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Trust disputes and the High Court

By Leone Farquhar - December 2017

Trust disputes often arise due to differing views and personalities amongst trustees and/or trustee misconduct.  In many cases, by the time a trustee comes to see us, the trust is not operating effectively or legally.  Common examples are where the Trust is being run by the chairperson in an almost dictatorial way, or one or more trustees are no longer involved in trustee meetings and decisions.

Sometimes a ‘problem trustee’ is willing to retire, and retirement and replacement simply happens via the trust deed.  But often that is not the case, or there are other issues, such as capacity issues, that prevent retirement or removal via the trust deed.  In those situations the High Court often needs to step in. 

The High Court’s jurisdiction around trusts is supervisory and includes ensuring the effective operation of trusts.  Trustees can be removed and appointed in the High Court via the Trustee Act and also through the Court’s “inherent jurisdiction”, or general ability to do so as a supervisory and superior Court.  The latter being in certain circumstances.  

The Court may remove trustees if satisfied that, if the trustees were to continue as they are, the trust would not operate effectively.  Considering removal of a trustee is not necessarily about whether breaches of trust have been committed, although trustee misconduct is a factor that the Court would take into account.  Hostility between trustees and beneficiaries and/or trustee misconduct may lead to removal if it prevents the effective operation of the Trust. 

Where a trustee is removed via the Court’s inherent jurisdiction a trustee can be removed and not necessarily replaced.  In considering whether or not to appoint a new trustee, the Court considers the following: 

  • Is the trust running properly?
  • Can the trust be left to resolve matters on its own?
  • If not, should a new trustee or trustees be appointed?

If the Court is satisfied that the power to appoint new trustees under a trust deed is unlikely to be exercised fairly and objectively, having regard to the interests of the beneficiaries, it is likely that the Court will step in. 

Beneficiaries as well as trustees can make applications to the High Court asking the Court to exercise its inherent jurisdiction.  However, the Court will not do so lightly and, before the Court will act following an application by a beneficiary, the beneficiary must show that actual or potential loss will otherwise be suffered.  There are also limitations in terms of the types of applications the Court will allow in this context.

Inter-trustee disputes can be tricky to manage and/or resolve.  If your trust is not operating as it should, either because of inter-trustee disputes or issues or otherwise, we are here to help.

Leone is an Associate in our Dispute Resolution and Māori Legal Teams, specialising in Estate and Trust Disputes, and can be contacted on (07) 958 7457.