English Court resolves dispute between parties as to who should hold the power to appoint trustees following settlor’s death

The English High Court has recently approved an application to change the provision of a trust deed relating to the appointment of new trustees.[1] The change was necessary because the original power was reserved exclusively for the settlor, who had died. All adult beneficiaries of the trust supported the change, as did three of the four trustees.

This case illustrates the importance of having succession plans for the power of appointment of new trustees. It also addresses disputes between parties about changes to trust terms.

Background

The case concerned an application to change the provision relating to the appointment of new trustees of a trust. The original settlement gave the power to the settlor during his life. The settlor had died. The application proposed to change the provision for appointment so that the principal beneficiary (as defined in the trust instrument) was granted the power to appoint new trustees, with the written consent of the trustees.

One trustee opposed the application. His view was that the trustees should have the power to nominate and appoint new trustees, with the principal beneficiary holding a veto power. The opposing trustee considered this a better proposal on the basis that:

  1. The collective view of existing trustees may be better informed as to the attributes needed and through their wider collective contacts they may be better able to identify suitable candidates than the principal beneficiary.

  2. Exercise of the veto power by the principal beneficiary would less likely result in any lasting discord than exercise of the veto power of the trustees.

  3. Beneficiaries can be ill fitted to make such important enduring appointments in the wider best interests of all beneficiaries. There are examples of unsuitably partisan and over compliant trustees being appointed by principal beneficiaries for their own ends.

Judgment

The Court granted the application, noting that the change would not be departing radically from the structure the settlor first created. The case was not one where the settlor had originally entrusted the appointment of new trustees to the existing trustees, but rather had reserved to power to himself.

In rejecting the opposing trustee's arguments, the Court noted:

  1. There is no reason why trustees may be better able to identify suitable candidates than the principal beneficiary, and there was no evidence put before the Court to that effect. Further, even if it were true, likely there would be prior informal discussion, so the benefit of the trustees' experience, knowledge and contacts would be available to the principal beneficiary.

  2. The possibility at someone taking offence in relation to the exercise of the veto power existed whether the trustees had the veto power or the principal beneficiary had it. The power to nominate trustees was a fiduciary power and there was no reason to suppose the principal beneficiary would not take his responsibility seriously.

  3. A senior beneficiary, knowing the situation of all the beneficiaries (being members of his extended family), and having enjoyed a long relationship with the trust assets was in a better position than most to decide what qualities were needed in a new trustee.

Comment

The case, whilst fact specific, provides an interesting insight into what a Court will consider when considering changes to the power to appoint trustees and how the Court deals with the situation where one party opposed an application. As noted above, it could have been avoided had the trust deed provided for successor appointors following the settlor's death.


[1] Bathurst and another v Bathurst and another [2016] EWHC 3033 (Ch)

 

For more information, please contact Richard Norridge, Joanna Caen or your usual Herbert Smith Freehills contact.

Richard Norridge
Richard Norridge
Partner
Email | Profile
+44 20 7466 2686

Joanna Caen
Joanna Caen
Senior Consultant
Email | Profile
+852 2101 4167

 

 

 

Leave a Comment

Filed under Private wealth and trusts

Leave a Reply

Your email address will not be published. Required fields are marked *