Case Update – Manton and Others v Manton
This recent case has provided an important legal update of the grounds on which a Court will order the removal of a Trustee.
Background of the case
The duties imposed on trustees are onerous and an individual should think long and hard before accepting the role of trustee. Trustees should exercise such care and skill as is reasonable in all the circumstances pursuant to Section 1 of The Trustee Act 2000. Unfortunately, there are numerous reasons why a dispute may arise between co-trustees and/or trustees and beneficiaries. For example, there may be disagreement between co-trustees about the management of trust assets; or, a trustee may have a conflict of interest, which would quite rightly be a cause of concern to the beneficiaries of the trust. Both trustees and beneficiaries are able to apply to the court for a trustee to be removed by court order, but what powers do the court have?
The Court’s Powers
The court can remove a trustee from office, but do not do so lightly and without careful consideration. An application to remove a trustee will turn on their own facts: not every dispute or disagreement, or indeed breach of trust, will result is the trustee being removed. The court’s primary concern is the welfare of the collective beneficiaries and the trust.
Before an application is made by, either a trustee or a beneficiary, the ‘rogue’ trustee should be asked to voluntarily retire. It may be that a new trustee will need to be appointed before the rogue trustee can retire. In the event that the trustee refuses/fails to retire, there are three statutory authorities pursuant to which a court can remove a trustee, those being; the Judicial Trustees Act 1896, the Trustee Act 1925, and the Trusts of Land and Appointment of Trustees Act 1996. In addition to the statutory authorities, the court has its own express powers to remove a trustee, which include fiduciary powers. Removal of a Personal Representative is effected by the use of separate authority.
Manton and Others v Manton
In this article, however, we shall focus on the recent High Court case of Manton and others v Manton 2021, in which the court exercised their inherent jurisdiction to remove a trustee from office. This is an interesting case concerning the removal of a trustee (despite the fact he was also a beneficiary) due to conflicts between his personal interests and the fiduciary duties he owed as trustee.
The trust owned a majority shareholding of a holding company, which owned two subsidiary companies. The trading of these companies was the trust’s main source of income. The trustees and beneficiaries were also appointed directors of the three companies. A dispute arose between the directors and resulted in one of the directors leaving the company, who was then subsequently employed by a competing business, owned by his wife. Many of the trading company’s former customers with whom he had previously dealt ceased to deal with the trading company and became customers of the trustee’s wife’s company instead. The former director, whilst no longer employed by any of the companies, remains a trustee until and unless he is removed or retires. There was a breakdown in relations between the trustees.
Whilst there was no evidence proving that the former customers of the trading company were solicited by the former director, the circumstances were considered suspicious. A trustee must not place themselves in a position where their own interests conflict with the interests and duties they owe to the beneficiaries of the trust (without the beneficiaries consent). In these circumstances, the former director’s personal interests are conflicted with his position as trustee.
Whether or not the company in which the trust has an interest has suffered loss as a result of the rogue trustee is not necessarily a requirement for the court to exercise their discretion to remove a rogue trustee. Beneficiaries do not have to wait and see whether the trust suffers a loss before taking action to remove a rogue trustee from office. Proof that breach of the fiduciary conflict rule had created a risk of loss to the trust estate was relevant to the court exercising their discretion. The best evidence is of course proof that trust had actually suffered a loss, but this is not a pre-requisite.
Unfortunately, disputes regarding such trusts are commonplace. This is a complicated and fact-specific area of law and there can be severe cost implications if the correct process is not followed. Before applying to the court to remove a trustee, specialist advice should be sought.
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