Trustee removal has always been a sensitive area of trust law, touching on fundamental principles of trust administration and the court's inherent jurisdiction to intervene. Recent cases have brought new perspectives to this long-standing issue, refining our understanding of when and how trustees can be removed.

Trustee removal generally arises via one of three mechanisms:

1. statute;
2. common, or case, law; and
3. the trust instrument. 

In the offshore trusts world it is more common to see express provisions for trustee removal in the trust instrument although there is statutory provision, for instance under article 19 of the Trusts (Jersey) Law 1984 and section 18 of the Trusts (Guernsey) Law 2007.

In the UK, the power of appointment (which generally is also taken to include a power of removal), is most often governed by section 36 of the Trustee Act 1925, subsection 1 of which states:

“Where a trustee, either original or substituted, and whether appointed by a court or otherwise, is dead, or remains out of the United Kingdom for more than twelve months, or desires to be discharged from all or any of the trusts or powers reposed in or conferred on him, or refuses or is unfit to act therein, or is incapable of acting therein, or is an infant, then, subject to the restrictions imposed by this Act on the number of trustees,-

(a) the person or persons nominated for the purpose of appointing new trustees by the instrument, if any, creating the trust; or

(b) if there is no such person, or no such person able and willing to act, then the surviving or continuing trustees or trustee for the time being, or the personal representatives of the last surviving or continuing trustee;
may, by writing, appoint one or more other persons (whether or not being the persons exercising the power) to be a trustee or trustees in the place of the trustee so deceased remaining out of the United Kingdom, desiring to be discharged, refusing, or being unfit or being incapable, or being an infant, as aforesaid.”

While most of the grounds for removal under this section are self-explanatory, what constitutes unfitness is generally determined on a case-by-case basis but can include insolvency, allegations of fraud or a complete breakdown of relationships. In cases of doubt, however, the court also has power to remove trustees under section 41 of the Trustee Act 1925 and under its inherent jurisdiction.

One of the key cases often cited is the Privy Council decision in Letterstedt v Broers EWHC 154 (Ch)).
2. Where the trustee has committed a breach of trust.
3. Where the trustee has breached the self-dealing rule (Walker v Walker EWHC 597 (Ch)).
4. Where the trustee moved abroad permanently.
5. Where the trustee was in conflict with the trust (Re Wippell EWHC 730 (Ch)).
6. A refusal to act.

In Jersey, the court set aside an appointment of a trustee in the case of Jasmine Trustees Ltd v L JRC 196, also known as Re Piedmont Trust, on the basis that the appointor had failed to have regard to relevant matters and had had regard to irrelevant matters.

In the unreported 2017 decision of In the Matter of Various Trusts the Grand Court of the Cayman Islands addressed the issue of a "paralysed trustee." There, several family members were beneficiaries of Cayman law-governed trusts.

The trusts held assets worth hundreds of millions of dollars through various corporate structures and the US Government alleged that some assets were linked to money laundering and initiated forfeiture proceedings.

The existing trustee felt unable to act or resign due to potential accusations of involvement in money laundering.

The plaintiffs therefore sought court orders to replace the existing trustee with a new Cayman trustee and the proposed substitute trustee was willing to intervene in the US proceedings to protect the assets.

There, understandably, the existing trustee didn’t oppose the application but couldn't consent to it.

The court considered sections 10, 12, and 64 of the Cayman Islands Trusts Law (2011) which provide the court with powers to appoint new trustees when expedient or necessary.

In reaching its decision, the court’s focus was very much on the welfare of the beneficiaries and the ongoing effective administration of the trust and ultimately found it expedient to appoint a new trustee to protect the assets and beneficiaries' interests.

That said, reported decisions are relatively scant because such disputes generally tend to lead to trustees agreeing, whether willingly or begrudgingly, to retire.

Rightly so, the bar to remove trustees is high, and the courts will tend to examine all the facts and reasons, particularly where only several of the beneficiaries are in favour of removal. 

This high bar was highlighted in the Bermudan case of In the Matter of the X Trusts SC (Bda) 56 Civ (12 July 2018) which was an application by corporate trustees for directions on whether they should remain in office following submission by one faction of two-family groups of beneficiaries that the directors of the corporate trustees should be removed.

In short, they took objection to a proposed plan by the corporate trustees regarding the management of the family trusts through a single group of four trust companies. The court emphasised its inherent supervisory jurisdiction to remove trustees for the welfare of beneficiaries. It was held in that case that the court has no direct jurisdiction to remove directors from corporate boards; only the shareholders could do that. Akin to “non-binding guidance” which the court can provide and which I have previously discussed in the context of trust blessing applications, the court could, though, indicate if it would be in the best interests of the trusts for the directors to resign, assuming they agreed to be bound by such an indication.

Ultimately the court found that there was no basis for removing the trustees or indicating that the directors should resign and that, while there were criticisms of the trustees' procedures, that, and the alleged loss of confidence in the trust administration, did not warrant removal of the trustees.

That approach has been adopted similarly in the Isle of Man, Jersey and Guernsey, albeit in the context of protectors. However, given their fiduciary role, the same approach would apply to trustees. In the 2015 decision of the Matter of the K Trust the Gurnsey court was referred to the competing decisions of Re Papadimitriou WTLR 1141 in the Isle of Man, where the court held that it would “only remove a protector when it was essential to prevent a trust failing,” and the Royal Court of Jersey in the 2012 case of A Trust which cited the principles in Letterstedt.

The Guernsey court preferred the Jersey court’s approach and, while noting that the power of removal should not be exercised lightly, ultimately removed the protector commenting that:

“the evidence of the breakdown in relationships and how that had resulted in the K Trust’s affairs not being progressed as perhaps otherwise they would have been, in my judgment, satisfies the test and justifies the making of an order for removal”.

So what are the practical implications for trustees and beneficiaries?

Well, for trustees:
1. Maintain clear communication with beneficiaries and co-trustees.
2. Document decision-making processes thoroughly.
3. Be prepared to justify actions in terms of beneficiaries' best interests.

For beneficiaries:
1. Consider alternative dispute resolution before seeking court intervention.
2. Be prepared to demonstrate how trustee removal serves the trust's purposes.

The landscape of trustee removal is evolving, with courts taking a more nuanced and holistic approach. While the fundamental principles remain stable, there is an increased focus on practical outcomes and the overall health of trust relationships. Practitioners and trustees must stay attuned to these developments to provide the best advice to trustees and beneficiaries alike.