Removal by the Court

The Court has an inherent jurisdiction to remove trustees from office by reason of:

  • Refusal to execute the trust1;
  • Execution of the trust in a fashion showing gross misunderstanding of the nature and effect of the role of trusteeship2; or
  • Disregard for the timely and efficient conduct of their duties3.
  •  

    Similar jurisdiction is also conferred by statute means that the court’s inherent jurisdiction is supplementary in function.

    Hanson J in Mansour v Mansour stated at [48]:

    “Removal as a trustee is ordered in the inherent jurisdiction of the Court4. The Court is concerned with the welfare of the beneficiaries considered in light of the relevant circumstances. The matter is approached, and determined, upon the basis stated in Letterstedt v Broers 5 and Miller v Cameron6 .See also Monty Financial Services v Delmo7. In Miller, Dixon J said:

    “The jurisdiction to remove a trustee is exercised with a view to the interests of the beneficiaries, to the security of the trust property, and to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee. In deciding to remove a trustee the Court forms a judgment based upon considerations, possibly large in number and varied in character, which combine to show that the welfare of the beneficiaries is opposed to his continued occupation of the office. Such a judgment must be largely discretionary. A trustee is not to be removed unless circumstances exist which afford ground upon which the jurisdiction may be exercised”.

    Notes:

    #1 – Paliaret v Carew (1863) 32 Beav 564; 55 ER 222 {Link} ; Luke v South Kensington Hotel Co (1879) 11 Ch D 121 at 127; [1874-80] All ER Rep 1293; (1879) 40 LT 638 per Jessel MR, CA; Macpherson v Sutherland (1885) 6 LR (NSW) Eq 46 at 58 per Manning PJ; Mansour v Mansour [2009] VSC 177 at [53] per Hansen J.

    #2 – Mansour v Mansour [2009] VSC 177 at [53] per Hansen J. {Link}.

    #3 – Craven-Sands v Koch (2000) 34 ACSR 341 at 369; [2000] NSWSC 374 per Bergin J; Fysh v Coote [2000] VSCA 150 per Ormiston JA {Link}. ; Baldwin v Greenland [2005] QCS 386 at [21] per Wilson J.

    #5 – Jacobs’ Law of Trusts in Australia, Butterworths, 6th ed. [1584] at 403.

    #6 – Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572 at 580-1 per Dixon J. {Link}.

    #7 – Monty Financial Services v Delmo [1996] VicRp 7; [1996] 1 VR 65. {Link}.

    Statutory Provisions

    In South Australia the removal of trustees is covered by Section 14(1) and Section 36 of the Trustee Act 1936 (SA) {Link} and in Victoria by Section 41(1) of the Trustee Act 1958 (Vic) {Link}

    .

    Pursuant to Section 36(1b) of the Trustee Act 1936 (SA):

    (1b) There is no need for the Court to find any fault or inadequacy on the part of the existing trustees before making an order under this section.

    Costs of Removal

    The court has a general discretion as to the award of costs on any application or any order made under State trustee legislation8.

    As a general rule, when a trustee is removed, this discretion will be exercised against the trustee, who will be ordered to pay the costs of the removal 9.

    This will invariably be the case in the event of misconduct on the part of the trustee or the misappropriation of trust funds.

    A person interested in the trust fund who properly institutes proceedings for removal will be awarded costs from the fund 12.

    Notes:

    #8 – Section 44 of the Trustee Act 1936 (SA) and Section 66 of the Trustee Act 1958 (Vic)

    #9 – Attorney-General (UK) v Murdoch (1856) 2 K&J 571 at 573; 69 ER 910 at 911 per Wood VC {Link} ; Paliaret v Carew (1863) 32 Beav 564; 55 ER 222 {Link} ; Pope v Pope [2001] SASC 26 at [26], [42] per Bleby J, Full Court; Garrett v Yiasemides [2004] NSWSC 828 at [31]-[33] per Campbell J {Link} ; Murdocca v Murdocca (No2) [2002] NSWSC 505 {Link}

    #10 – Miller v Cameron (1936) 54 CLR 572 at 579; 10 ALJ 35; [1936] ALR 301 per Latham CJ.

    #11 – Swanson v Dungey (1893) 25 SALR 87

    #20 – Perkins v Williams (1905) 22 WN (NSW) 107

    Statutory Provision for Removal

    Section 36 of the Trustee Act 1936 (SA)

    36—Power of the Court to appoint new trustee

    (1) The Supreme Court may, on the application of a person referred to in subsection (1c), make—

    (a) an order removing one or more of the trustees of a trust; or

    (b) an order replacing one or more of the trustees of a trust; or

    (c) an order appointing a trustee or trustees, or an additional trustee or trustees, of a trust; or

    (d) any other order that in its opinion is necessary or desirable.

    (1a) The Court may make the order if it is satisfied that the order is desirable—

    (a) in the interests of the persons (whether identified or not) who are to benefit from the trust; or

    (b) to advance the purposes of the trust.

    (1b) There is no need for the Court to find any fault or inadequacy on the part of the existing trustees before making an order under this section.

    (1c) The following persons may apply for an order under this section:

    (a) the Attorney-General; or

    (b) a trustee of the trust; or

    (c) a beneficiary of the trust; or

    (d) in the case of a trust established wholly or partly for charitable purposes the following persons may apply for an order in addition to those referred to in the other paragraphs of this subsection:

    (i) a person who is named in the instrument establishing the trust as a person who is entitled to, or may, receive money or other property for the purposes of the trust; or

    (ii) a person who is named in the instrument establishing the trust as a person who must, or may, be consulted by the trustees before distributing or applying money or other property for the purposes of the trust; or

    (iii) a person who in the past has received money or other property from the trustees for the purposes of the trust; or

    (iv) a person of a class that the trust is intended to benefit; or

    (e) any other person who satisfies the Court that he or she has a proper interest in the trust.

    (2) 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.

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

    When first enacted Section 36 was similar to Section 41 of The Trustee Act 1925(UK).

    Refer to Trojan v Nest Egg Nominees Pty Ltd [2004] SASC 182.

    (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.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 is convicted of treason or felony, or has been adjudicated bankrupt or made an assignment or composition or arrangement with his creditors under any Act in force in that behalf, and may remove such last-mentioned trustee.

    In the United Kingdom the court will not as a rule make an order under this section if there is a person able and will to appoint trustees out of court (Re Higginbottom [1992] 3 Ch 132, [1891-4] All ER Rep 1070).

    “Whenever it is expedient has included where a trustee had gone to reside abroad permanently (Re Bignold’s Settlement Trust, (1872) 7 Ch App 233, 41 LJ Ch 235).

    A trustee who remains out of the United Kingdom for more than twelve months may be removed against his will; see Re Stoneham’s Settlement Trusts, Popkiss v Stoneham [1953] Ch 59, [1952] 2 All ER 694.

    The court is not confined to the original number of trustees {Re Welsh, (1838) 3 My & CR 292; Re Tunstall’s Will, ex perte Tunstall (1851) 4 De G & Sim 421.17 LJOS 251}.

    Eve J consideres that, under the Trustee Act 1893 (repealed), the court wa snot bound to keep up the number of trustees fixed by the settlor; and as far as jurisdiction was concerned could appoint two trustees or even a sole trustee notwithstanding the settlor’s directions that the minimum number should be three; see Re Leslie’s Hassop Estates [1911] 1 Ch 611, at 6161, 60 LJ Ch 486.}

    The court has made orders vesting the estate in fewer trustees than were originally appointed where a trustee had gone abroad (Re Price, (1894) 8 R 621).

    Cases where the court has removed a trustee from office include:

  • Tjiong V Tjiong [2012] NSWCA 201
  • Tjiong & Anor v Tjiong [2010] NSWSC 578
  • Elovalis v Elovalis [2010] WASCA 141
  • Smith v Smith 166[2006] WASC
  • Crowle Foundation v NSW Trustee & Guardian [2010] NSWSC 647
  •  

    Cases where the court declined to removed a trustee from office include:

  • Monetvento v Scaffidi (No.2) [2010] WASC 180
  • Monetvento v Scaffidi [2012] HCA 48; 246 CLR 325
  •  

    Murray J in Smith v Smith 166[2006] WASC observed at [9]:

    The question of misconduct is, on the authorities as I understand them, not a matter which necessarily carries an implication of fault or deliberate misconduct. It is a term which may be applied to a trustee who has failed to understand what are the obligations properly imposed upon him or her in the administration of the trust.

     

    A successful application to remove a trustee should be supported by evidence showing as many of the following factors as possible:

  • the replacement of the trustee is necessary to protect the beneficiaries and secure the trust assets
  • the current trustee(s) is unable or unwilling to carry out the necessary obligations of the office of trustee
  • the trustee has exercised powers in a manner unfair or prejudicial to the beneficiaries or some of them.
  •  

    Welfare of the Beneficiaries

    In making an order appointing a new trustee or removing an existing trustee, whether pursuant to its statutory or inherent jurisdiction, the welfare of the beneficiaries is the court’s dominant and prime consideration #1.

    Notes:

    (#1) Letterstedt v Broers (1884) 9 App Cas 371 at 386; [1881-85] All ER Rep 882 per Lord Blackburn PC; Re Wrightson; Wrightson v Cooke [1908] 1 Ch 789 at 803 per Warrington J; Miller v Cameron (1936) 54 CLR 572 at 579 per Starke J; Evolalis v Evolalis [2008] WASCA 141 per Martin CJ.

    The principles involved in removing a trustee from office were summarised by Martin CJ (with whom Buss JA & Newnes AJA agreed) in Elovalis v Elovalis[2008] WASCA 141[209]

    (1) The meaning of ‘expedient’ is that it would be ‘advantageous or merely appropriate or suitable to the circumstances of the case’.[#1] The expediency of appointing a new trustee is that it is ‘conducive to, or fit or proper or suitable having regard to, ‘the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee’.[#2]

    (2) The dominant consideration in the exercise of the power is the welfare of the beneficiaries of the trust, not the imposition of a sanction or punishment upon the trustee as a consequence of misconduct.[#3]

    (3) The principal element in considering the welfare of the beneficiaries is the safety of the trust estate.[#4]

    (4) In deciding to remove a trustee, the Court forms a judgment based upon considerations, possibly large in number and varied in character, which combine to show that the welfare of the beneficiaries is opposed to the trustee’s continued occupation of the office. Such a judgment has been described as ‘entirely in the discretion (of course a judicial discretion) of the court’,[#4] although circumstances must exist which enliven the power.[#5] The use of the protean expression ‘discretion’ or ‘wide discretion'[#6] in this area appears to be a reference to the process of judicial evaluation of facts and the determination of whether those facts fall within the requirements of s 77.[#7]

    (5) A lack of confidence in the trustee’s further administration of the Trust is sufficient to justify removal, without the necessity of establishing misconduct.[#8] Further, the question of misconduct is not a matter which necessarily carries an implication of fault or deliberate misconduct. It is a term which may be applied to a trustee who has failed to understand what are the obligations properly imposed upon him or her in the administration of the trust.[#9] For this reason, Lord Blackburn’s remarks in Letterstedt v Broers[#10] are commonly cited to describe the Court’s 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 noncontentious 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.

    Notes:

    [#1] Elovalis v Elovalis [2008] WASCA 141 [35] (Martin CJ); Re Estate of Roberts (1983) 20 NTR 13, 17 (O’Leary J); Porteous v Rinehart (1998) 19 WAR 495, 507 (White J). [#2] Elovalis v Elovalis [2008] WASCA 141 [30] (Martin CJ); McLaughlin v Prince [2002] WASC 274 [14] (Hasluck J); Deutsch v Deutsch [2011] VSC 345 [13] (Dixon J). [#3] Elovalis v Elovalis [2008] WASCA 141 [30] [31] (Martin CJ); Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572, 575 (Latham CJ). [#4] Johnstone v Johnstone (1902) 2 SR (NSW) Eq 90, 91 (Walker J). [#5] Elovalis v Elovalis [2008] WASCA 141 [33] (Martin CJ); Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572, 580 581 (Dixon J). [#6] Deutsch v Deutsch [2011] VSC 345 [10] (Dixon J). [#7] Dwyer v Calco Timbers Pty Ltd [2008] HCA 13; (2008) 234 CLR 124, 138 139 [37] [40] (the Court). [#8] Elovalis v Elovalis [2008] WASCA 141 [34]; Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572, 582 (Dixon J). [#9] Elovalis v Elovalis [2008] WASCA 141 [38]; Smith v Smith [2006] WASC 166 [9] (Murray J). [#10] Letterstedt v Broers (1884) 9 App Cas 371, 386.

    Involvement of the Beneficiaries

    Elderman J in Northwest Capital Management v Westgate Capital Ltd [2012] WASC 121 stated:

    In Scaffidi v Montevento Holdings Pty Ltd,[263] Murphy JA and Hall J said:

    It has been held that it is not proper to appoint new trustees without communicating with beneficiaries and hearing their objections, at least where it is likely that they would oppose the appointment: Marshall v Sladden [1849] EngR 910; (1849) 7 Hare 428 [439]; O’Reilly v Alderson [1849] EngR 680; (1849) 8 Hare 101 [103]. However, beneficiaries cannot dictate or control the exercise of the power: In re Brockbank [1948] Ch 206, 209 – 211.

    279 This was said in the context of the exercise of a power of appointment by a donee of that power. But the importance of communicating with beneficiaries and hearing their objections is also relevant to the concept of ‘expediency’ of the appointment of a new trustee in the context of the exercise by the Court of a power under s 77(1) of the Trustees Act. And it is relevant to the question whether it is inexpedient, difficult or impracticable for Westate to be substituted as trustee without the assistance of the Court.

    Discretion of the Court

    In Global Funds Management (NSW) Ltd v Burns Philp Trustee Co Ltd (1990) 3 ACSR 183 the Supreme Court of NSW had to consider the exercise of its power to appoint a new trustee to a number of trusts. The terms of each trust deed required the appointment of a corporate trustee. It was argued on the basis of Re Tempest (1866) LR 1 Ch App 485 that the court could not appoint a natural person. In rejecting the argument Rolfe J treated the considerations stated in Re Tempest as general guide lines and referred to the authority in Re Wilson [1923] VLR 277 for the proposition that the Court could in some circumstances make an appointment despite the express prohibition in the trust instrument where the appointment would be beneficial to the beneficiaries.


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    This tab updated on 13 March 2016