A delicate jurisdiction

In this article, I consider the approach the court adopts in its use of its discretionary powers to remove a trustee or personal representative when disagreements arise and friction develops between beneficiaries under a will or trust and the executors and/or trustees, against the background of the recent litigation involving the Jimmy Savile Charitable Trust.

The Savile litigation

Jimmy Savile left an estate worth about £3.3m. His will appointed NatWest Bank plc (the bank) as his executor, and the residue was left to the Jimmy Savile Charitable Trust (the trust). Following a TV programme alleging that Savile had been a serial sex offender, a large number of personal injury claims were intimated against the estate. Many claims involved other defendants such as the BBC, who might in turn have claims for a contribution against the estate. The executor was faced both with dealing with numerous claims, some of which may prove to be well founded, and ensuring that it acted in the best interests of the beneficiaries. There was clearly a real possibility that the claims would exhaust the estate, leaving it insolvent, and the trust with nothing.

Tensions arose between the trust and the bank over the bank’s approach to the claims. The bank applied to the court for approval of a scheme for handling the claims, negotiated largely without the involvement of the trust. The trust applied under section 50 of the Administration of Justice Act 1985 for the bank to be replaced by an alternative professional executor, on the principal ground that the bank had failed to act in the interests of the beneficiaries and there had been a breakdown in relations between the executor and the trust that seriously jeopardised the proper administration of the estate.

The application to remove the bank as executor was dismissed by Mr Justice Sales in the High Court, in Re Estate of Savile; National Westminster Bank plc v Lucas and others [2014] EWHC 653 (Ch); the judge concluded that it would not be appropriate to remove the bank unless “there was a real risk that the bank will not act fairly and conscientiously in that office or if the bank cannot be expected to continue to carry out the administration of the estate in an effective and proper manner”. His decision was upheld by the Court of Appeal in Re Savile (Deceased) [2014] EWCA Civ 1632.

Mr Justice Sales also rejected the argument that the interests of the beneficiaries under the will should be regarded as superior to those of claimants against the estate. He said: “if claimants … have meritorious claims against the estate, the proper fulfilment of the executor’s role is to see that such claims are paid … before making any distribution under the terms of the will.”

The court’s power to remove a trustee

The courts have both an inherent jurisdiction and a statutory power to remove a trustee under section 41 of the Trustees Act 1925. The statutory power provides that the court may, whenever it is expedient, appoint a new trustee or trustees either in substitution for, or in addition to, any existing trustees. The courts have similar powers under section 50 of the Administration of Justice Act 1985 in relation to personal representatives, although they have no inherent jurisdiction that allows them to remove or replace personal representatives. The court’s inherent jurisdiction over trustees is said to stem from its “principal duty to see that the trusts are properly executed” (per Lord Blackburn in Letterstedt v Broers (1884) 9 App Cas 371).

It is clear that the courts, whether exercising their inherent jurisdiction or either of these statutory powers, must apply the same principles (Thomas & Agnes Carvel Foundation v Carvel [2007] EWHC 1314 (Ch)).

The leading case remains the Privy Council decision in Letterstedt, in which Lord Blackburn, in examining the extent of the jurisdiction, made it clear that the courts will act in “cases of positive misconduct … to remove trustees who have abused their trust”. In a much quoted passage, Lord Blackburn explained that not every “mistake or neglect of duty” will persuade the courts to act, as “The act or omissions must be such as to endanger the trust property or to show a want of honesty or a want of proper capacity to execute the duties or a want of reasonable fidelity”. He concluded that: “in exercising so delicate a jurisdiction as that of removing trustees their Lordships do not venture to lay down any general rule beyond the very broad principle above enunciated that their main guide must be the welfare of the beneficiaries.”

Mr Justice Lewison in Carvel expressed it rather more succinctly when he said: “The overriding consideration … is whether the trusts are being properly executed.”

Friction between parties: the court’s principles

As practitioners will know, disagreements over how a trust is administered and, in particular, how it is distributed, are not unusual. As Mr Justice Sales explained in the High Court in Savile: “There are many contexts in which trustees … have to make judgements which involve striking a balance between different competing interests and which may thus adversely affect some persons claiming under the trust … in such cases there will be an element of friction between the trustee … and those disappointed by their decision. This is not in itself a good ground to remove the trustee … from their office.”

As a professional, if you are asked to step aside as a trustee or personal representative, your view may be coloured by a concern that such a request impugns your integrity and professionalism. Whilst this may be understandable, it will always be important to consider the issue dispassionately and consult others who can give an objective perspective.

It is vital, also, to bear in mind the principles applied by the courts when faced with a dispute between a beneficiary and a trustee. You must always consider what is in the best interests of the beneficiaries and the proper administration of the trust / estate, and acknowledge that there may potentially be concerns that your continuance in the role might be seen as detrimental to the interests of the trust or estate.

Conflicts of interest

Where a clear conflict of interest arises, the fiduciary should normally step aside. In BA v Verite Trust Co Ltd [2010] WTLR 31 (Jersey Royal Court), the trustee was replaced and ordered to pay costs because a conflict had arisen and it should have been clear that the trustee ought to resign.

Similarly, where conflict prevents fiduciaries from working together, then it may be best for all concerned for one or all to step aside. In Angus v Emmott [2010] EWHC 154 (Ch), the animosity and mistrust between the executors led to the court replacing them all with a professional executor, in order to ensure the proper administration of the estate.

In applications based on a breakdown in relations, the key issue is whether the friction might impede the proper execution of the trust. Lord Justice Patten in the Court of Appeal in Re Savile (Deceased) said “a lack of confidence or feelings of mistrust are not … sufficient in themselves to justify removal, unless the breakdown is likely to jeopardise the proper administration of the trust or estate”.

The causes of friction

The court will consider the causes of the friction or hostility. Where this is generated by the behaviour of the beneficiary, the court will be reluctant to intervene unless it thinks the trust will not be properly executed in the interests of all the beneficiaries (Re Wrightson [1908] 1 Ch 789). In Brudenell-Bruce v Moore & Others [2014] EWHC 3679 (Ch), an application to remove two of three trustees saw the removal of one, despite a finding that “the lion’s share of responsibility” rested with the beneficiary, who had been “aiming to achieve” a breakdown in relations.

Views of all beneficiaries

The court will consider the views of all beneficiaries. In Re Wrightson, trustees guilty of a breach of trust were not removed, at least partly because “a large proportion of the beneficiaries do not require the trustees to be removed”. In the Savile case, although all beneficiaries supported the application, this failed because the court was satisfied that the bank would still act in the best interests of the proper administration of the estate.

The courts emphasise the importance of the trustee having regard to the interests of all potential beneficiaries (Fay v Moramba Services Pty Ltd [2009] NSWSC 1428 (New South Wales Supreme Court)). In cases involving discretionary trusts, the focus is on whether the trustee can exercise their duties impartially, and their ability to give proper consideration to the claims of the complainant beneficiary as well as all others (Alkin v Raymond [2010] 2 All ER (D) 48 (May)). The court may even intervene to ensure the appearance of fairness (per Mr Justice Newey, in Brudenell-Bruce).

Costs of changing fiduciaries

The cost of changing fiduciaries needs to be considered, as the interests of the beneficiaries may not be served by significant additional expense. In Re Wrightson, the court considered the extra expense and loss to the trust to be “of great importance”. In Brudenell-Bruce, the removal was delayed until a sale of property had completed, to minimise the expense to the trust.

Reasons for the appointment

Consideration should be given to the reasons for the appointment, whether these remain valid or if there are any other particular reasons why the fiduciary should remain in post. In Alkin v Raymond, the court made the point that the testator’s selection of executors should not be lightly set aside where the claimant was “merely a discretionary beneficiary”, and so not the “possessor of the trust estate”. In Kershaw v Micklethwaite [2010] EWHC 506 (Ch), Mr Justice Newey explained that the testator’s choice is relevant “because the testator may be expected to have knowledge of the characters, attitudes and relationships involved which a court will lack”. In the Savile trial, Mr Justice Sales did not consider Jimmy Savile’s choice of the bank as having any significant weight, however.

Insolvency

The courts may be particularly reluctant to intervene in the case of a professional executor where there is a risk that the estate may be insolvent. As Mr Justice Sales explained in Savile, “particular caution should be exercised … when considering whether to interfere with the administration of a testator’s estate where there is a real risk that it is insolvent”.

Costs

A claim to remove a trustee in breach of trust proceedings is hostile litigation, so costs will normally follow the event. Costs are always at the discretion of the court, but the standard position is that, where a trustee is removed by the court on their having refused to relinquish their role, the court will usually order the trustee to pay the costs of their own removal (A G v Murdoch [1856] 2 K & J 571 at 573 per Wood V-C).

A trustee who acts in good faith in what is perceived to be the best interests of the trust and the beneficiaries as a whole, will not be deprived of their costs, even where they are replaced, unless they behave unreasonably (BA v Verite). Where misconduct is shown and the trustee removed, they may be ordered to pay the other side’s costs (Hunter v Hunter [1938] NZLR 520).

Conclusion

The exercise of the court’s jurisdiction to remove a trustee involves a delicate balance. Much will depend upon the facts of the individual case, and the court’s focus will be on whether there is evidence that continuance in office is likely to prove detrimental to the interests of the proper administration of the trust / estate and the beneficiaries.

In cases of real doubt, consider seeking the guidance of the court. As the Jersey Royal Court put it in BA v Verite, where tensions arise, “it will often be entirely reasonable for a trustee to seek a decision from the court before agreeing to retire or oppose any application for removal”. The court also gave the reassurance that: “the general approach remains that a trustee which is acting in good faith and in what it perceives to be the best interests of the trust and the beneficiaries as a whole will not be deprived of its costs unless it has acted unreasonably. That includes differences over whether the trustee should continue in office.”