TUTORIAL 7: Week 1: 15 19 SeptemberWeek 2: 22 - 26 September

Discuss the following quotation with reference to decided cases.

In the absence of express provision to the contrary, or some necessary implication, a power to either remove trustees or to appoint new trustees is a fiduciary power, even where it is conferred on someone who is not a trustee.and even where the appointor may appoint himself.

Geraint Thomas and Alastair Hudson The Law of Trusts, 2nd edition, OUP 2010, paragraph 22.39, page 638.

Generally, private discretionary express trusts entail provisions which grant powers to remove a trustee to a certain person or persons. In a specimen trust deed, the appointor the person with the power to appoint trustees, is given this power of removal.

The Power of removal and appointment of trustees tends to depends upon the particular wording of the relevant clause in the trust deed. It can confer the power upon either the appointor or trustees. New Zealand Appointors tend to have a limited control over the trust dealings. Their powers are usually restricted to either appointing or removing trustees, and only sometimes this power can also be exercised over beneficiaries.

In other trust laden jurisdictions, the role of their 'Protector' is analogous to the 'Appointor'. Depending on the jurisdiction, often the Protector's powers are greater than the equivalent appointor, as they have the ability to oversee trustee's actions, in addition to being able to appoint and remove.

It is unsettled whether the power of appointmeant and removal of trustees is a fiduciary power, irrespective of whom it is conferred upon. (Overall, case law states that the power to nominate is fiduciary in nature, thus has resulting obligations attached to it. However, some cases, originating from the Montefiore decision' say that the power to nominate is not fiduciary.) If the power is fiduciary in nature, it then needs to be clarified what the obligations of the donee of the power are. Furthermore, if the donee breaches the fiduciary power, it is uncertain what the consequences are.

Where the power is conferred on an Appointor, who is also a trustee of the trust, it is questionable as to whether the power is conferred upon them as an individual, or in their trustee capacity. Where the power is conferred on all the trustees of a trust, it suggests that the power is conferred to trustees in that capacity. However, where it is one or two are conferred the power, of several trustees, it indicates that it is given to them in as an individual. This is seen in Carmine v Ritchie, where the wording of the trust clause indicated that the power was conferred on the settlor trustees, in their individual capacity, (see the relevant clause in Carmine v Ritchie (2012) 3 NZTR 22-023 reproduced at [58] of the judgment.)

A trust is an obligation enforceable at equity, binding on a person (who is called the trustee) to deal with specific property over which he had control (which is called the trust property) for the benefit of persons (who are called beneficiaries), [which he himself may be, and any one of whom may enforce the obligation.] - from Yvonnes

Is the Power to Appoint and Remove Trustees a Fiduciary Power

all cases are decided that the power to nominate is fiduciary in nature, thus has resulting obligations attached to it.

However, some cases origingating from 'Monte Faure' decision say that the power is NOT fiduciary -

Carmine v Ritchie (2012) 3 NZTR 22-023

(1) In Carmine v Ritchie, two of four trustees were settlors of the trust, as well as discretionary beneficiaries. They were given the power to appoint and remove trustees, as Appointers of the trust, even though they were beneficiaries themselves.

Re Skeats Settlement (1889) 42 Ch D 522 NO POWER IS FIDUCIARY, THUS CANNOT APPOINT ONESELF

In Re Skeats' Settlement, where a marriage settlement property was settled by trust for the wife and her children, it was held that due to the clause stating that if any trustee died, move abroad, or want to retire from the trust, the husband or wife or their suvivor, or on their deaths, the continuing trustees, would possess the power to appoint any other person or persons to be trustees. On the basis of this clause, when the existing trustees sought to retire, the husband and wife purported to appoint the husband and another as trustees. It was held that, the fiduciary nature of the power to appoint and remove trustees, rendered the husband's appointment invalid.

Power was held to be fiduciary in nature, thus the husband, as an appointor (not being a beneficiary, or trustee) could not appoint himself, even though the wording of the trust deed said it gave power to appoint 'any other person' should the trustees die or wish to retire. Justice Kay decided that the power was fiduciary in nature, on the basis that it was to be exercised for the benefit of various persons under the trust. Should the husband, as appointor and donee of the power, been allowed to appoint himself would be an improper exercise of his power. this is a power of fiduciary character, and consequently that the man who exercises it is exercising a duty of a fiduciary nature to the cestuis que trust under the settlement, and therefore he cannot exercise it by appointing himself. (Justice Kay 527). The judge found that the power was fiduciary. It is unclear exactly the reasoning why, but going back to first principles, it is a power to be exercised for the benefit of others, and those others would be the beneficiaries of the trust, and therefore, on that basis, the power is a fiduciary power.

Re Newen [1894] 2 Ch 297In Re Newen many investments and leasehold interests in land were to be settled on trust under George Newen's will. The trustees, of the three trustees, two died, leaving Maria, George's wife. By her death, Maria had not appointed trustees to the trust under the will. There was provision in the trust deed for the administrators of the last remaining trustee, to appoint any other proper person or persons to be trustees of the trust. The Court appointed as administrators for Maria's will, George's nieces, Eliza and Lydia Newen. The nieces' therefore had the power to appoint trustees for the trust to be settled under George's will. They sought to appoint Eliza, and two others. Applying the reasoning of Re Skeats, the Court held that appointing Eliza went against the fiduciary nature of the power to appoint (essentially appointing herself, but being invested with the power as administrator.) 308-309 of the judgement

where the powers of a will were left to it's surviving administrators (nieces of the deceased), giving them the power of appointment to appoint new trustees to the will, it was held they were not allowed to appoint themselves, as such power is fiduciary in nature, and to appoint themselves would go against this. The Court agreeing with re Skeats, restating that the power of nomination was fiduciary, and the consequence of that was that the donees of the power could not appoint themselves.

In keeping with the fundamental philosophy that, as far as possible the settlors intentions will be carried out, the trust deed may contain an express power authorizing the appointment of new trustees. Such a power will be strictly construed. There is some question whether the donee of such a power can appoint himself as trustee of the settlement. InRe Skeatss Settlement, (1889) 42 Ch D 522, a trust contained an express power granting certain persons the power to appoint any other person to be trustee. They exercised the power to appoint themselves. Kay J held that this was invalid since the power was fiduciary in character:The universal rule is that a man should not be judge in his own cause; that he should not decide that he is the best possible person, and say that he ought to be the trustee. Naturally no human being can be imagined who would not have some bias one way or the other as to his own personal fitness, and to appoint himself among other people, or excluding them to appoint himself would certainly be an improper exercise of any power of selection of a fiduciary character such as this is. In my opinion it would be extremely improper for a person who has a power to appoint or select new trustees to appoint or select himself Ibid at 527.This principle was followed by Kekewich J inRe Newen, [1894] 2 Ch 297, but was doubted by Buckley J inMontefiore v Guedalla,[1903] 2 Ch 723, where he stated that:On the cases, I am clearly of opinion that it has not been laid down that the appointors are outside the class who can be appointed, although it has been said, and it is a very salutary rule, than an appointer ought not, save in exceptional circumstances, to appoint himself, [1903] 2 Ch 723 at 725.Although the line of cases following Re Skeats reinforce the reasoning that because a power of nomination/appointment is fiduciary in nature, it goes against the obligations of such a fiduciary to appoint themselves, other reasoning suggests that it may possible for a donee to appoint themselves, so long as the objective of the power is met. This line of reasoning is contingent upon the objective of the power and who the power is conferred upon and exercised for the benefit of.

Montefiore v Guedalla [1903] 2 Ch 723

The administrators of the last surviving trustee of the trust under Mr Guedalla's will, were given power to appoint a new trustee or trustees. The testator passed in 1858, and on the death of the last remaining trustee in 1903, the executors sought to appoint new trustees. The decision in the case was that . Judge XYZ held that the the power to appoint was dependent upon a literal interpretation of the wording of the trust deed. The Judge

It was stated in the Judgement that the appointors wished to appoint Cecil Sebag Montefiore as trustee of the will, although also an executor of it, because he was a near relative, a man of business, and well acquainted with trusts, without any pecuniary interest in the eastate of Judah Guedalla.

Judge Buckley decided the question, not on the basis that Cecil could not appoint himself due to being an executor, but rather focusing on the class of persons that were described as being allowable trustees according to the trust deed - that the donee of a power of appointing trustees cannot appoint himself. I say emphatically cannot for the question is not whether it is improper for him to do so, but whether he cannot do so, in the sense that he is outside the class of persons who are capable of being appointed.. [725] beigns with the language of the power

Judge Buckley begins with the wording of the power stating that the wording to appoint a new trustee or trustees is unlike the power to appoint other persons such as in Re Skeats. In the latter case Buckley J points out that other makes the express exclusion of the appointor being within the class of allowable trustees. In the former case, the language is not making an exclusion by reference to the executors/appointors.

Justice Buckley goes on to state that the rule in Re Skeat Settlement, summarised in the headnote of the case, is not accurate - that a power of appointing new trustees being fiduciary, the donee of such a power cannot appoint himself. He states that the true ratio was that a donee can appoint himself, but ought not to unless the circumstances are exceptional. Judge Buckley seems to make a distinction with Re Newen and the facts on the basis that the trustee in that case was being asked to give up her position of trustee after appointing herself, in explains that the judgement of Re Newen did not state that holding office of trustee whilst also an appointor was wrong, but rather that the Judge required the trustee to retire from the trust before the Court give the trust funds into the trustees hands. Justice Buckley makes the distinction that the nieces' position as a trustee was not invalid, as it would be if it was against her duty to appoint herself, but rather that the circumstances meant that she had to choose to step down as the appointment was improper. This reasoning is arguably circular, but this is Justice Buckley's grounds for distinction. He concludes that neither Re Newen nor Re Skeats prohibits competent appointors from appointing themselves trustees, where the instrument bestowing the power allows them to, but it is restricted by only being allowable in special circumstances.

Justice Buckley concluded that on the wording of the power of appointment according tot the trust deed, the appointment of Cecil was within the language of the power, and that in the circusmtances it will be a proper exercise of the power. He does note prior to this, that the parties came to the Court on the basis of administrative action. This may be also another basis for the finding that the power is allowable, and perhaps constituting the special circumstances where such appointments are allowable.

The bankrupt had a protected life interest in a trust fund under the will of his late father which was defeasible inter alia if he should do or omit to do or should suffer to be done any act whereby the income of the trust fund if payable to himself should become vested in some other person or persons. He committed an act of bankruptcy by failing to comply with a bankruptcy notice and was adjudicated bankrupt. Was an apportioned part of a dividend which had been received by the trustees of the will after the adjudication (but part of which had accrued in respect of the period before and part in respect of the period after the act of bankruptcy) payable to the trustee in bankruptcy or was it applicable under the gift over in the will.
Held: For the trustees of the Will. The right to receive the dividend, though payable after adjudication, had vested in the official receiver by virtue of the doctrine of relation back at the date of the act of bankruptcy; and was therefore forfeited as from that date. The court rejected the argument of the official receiver that under the section 54 the property did not vest in the official receiver until adjudication, and that it was not until then that the bankrupt had suffered something to be done which caused the property to be vested in someone else. Let us, then, consider for a moment what would have been the result if the act of bankruptcy had occurred on July 8, the dividend had been payable on October 5, and the adjudication had taken place on October 10. There would then have vested in the official receiver all the property of the bankrupt from July 8 onwards, including the dividend of October 5. By virtue of what act or omission by the debtor would the dividend of October 5 have vested in the official receiver? It appears to me that it would have been by virtue of this act or omission, namely that he failed on July 8 to comply with the bankruptcy notice. Did he then do anything whereby the dividend of October 5 became vested in some other person or persons? I answer Yes. The act which produced this result would be not the act of the Court in adjudicating him a bankrupt, but his act to which it related back. it would be because the act was before October 5 that the dividend would vest in the official receiver. Intermediate income of property disposed of by the debtor during the period of relation back belonged to the trustee in bankruptcy.Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146

In Scaffidi v Montevento, the company was the sole trustee, the and Appointor was the sole director and shareholder of the company, whilst also being a discretionary beneficiary.

In the 2011 Australian Supreme Court decision of Scaffidi v Montevento Holdings Pty Ltd the sole trustee of the Scaffidi Family trust was the family company, Scaffidi Nominees Pty Ltd. The father, Antonio, mother, Maria, and sons Giuseppe and Eugenio comprised the directors and shareholders of the Company, each holding shares. The two sons were the trust beneficiaries. The trust clause 11.02 made provision for the Appointor to appoint or remove any trustee. Clause 11.03 of the deed stated that so long as any appointor was also a beneficiary of the trust, they were not eligible to be appointed as a trustee. On Antonio's death, Maria became Appointor, under the relevant trust provisions. In 1995, Scaffidi Holdings Pty Ltd became incorporated, and the shareholding and directorships followed the pattern of Nominees - from Gordo change. In 2005, Scaffidi Nominees limited, was replaced by Montevento Holdings Pty Ltd, as the sole trustee of the Family trust.

As per her powers under the trust deed, Maria appointed Eugenio as Appointor on 30 June 2006. By Feburary 2009, Eugenio whilst being sole shareholder and director, appointed Montevento Holdings Pty Lts as the sole trustee of the Scaffidi Family Trust.

An action was brought by Giuseppe to remove Montevento as trustee, claiming clause 11.03 prohibited an Appointor who was also a trust beneficiary, from appointing a trustee who was controlled by an Appointor of the trust.

Giuseppe's action was dismissed by the Supreme Court of Western Australia. The appeal Court had said that insert findings from [115] to [119] of the Appeal Courts judgment. The Supreme Court's reasoning was based in the fact that the company was a separate legal person from Eugenio. This reasoning was overturned on appeal, where the Majority found that clause 11.03 covered corporate persons' exercise of powers and directions as trustee, would be controlled solely by an appointor. In the following appeal to the High Court of Australia, it was held that Clause 11.03 was to be cosntrued in context of the whole trust deed document, which language constantly made distinction between natural persons as individuals and corporations, in which light the clause did not prohibit corporate persons, only natural persons from being a trustee whilst being an Appointor and beneficiary.

Montevento Holdings Pty Ltd v Scaffidi [2012] 246 CLR 325

Equity Trusts and trustees Trust deed for discretionary family trust provided that "[i]f, and so long as any individual Appointor is a Beneficiary that individual shall not be eligible to be appointed as a Trustee" Individual who was appointor of trust was also beneficiary of trust Whether corporation of which appointor was sole director and shareholder eligible to be appointed trustee of trust.

Bridge Trustees Ltd v Noel Penny (Turbines) Ltd [2008] Pens LR 345

The sole trustee of the Noel Penny Turbines Pension Scheme brought a claim against the Principal Employer of the scheme, as to whether the surplus monies were to be directed by an independent trustee, or the sole employer, as the power was reverted to him as original trustee, on the administrators failure to appoint a liquidator/independant trustee.

The scheme was governed by principal rules, of which rule 9 of Part VI provided that the Any remaining policy monies shall on the direction of the Principal Employer either be applied to increase the benefits so secured or any of them without exceeding any of the limits set out in the Appendix, or be returned to the Participating Employers in proportion to the amounts respectively contributed by them to the Scheme or as may subject to any requirements of the Board of Inland Revenue be otherwise agreed between them.the Court noted that under the Pensions Act 2004, Pension Regulators themselves have the power to appoint an independent trustee. The Court identify that the power to distribute possessed by an insolvency practitioner, is not an asset of the employer distributable amongst its creditors, but a fiduciary power - citing Mettoy Pension Trustees Ltd v Evans [1990] 1 WLR 1587.

The independent trustee was appointed by administrative receivers in succession to the Employer, by deed on 6 March 1992. If by this deed, the claimant had continued to act accordingly, the Court noted that under the relevant statutory provisions, the claimant would have rightly been able to exercise the discretion in regards to the surplus themselves, without issue. However the power reverted to the Defendant as donee, due to the administrative receivers ceasing to act on 16 July 2001. The employers assets were realised, and the Bank had a remaining shortfall exceeding the Pension Funds' surplus. A guarantee by a third party comprised part of the Bank's shortfall, meaning that their claim had priority in regards to the Defendants realisations.

The Court identified Statutory policy aimed to prevent an insolvent company from being able to decide the destination of it's surplus, on the insolvency practitioners appointment. [15] This highlighted the conflict between the duty of an insolvency practitioners duty to get the best for creditors, and a a fiduciary's exercise of such a power entailing the best interests of a class of people involved with the company, one of those being the company employer.

Making reference to the Mettoy decision, the Court restate that the decision is a 'fiduciary power in the full sense', meaning that the power was conferred on the employer 'as a trustee of the power itself'. [19] Mettoy had permissive language in regards to the rules of the power, whereas rule 9 in Bridge Trustees, was mandatory. This taken with the reasoning that if an employer was able to choose to make gifts of absolute property, and if the members of the pension scheme could not be volunteers on the basis that their pension entitlements were too inextricably bound up in their contracts of employement, founded the basis that the Defendant was bound by a fiduciary power.

The Judge distinguishes their ability to appoint a trustee under s 41 of the . Act, as the Defendant in this case does not possess the proterty to be dispensed with, but only has the power conferred upon them, instead the claimant is trustee of the property itself, thus has possession.

The Court decide that in it's inherent jurisdiction it must, and is able to intervene by replacing the donee of fiduciary power where they are, as the Employer was, refusing to exercise it.

Specific to the facts, here the duty of an insolvency practicitioner was irreconcilable with the fiduciary duty of executing trust powers. They would owe creditors duties, and that directly conflicted with the fiduciary duty on a trustee to act without such manadates. Futhermore in the unusual occurrence of a surplus for a Pension Scheme, the only beneficiary of the company was the bank, who had security over the company's assets still undischarged. This raised the issue of whether other creditors or shareholders may hold an interest. The Court decided in this regard that any distribution of such sort may result in a windfall, to be avoided.

It is important to note that the objective of the legislative scheme was that the power of distribution, in the continuation of administration or liquidation, was to be exercised by an independent trustee, and the only reason it did not apply was the failures by the administrative receiver, including failing to appoint a liquidator which meant the relevant provisions, unusually, could not apply.

That reasoning applies to the donee of a fiduciary power. Whether the Court should exercise its power to replace the done is another matter but where, as here, the donee is acting in breach of its duty by refusing to exercise the power, it is clear that some intervention by the Court is necessary (http://www.charlesrussell.co.uk/userfiles/file/pdf/Marketing/Jersey_seminar_slides_25Sept2013.pdf)

Simpson Curtis Pension Trustees v Readson Ltd [1994] Pens LR 289 the case was concerned with the procedure of appointment and the appointor, and not the trustee itself.

In Simpson Curtis Pension Trustees v Readson, Readson possessed powers to appoint and remove trustees as the principal employer of a pension scheme which provided that the he, as principal employer could do so. Readson was appointed by administrative receivers under a debenture by NatWest in 1989. The pension scheme's original trustee could not act as it's directors had resigned. Simpson Curtis Trustees Limited (SCPTL) were appointed the new sole trustee of the scheme by the administrative receivers in 1992. SCPTL commenced a claim for damages for negligence and/or breach of contract against the original trustee and Sedgwick Noble Lowndes. These defendants sought to have the actions against them struck out on 3 grounds supporting the basis that SCPTLY were not validly appointed trustee, and that a retrospective appointment could not be made to validate the writs. The Court agreed that the power of appointment of a new trustee is not a company 'asset'. The Court held that the administrative receivers arrangements to for the company to appoint a new sole trustee were authorised by the broad scope of the The powers of a debenture (to appoint administrative receivers as the company attorney), and the Insolvency Act 1986 Sched 1 (power to execute any deed, power to do all necessary things in order to realise the company property and to carry on the business of the company). Finally appointing the trustee was held to be a fiduciary power, in that it must be exercised, bona fide, for the beneficiaries' benefit, and cannot be used for the appointor's own benefit. Applying the established law to the facts, the Court found that the power being 'administrative' as opposed to 'dispostive' was not covered by Warner J's for categories of fiduciary powers established in Mettoy, thus the receivers rightly exercised the power. The Court held the appointment of SCPTL as new trustee to be appropriate and unobjectionable as no element of conflict would arise. This was on the basis that it was foreseeable that SCPT would at arms length of the administrative receivers as well as the company.

But, they claim, the Deed of Appointment is itself invalid, and that any proper appointment made at this date could and should not be effected to act retrospectively and could and should not validate the writ actions.

Now what is the rule, the universal rule, observed in Courts of Justice as to a duty of that kind? The universal rule is that a man should not be judge in his own case; that he should not decide that he is the best possible person, and say that he ought to be the trustee. Naturally no human being can be imagined who would not have some bias one way or the other as to his own personal fitness, and to appoint himself among other people, or excluding them to appoint himself, would certainly be an improper exercise of any power of selection of a fiduciary character such as this is. In my opinion it would be extremely improper for a person who has a power to appoint or select new trustees to appoint or select himself, for that principal reason. Has, then, the practice of such a person appointing himself been sanctioned by conveyancers or the profession in general? The answer must be, certainly not.It seems that the key sides to the argument were one the one hand, that in order to acertain the value of the assets of the company, which it was the role of the receivers to do, it was necessary to appoint the principal employer. However, on the other hand,

The Defendants counsel relied on the classfications of powers made in the Mettoy Case, where four categories of powers identified were all 'dispositive' and not 'administrative', as the duties here were. Unlike 'dispositive' duties, the 'administrative' duties they contended could be exercised without

a power of appointment is fiduciary to the extent that it must be exercisedbona fidefor the benefit of thecestuis que trustand must not be used by an appointor for his own gain or benefit. In such a case the Court would readily interfere to declare any such appointment invalid.50 But, they say, there is no rule of law or of equity to the effect that a power cannot be exercised by an administrative receiver merely*296because there may be a fiduciary element to its exercise.

Occupational Pension Schemesby Nigel Inglis-Jones QC. There the learned author considers whether the power to appoint a trustee is a fiduciary power or whether it is (as Mr David Pollard has suggested in an article in the March 1991 issue of British Pension Lawyer ) a power which is only subject to some constraints.

55 After considering the authorities since Lord Eldon, the learned author concluded: It is one thing to say that a power is a fiduciary power. It is another to decide what it means in the context of any particular power.

56 I would respectfully agree with the learned author in this comment.57 I find attractive the distinction which Mr Stephens and Mr Ham seek to draw between a power such as a power of appointment, the exercise of which is a single act which may perhaps be categorised as administrative on the one hand, and a power such as that in Category 2 suggested by Mr Walker in Re Mettoy on the other hand, an example of which is the ongoing powers of managers of a unit trust to manage the fund when the powers clearly include dispositive powers which ought not to be released or indeed exercised by anyone other than the managers themselves, since such managers owe the clearest duty to the unit holders to give proper consideration to each and every decision which they make in the management of the unit trust.58 In the case of the exercise of a power of appointment, the exercise is in itself a single act and one which is capable of being seen to have been made in good faith or not, and, if not, may be considered and dealt with by the Court.

THINKS THAT IT IS ADMINISTRATIVE THUS CAN BE EXERCISED BY ADMINISTRATIVE RECEIVERS, INSPITE OF THEIR CONFLCIT BETWEEN THE BENEFIRICIARIES AND THE DEBENTURE HOLDERS supported by legislative intent in the section 57C of the Social Security Act 1990 to add provision for a 'practitioner' including administrative receivers, to satisfy themselves that a trustee is an independent person, and if not give them the powers to appoint an appropriate person as trustee.

68 In my judgment, once everyone, including the Court, is of the view that the choice of the plaintiff is wholly proper and unobjectionable and that the plaintiff is likely to act wholly at arms length from the administrative receivers and the company, the element of conflict vanishes.

The Judge responds to the concern of the receivers role as appointed having an inherent conflict between the debenture holder on one hand and the beneficiaries on the other, answering that because it is a single action taking in appointing the Employer and thereafter having no exercisable control over the appointed trustee in their trust function , no real or actual conflict [had] arisen.