor children, a settlement deed or declaration of trust
comprising many pages.
Whatever it is, there is a pretty good chance that it will
set out, or refer to / amend legislation which sets out, the trustees’ powers
and duties.
It may also set out the person or persons who may or may not
appoint, remove, or substitute trustees of the trust and how they can do that.
e.g many trusts provide for no fewer than two trustees with power to appoint
and remove trustees and some trusts extend that power to beneficiaries acting
unanimously or, particularly in the case of offshore trusts, to protectors.
Option 2 Focus on the legislation.
Trustees can also be removed without the court’s
intervention by fellow trustees if one or more of many conditions is met.
These
conditions are set out in s.36 Trustee Act 1925 which provides:
“(1) Where a trustee, either original or substituted, and
whether appointed by a court or otherwise, is dead or remains out of the
United Kingdom for more than twelve months, or desires to be discharged from
all or any of the trusts or powers reposed in or conferred on him, or refuses
or is unfit to act therein, or is incapable of acting therein, or is an infant,
then, subject to the restrictions imposed by this Act on the number of
trustees, —
(a) the person or persons nominated for the purpose of
ap-pointing new trustees by the instrument, if any, creating the trust; or
(b) if there is no such persons, or no such person able and
willing to act, then the surviving or continuing trustees or trustee for the
time being, or the personal representatives of the last surviving or continuing
trustee; may, by writing, ap-point one or more other persons (whether or not
being the persons exercising the power) to be a trustee or trustees in the place
of the trustee so deceased, remaining out of the United Kingdom, desiring to be
discharged, refusing, or being unfit or being incapable, or being an infant, as
aforesaid.”
Also consider s.36 (9) Trustee Act 1925 which lays down that
where a trustee who lacks capacity is also a beneficiary of the trust then it
is necessary to make an application for that person’s removal to the Court of
Protection; the court which deals with matters of physical and mental welfare.
How Do You Prove That the Trustee Is Unfit?
This can be very subjective and will be disputed. Being
‘unfit’ depends on the circumstances of the case.
Generally, a person who has been made bankrupt or convicted
of a fraudulent offence will most likely be deemed to be unfit to act as will a
trustee guilty of a significant breach of trust or of acting in a way which
causes a conflict as between their person-al position and their duty to the
beneficiaries, known as their ‘fiduciary duty’.
Even if a trustee is removed under s.36 Trustee Act 1925, it
is entirely possible that they could challenge such a decision by way of court
action.
Further, as is clear from s.36 Trustee Act 1925, this remedy
is not automatically available to beneficiaries unless they are also trustees
or they have power to remove trustees under the trust instrument.
Court intervention
If none of the above remedies are available then, then focus
on the court to remove a trustee. by statutory power (under s.41 Trustee Act
1925) or under its inherent authority.
s.41(1) Trustee Act 1925 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.
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 lacks capacity to exercise his functions as
trustee, or is a bankrupt, or is a corporation which is in liquidation or has
been dissolved.”