Removal of trustees and protectors

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In exercising its inherent jurisdiction to remove a trustee, the Court’s main concern should be the beneficiaries’ welfare and the protection of the trust property.

Facts Appeal to the Privy Council had been allowed in relation to a matter heard in the Supreme Court of the Cape of Good Hope. An action had been brought by the beneficiary of a will trust for an investigation of the accounts since the date the trustees had started acting as executors and claiming misconduct by the trustees. These allegations were not substantiated but the question of the removal of the trustees was considered.

Ruling The allegations of misconduct were not made out, but the trustees were removed on the facts of the case. The Privy Council did not seek to lay down any general rule other than that the Court’s main guide must be the welfare of the beneficiaries and of the trust estate. It was noted that the principal duty of the Court of Equity was to see that the trusts were properly executed and it was in order to perform this duty that the Court sometimes needed to act to substitute or remove trustees.

It was noted that the reason that there were few cases (at that time) regarding the removal of a trustee was because trustees were usually minded – or advised – to resign where their continuance in office would be detrimental to the execution of the trusts, even if this was simply because “human infirmity” prevented those beneficially interested in the trust from working in harmony with them.

NotesWhile it was acknowledged that mere hostility between trustees and beneficiaries would not usually give sufficient cause for the trustees’ removal, in this case there were “difficult and delicate duties” to be performed in the trusteeship and the beneficiary’s loss of confidence in the trustees made it appropriate for them to be removed.

The decision was cited in (and should be compared with) the subsequent decision in Wrightson v Cooke (1908), in which the general rule was clearly stated that “disagreement between the cestuis que trust and the trustees, or the disinclination on the part of the cestuis que trust to have the trust property remain in the hands of a particular individual, is not a sufficient ground for the removal of the trustees. You must find something which induces the Court to think either that the trust property will not be safe, or that the trust will not be properly executed in the interests of the beneficiaries.” The same principles have been considered and applied in more recent English cases, including Kershaw v Micklethwaite (2010), Scott v Scott (2012) and Earl of Cardigan v Moore & Cotton (2014).

Letterstedt v Broers (1884) Privy Council

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The Court does have an inherent jurisdiction to remove fiduciaries – including protectors – where there is due cause.

Facts The settlor of a discretionary trust selected a trust company to act as trustee and also appointed a protector, whose written consent was required before the trustee could exercise certain powers e.g. distributions to beneficiaries. In the trust deed, provisions dealing with the appointment of a new protector by the trustee had been included but there were none relating to the removal of a protector.

The protector was convicted of offences of fraud in Belgium, including misappropriation of the trust fund. He served a term of imprisonment and then disappeared. The trustee applied to the Court for two orders: the first removing the protector and the second providing that the trustee need not appoint a new one.

RulingBoth orders were granted. It was noted in the judgment that there was no express power under Jersey statute for the removal of a protector but that the Court has long exercised an inherent jurisdiction (in addition to its more recent statutory power) to remove trustees for cause. The principles relating to the removal of trustees could be applied to the removal of protectors.

It was said that the Court must have power to police the activities of any fiduciary (including protectors), because it had a duty to protect the interests of beneficiaries – including minor and unascertained ones – and also to ensure that the wishes of the settlor were, as far as possible, respected.

The judge found that “It would be quite unconscionable and unthinkable that this Court should have no jurisdiction to remove a protector who was thwarting the execution of a trust or who was otherwise unfit to exercise the functions entrusted to him by the trust instrument”.

Notes The extreme facts in this case (the protector was described as “the antithesis of a protector”) made it any easy decision. Later cases have needed to consider the scope of the Court’s jurisdiction and what tests need be applied.

Re the Freiburg Trust (2004)Royal Court of Jersey