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The Court’s inherent jurisdiction to remove trustees? Nothing exceptional

In its 10 December 2019 decision, the English High Court considered the Court’s power to remove a trustee under the Trustee Act 1925 and its inherent jurisdiction in London Capital & Finance Plc (In Administration) v Global Security Trustees Ltd [2019] EWHC 3339 (Ch).

The Court held the jurisdiction to remove a trustee under its inherent jurisdiction does not have an initial threshold of exceptionality and there is no requirement, beyond that which is normal, for a strong case to be made out. In this respect, the Court took issue with a passage in Lewin on Trusts that suggested the Court’s inherent jurisdiction only arises in exceptional cases. While it is more common for the power under section 41 of the Trustee Act 1925 to be exercised, the Court held it does not follow that anything other than the standard test should be applied to the less common route under the inherent jurisdiction. The beneficiaries’ welfare and best interests are infallible guides to both whether the power needs to be exercised and, if it does, how it is to be exercised. 

The Court ordered the removal of the defendant as security trustee in relation to secured bonds marketed by the claimant administrators having regard to, inter alia, its conflicts of interest and the wishes of the beneficiary bond holders. The defendant’s only business was acting as the security trustee and its ability to perform that role depended upon the qualities of its directors and shareholders. The Court held that there had been a failure on the part of the directors of the defendant to appreciate the importance of ensuring that they and the defendant were not tainted by association with the claimant, and its directors, who borrowed money from the claimant.

The Court was careful not to conflate the issues of whether (1) the defendant should be removed as a trustee, and (2) if it were to be removed, should it be replaced and by whom. The Court was in no doubt that the defendant should be removed as security trustee, but ordered the claimant to provide further evidence as to possible replacement trustees including indications of the associated costs of doing so. The Court was keen to make the point that any replacement trustee having doubts about its role, and its utility, should apply to the Court for directions.

This case serves as a judicious reminder of the importance of single-minded loyalty and the necessity to avoid a position where the fiduciary’s duty and interest may conflict.

The Court’s inherent jurisdiction to remove trustees? Nothing exceptional

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