Trustee removal: bringing harmony where there could be discord

The recent case of James v Williams [2015] EWHC Civ 1166 (Ch) is interesting on its facts and procedure, and provides an illustration of the court’s flexible approach where there is a potential conflict of interest and disharmony between factions, but not necessarily an immediate problem.

The deceased left 50% of shares in his profitable company to members of his family (a proportion of which was for minors under will trusts) and the remainder of the shares to members of the company workforce as at the date of death. On completion of estate administration the identity of the trustees and their approach as shareholders could therefore assume a degree of significance in any wider dispute between ‘family’ and ‘workers’.

One of the 3 executors and trustees named by the will was the deceased’s accountant and concern had been expressed by the family that because he had acted as a de facto director, and his firm continued to act for the company, there was the distinct prospect that a conflict might arise between the interests of the company and the interests of the trust beneficiaries. The judge agreed, describing such position as “impossible, or at least, seriously compromised”. Therefore, it was said, his position was clearly one that put him in a different camp to that of the family.

As against the second trustee, the deceased’s solicitor, he and the accountant trustee were the subject of what were claimed to be ‘persistent unfair and untrue allegations as to suitability’. Such were not explored in detail as the trustees expressed a willingness to be replaced – though only because they did not wish to be subject to the continuing allegations.

The third executor renounced probate, so any anticipation of the testator that there would be further input of another trustee was, for present purposes at least, lost.

It was however, a clear feature of the case that, even without a detailed examination of the criticism levelled against the trustees (the parties inviting the court to adopt the principles of a summary judgment), there was a degree of disharmony between the different factions and the position of one trustee was open to serious question.

In contrast, there was the differing view of the employees’ representatives who took comfort in the professional administration of the wills trust since it was believed that their involvement would act as a restraint upon any family trustee who, if appointed, may use their position to undermine the company, and with it thereby, the interests of the employees as shareholders and employees.

There was however no evidence of any such risk and so the stark choice of the court between family trustees who may create strife on the one hand and the existing trustees with an inherent conflict on the other did not arise.

The judge, noted the decision of the Court of Appeal in National Westminster Bank plc v Lucas & Others [2014] EWCA Civ 1632 (itself concerning the administration of the estate of the late Jimmy Savile), and in particular the judgment of Patten LJ that a “lack of confidence or feelings of mistrust are not therefore sufficient in themselves to justify removal unless the breakdown in relations is likely to jeopardise the proper administration of the trust or estate. This is something which requires to be objectively demonstrated and considered on a case to case basis having regard to the particular circumstances.”.

Interestingly, in response to the assertion that loss of confidence is not enough in this case, the judge made a general observation:

“I agree that a mere loss of confidence in a set of trustees is not of itself enough, but loss of confidence can in turn lead to avoidable conflict and dispute, and therefore to expense which is, of necessity, detrimental to the trust estate”. [emphasis added]

With the complex claims against the estate resolved, the judge concluded that:

  • to have two professional executors of the wills trust would be too costly;
  • that these family trusts, with family beneficiaries, should be administered by “those indisputably within the family camp”;
  • that, generally, trusts are better administered in an atmosphere of harmony, not disharmony, and the better chance of harmony is in the appointment of family members as trustees.

What is interesting is that the mere fact of the breakdown of relations (regardless of whether the criticism of the trustees was justified) coupled with the willingness of the trustees to step aside was sufficient to enable the court to take a pragmatic and flexible approach based upon an understanding as to how the administration of a trust could deteriorate and thereby engage its jurisdiction.

No distinction was expressly drawn between the respective trustees, so the conflict of interest point regarding the accountant does not appear to have been determinative.

The likelihood of jeopardy to the administration of the trust in this case was not quantified or assessed –  the court appearing to select a path which was broadly beneficial for all concerned. Such latitude may not have been possible had the trustees, particularly the solicitor, stood their ground rather more firmly and contended there was nothing presently justifying their removal.

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