More cases can guide court removal of trustees
***UPDATED***A law firm has highlighted other legal decisions that could provide a better guide on how a court can forcefully remove trustees from an SMSF in light of the Marsella decision, including an estate planning court case involving a high-profile Australian family.
In a contributed blog, View Legal director Matthew Burgess examined the decision in Elovalis v Elovalis  WASCA 141 that was quoted in Marsella.
What happened in Elovalis v Elovalis
He said that decision summarised the approach the courts must take when deciding whether to remove a trustee against their will, which is as follows:
- In determining whether a trustee should be removed, the chief consideration is the welfare of the beneficiaries.
- The court will have regard to the security of the trust property, the efficient and satisfactory execution of the trust, and the faithful and sound exercise of powers conferred upon the trustee.
- A breach of trust will not necessarily lead to the removal of a trustee, nor will the existence of a conflict between duty and interest.
- At times, however, such factors may be sufficient to justify the trustee’s removal.
- Ultimately, whether the court exercises its discretion turns upon the circumstances of each case — or, as quoted from the case of Miller v Cameron (1936) 54 CLR 572, “a judgment (to remove a trustee against their will) must be largely discretionary”.
“A trustee is not to be removed unless circumstances exist which afford ground upon which the jurisdiction may be exercised,” Mr Burgess said.
“But in a case where enough appears to authorise the court to act, the delicate question whether it should act and proceed to remove the trustee is one upon which the decision of a primary judge is entitled to especial weight.”
A further lesson from the Rinehart saga
Mr Burgess also said lessons can be learned from the estate planning saga between mining magnate Gina Rinehart and her children. Mrs Rinehart voluntarily stepped down as trustee of the family trust in 2013 over potential conflict with her other positions.
Even though the NSW Supreme Court did not forcibly remove Mrs Rinehart as trustee, it confirmed the following key issues to be considered before a trustee is removed against their will:
- The dominant consideration in appointing (and removing) a trustee is the welfare of the beneficiaries.
- The general principle is that the court’s task is to appoint the person or persons best suited to administer the trust in the circumstances prevailing.
- There are three main considerations that inform the court in appointing a new trustee, noting that these are “general guidelines” or “rules of practice”, rather than “hard and fast rules”.
- The three considerations are that:
- The wishes of the persons by whom the trust was created, if expressed or implicit in the trust instrument. The wishes can be inferred from the terms of the trust, or the identity or description of the original trustee.
- A trustee should not be appointed with a view to promoting the interests of some of the beneficiaries in opposition either to the wishes of the settlor or the interests of the other beneficiaries. This aspect is concerned with avoiding conflicts of interest, and is reflected in the court’s preference not to appoint a beneficiary, or a relative of a beneficiary, as trustee. This general preference is not, however, an absolute rule and may be ignored where there is a contrary intention on the part of the settlor, or due to necessity (e.g. if there is no one else suitable or willing to act).
- In appointing a trustee, regard should be had to whether the appointment would promote or impede the execution of the trust. In other words, “the court ought not appoint a trustee — there being no reason for it — who is obnoxious to the whole of the cestuis que trustent” (that is, the person for whose benefit the trust is created).
"In this case, the court decided to appoint Bianca Hope Rinehart as trustee of the Hope Margaret Hancock Trust," Mr Burgess said.
“In light of Marsella, the principles in the decision in Hancock v Rinehart  NSWSC 646 are a timely reminder.”
EDITOR'S NOTE: An earlier version of this article implied that the NSW Supreme Court removed Gina Rinehart as trustee of the family trust. Mrs Rinehart voluntarily stepped down as trustee in 2013 over potential conflict with her other positions.
Adrian Flores is the deputy editor of SMSF Adviser. Before that, he was the features editor for ifa (Independent Financial Adviser), InvestorDaily, Risk Adviser, Fintech Business and Adviser Innovation.