Posted: Friday, 19 May 2023 @ 11:46
How Do You
Go About Attacking the Conduct of an Errant Trustee?
First focus on the trust instrument.
This is a key
document, which trustees should disclose to beneficiaries if requested.
same applies to supplemental documents such as:
• Deeds of
appointment and retirement of trustees.
adding assets to the trust.
varying the trust.
The trustees may wish to redact information that does
not relate to the beneficiary making the request (for example, by obscuring the
names of other beneficiaries in a deed). If a beneficiary requests redacted
information, the trustees ought to inquire why (there might be a valid reason,
so they should not refuse outright).
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
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, —
person or persons nominated for the purpose of appointing 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,
appoint 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
How to 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 personal 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.
If none of the above remedies are available then, then
focus on the court to remove a trustee.
The court can remove a trustee either 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.
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.”
As such, and assuming there is no other method open to
a party to remove a trustee, the court may do so under s.41 Trustee Act 1925
where a trustee lacks capacity, is bankrupt or, if a corporation, in
liquidation or has been dissolved.
If seeking to remove a trustee under s.41 Trustee Act
1925, you should ensure you have a replacement or substitute trustee available
and that trustee should file at court what is known as a ‘consent to act’; a
witness statement confirming the proposed replacement trustee’s agreement to
act as a trustee.
This should be filed along with a ‘fitness to act’; a
statement by somebody who knows the trustee and can vouch for their standing
and suitability to act as a trustee.
Each case will be considered on its own facts.
A key case is Letterstedt v Broers (1884) 9 App Cas
371 in which Lord Blackburn, sitting in the South African court, said
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
"It must always
be borne in mind that trustees exist for the benefit of those to whom the
creator of the trust estate has given the trust estate”; and
hostility between trustees and the immediate possessor of the trust estate is
not of itself a reason for the removal of the trustees. But where the hostility
is grounded on the mode in which the trust has been administered.,.it is
certainly not to be disregarded.”
Another method which can achieve the same aims is to
break the trust.
The principle is laid down in the case of Saunders v
Vaultier (1841) Cr & Ph 240, which should be familiar to most trust and
estate lawyers, and confirms that beneficiaries who are over 18, have capacity
and, together, are absolutely entitled to the trust property i.e. unanimous,
can ‘break the trust’.
This mirrors the language of s.19 Trusts of Land and
Appointment of Trustees Act 1996.
In short, this means that the beneficiaries can bring
the trust to an end and take their respective shares or, in the case of a life
interest or discretionary trust, agree amongst themselves how much each should