Court removal of trustees and appointors (who should hang their heads low)

Last week’s post explored what issues a court will consider before a trustee is removed against their will and mentions the (in)famous decision from the Lang Hancock and Gina Rinehart saga (namely Hancock v Rinehart [2015] NSWSC 646).

A related issue is whether a court will unilaterally remove an appointor or principal of a trust – that is a party who has the right under a trust deed to change the trustee.

The decision in McNee v Lachlan McNee Family Maintenance Pty Ltd [2020] VSC 273 is a useful reference point in this regard.

Relevantly the factual matrix was as follows:

1. A 12 year old son of former life spouses was the primary beneficiary of a child maintenance trust (a form of trust explored in other View posts that allows access to excepted trust income for infant beneficiaries following a relationship breakdown).
2. The mother was the sole director and shareholder of the trustee company and sole appointor of the trust until the son turned 18, at which time the deed mandated he would become the appointor.
3. The trust owned a residential property which the mother and son lived in, until their relationship fractured and the son moved in with his father.
4. The mother continued to live in the property owned by the trust (and had been given this right to occupy under the trust deed, as had the son) and the son (via his father) approached the court to remove the trustee and appointor and appoint an independent third party.

The court confirmed as follows:

1. as mentioned in last week's post, whether the court exercises its discretion to remove a trustee turns upon the circumstances of each case;
2. a lack of confidence in the trustee can be sufficient justification that the court should exercise its powers;
3. this said, here there were a range of reasons that meant removal as trustee was appropriate such as friction and hostility between the key parties, the trustee's failure to read and understand the trust deed, the trustee consciously acting in breach of the trust deed (including a failure to keep proper records), the trustee preferring the interests of others rather than the beneficiary, failure to exercise powers of investment for the benefit of the beneficiaries, failure to proactively address a clear position of conflict and a failure to offer any reasons for why an independent trustee would not be appropriate;
4. any one of the above reasons on its own may have been sufficient to justify removal, however in combination made the decision overwhelming in favour of removal;
5. the suggestion that a co-director could have been appointed to the trustee company was rejected as it would have failed to address the inappropriate conduct of the mother;
6. for similar reasons, the mother was also replaced as appointor of the trust, given that if she retained this role she could have later removed the independent trustee appointed by the court. In this regard, the court confirmed that where the trust instrument already contains an express power of appointment, the court has the ability to change the appointor. This outcome was contrasted with the decision in W E Pickering Nominees Pty Ltd v Pickering [2016] VSC 71 where it was held the court can not ‘grant’ a general power of appointment in circumstances where the trust instrument does not make any provision for an appointor;
7. the court confirmed that it was appropriate for the trustee and appointor to be the same person, given that the trust clearly established the settlor’s intention in settling a trust with a trustee whose controlling mind (ie being the mother as sole director) was also the appointor (again, the mother);
8. the trustee and appointor would be an independent third party, nominated by the President of the Law Institute; and
9. the mother was however entitled to continue to reside in the property subject to certain conditions. This said, the son (under the deed) would have the right once he turned 18 to terminate the trust (and thus end his mother's right to occupy).

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** For the trainspotters, the title of today's post is riffed from the Bananarama song 'Cruel Summer’.

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