Contents

Chapter 8
Appointment and removal of trustees

Exercise of power to remove and appoint trustees

RECOMMENDATION

R24 The new Trusts Act should provide that:
(1) Those who exercise a power to discharge and/or appoint trustees under the new Act (under R20, R22 and R23) rather than because they are appointed by the terms of the trust are subject to a mandatory duty to exercise the power in good faith, honestly and for a proper purpose (R2).
(2) The court may remove and replace someone with the power to discharge and appoint trustees under the terms of the trust if that person has exercised the power unlawfully, or if that person has been removed as a trustee, or if otherwise expedient.
(3) A person with the power to appoint trustees would be entitled to apply to the court for directions in the exercise of that power.

Power of removal and appointment of trustees

8.37In the Preferred Approach Paper we proposed that a general duty of good faith and honesty be imposed on any person exercising a power to discharge and appoint trustees, whether the power was exercised under statute or under the trust deed.232 We had considered that this could be valuable because the duties of those with such a power to appoint and remove trustees are currently not set out in statute, and those exercising the power may not be aware of the case law, which has imposed duties on those exercising such powers.

8.38Currently, the law is not entirely clear. It has been argued that all persons with the power to appoint and remove trustees are subject to a duty of good faith, but this has not been settled by the courts.233 In some cases, the court has held that a person with the power to appoint trustees is subject to more extensive fiduciary duties,234 and on this basis removed and replaced such a person. It seems that whether fiduciary duties arise in the case of a particular person with the power to appoint and remove trustees is a matter of interpretation based on the terms of the trust.

8.39The power to appoint and remove trustees is of increasing importance. Sometimes the settlor retains this power in order to keep a final level of control over the trust. There are questions regarding the appropriate bounds of this role, in particular, whether those exercising a power to appoint trustees (either under the trust deed or legislation) should be subject to any duties and whether the court should be able to remove and appoint someone with the power to remove and appoint trustees under the trust deed.

8.40Feedback received on the proposal reflected differing understandings of the current law and therefore differing perceptions about the extent to which we were suggesting changes to the law. We had intended that the proposed duty would simply set out the standard the courts currently expect from those with the power to appoint and remove trustees. A number of submitters considered that the proposed duty extended the law by making persons with the power to appoint and remove trustees subject to the court’s oversight. Some considered that these powers could currently be exercised with unfettered discretion, for instance where a settlor may have reserved the powers for him or herself. Other submitters favoured the duties on those with powers to appoint and remove trustees being more extensive, and including a requirement that the powers be exercised for a proper purpose.

8.41It would seem that the law in this area is still unsettled. The extent of the duties applying to a person with the power to appoint and remove trustees is dependent on the circumstances of the particular trust. We now consider that it is not helpful to set down general duties for anyone exercising these powers. We think it is still necessary to settle the duties in relation to those who will be empowered by the new Act to discharge and appoint trustees. Consequently, we recommend that these people be subject to the duty to exercise the powers in good faith, honestly and for a proper purpose. Those who are also trustees will be subject to more extensive duties.

8.42The recommendation leaves open to the courts the question of what duties, if any, apply in respect of persons given the power to appoint and remove trustees by a trust deed, and whether honesty and good faith, and more rigorous fiduciary duties apply in the circumstances of a particular trust.

8.43The recommendation does clarify that the court exercises supervision by having the power to remove and replace a person with the power to appoint and remove trustees if that power is exercised unlawfully, or that person has been removed as a trustee, or it is otherwise expedient. A person with the power to appoint trustees would also be entitled to apply to the court for directions in the exercise of that power.

232At P26.
233Butler, above n 224, at 112−113.
234Carmine v Ritchie [2012] NZHC 1514 at [66]; David Hayton, Paul Mathews and Charles Mitchell (eds) Underhill and Hayton: Law of Trusts and Trustees (18th ed, LexisNexis, London, 2010) at [70.20] and [71.11].