In Manton & Ors v Manton, the High Court was faced with an application for the removal of a trustee made against a fairly familiar background of intra-family strife following a falling-out between one sibling and his fellow siblings and parents. The trust was a family trust and the principal asset was shares in the family business, ‘IDD’.
The Claimants and Defendant were all both trustees of the trust and directors of IDD. In 2016, a serious disagreement arose between the Claimants and Defendant over the future of IDD and the Defendant and his wife started his own business, known as ‘IDE’, which the Claimant alleged competed directly with IDD and caused it, and therefore the trust, to suffer significant loss through IDD customers being diverted to IDE.
Of course, trusts are frequently used to hold corporate structures and it is not abnormal for the trustees of those trusts to also be (a) directors of the underlying companies and (b) beneficiaries of the trust. However, a trustee acting in such circumstances must always be mindful of their duty to avoid conflicts and must not place themselves in a position where their personal interests conflict or may conflict with their fiduciary duties as trustee.
The Court had little difficulty in finding IDE to be acting in direct competition with IDD, such that the Defendant’s involvement with IDE had put his own interests in conflict with those of IDD, the trust and its beneficiaries. The Defendant was therefore in a difficult position to defend the removal application, but did so on the basis that he was concerned that, if removed, the remaining trustees would revoke a previous appointment of income which had been made in his favour and exclude him and his family from future benefit under the trust.
On a personal level, it’s possible to have some sympathy for the Defendant’s position here. In circumstances where all of the trustees and beneficiaries of a trust are the same, the trustees have wide reaching powers to change the beneficial interests and if one family member is asked to step down from their role as trustee while a bitter dispute is raging, it is understandable for that individual to be concerned about the safety of their beneficial interests and perhaps, reluctant to step down as a result.
Quite rightly, however, the Court had little sympathy for the Defendant’s suggestion that he should not be removed because of what might then happen. Whilst the risk of such action by the continuing trustees was a matter which the Court could properly take into account in the exercise of its discretion, it did not weigh heavily against removing him.
Fundamentally, the Defendant’s wish to maintain his position as a trustee to protect his and his family’s beneficial interests from risk was considered to be an example of him putting his personal interest ahead of consideration of the interest of the beneficiaries as a whole. Further, that this risk might have arisen, and the court noted that there was no evidence the Claimants intended to take such action following the Defendant’s removal, was a consequence of the Defendant’s actions in breach of his fiduciary duties as trustee. In essence, therefore, the court held that the Defendant was the author of his own misfortune.
The Court noted that the Defendant did have alternative recourse to protect his beneficial interests: if the remaining trustees did remove him from benefit under the trust, that may or may not be a proper exercise of their powers as trustees, and therefore the Defendant could sue for breach of trust if he thought the power had been exercised improperly.
What this case emphasises is that the overriding consideration for trustees must be the proper administration of the trust and the interests of the beneficiaries as a whole. There are very limited circumstances in which a Court will allow a trustee to favour themselves, their family or one particular class of beneficiaries and this is not one of them. Given that beneficiaries have the right to challenge any improper exercise of the trustees’ powers, that is the appropriate way for them to protect their personal interests; not by seeking to leverage or misuse the powers provided to them in their position as trustee.
If you have any questions about this article, please contact Justin Briggs.