Appointing new Trustees to (or Removing Trustees of) a Trust

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General principles

This article relates to societies and charities, but the principles discussed apply to all trusts, whether or not they are charitable.

The Court of Appeal decision in New Zealand Māori Council v Foulkes [2015] NZCA 552, discussed below, related to the removal and appointment of trustees to the Crown Forestry Rental Trust, but the principles set out in the Judgment are of universal application to trustee appointments and removals.  As the judgment noted (paragraph [2]), “Sadly, what lies beneath these questions is a divisive and expensive dispute between representatives of the New Zealand Māori Council (the NZMC) and the Federation of Māori Authorities (FOMA), the two bodies jointly responsible for appointing Māori trustees under the Crown Forestry Rental Trust (the CRFT or the Trust).”  To resolve the dispute NZMC and FOMA agreed to form a body to exercise their joint power of appointment, but the agreement did not last long and was also held to be unlawful.

How Power to Appoint or Remove Trustees of a Trust should be Exercised

Section 116, Trusts Act 2019, anticipates that there will be a document recording the appointment, removal, or discharge of trustees.  The Court of Appeal decision in New Zealand Māori Council v Foulkes noted that “Any decision about appointing or removing trustees must always be made on a measured evaluation by reference to the deed, consistent with the fiduciary nature of the power, and not for any collateral purpose” (paragraph [27]).  Ironically, the “collateral purpose” was a delegation to the body formed to resolve disputes between New Zealand Māori Council and FOMA.  The Court had earlier said (paragraph [22]) that:

… the power to appoint new trustees is of a fiduciary nature because the subject matter of the power is the office of the trustee.  That office lies at the core of the trust and carries fundamental and onerous obligations to act in the best interests of the beneficiaries as a whole to the exclusion of the trustee’s own interest.  And, as it reposes the settlor’s personal trust and confidence in the donee to exercise its own judgment and discretion, the power cannot be delegated to a third party.  In this respect it does not matter that the party exercising the power is not itself a trustee; it is the object and purpose of the power, taken from the deed, that is decisive.  Finally, because the power is fiduciary in nature, it must not be exercised for a collateral purpose.

The Power to Appoint or Remove Trustees of a Trust must not be Delegated

As the Court noted in the paragraph of its Judgment just quoted, the power to appoint (or remove) trustees the power cannot be delegated to a third party.  The applicable legal principles explaining why the power to appoint (or remove) trustees cannot be delegated to a third party were explained as follows:

 As confirmed by two recent decisions [Carmine v Ritchie [2012] NZHC 1514 at [66]; Harre v Clark [2014] NZHC 2533 at [24]] the power to appoint new trustees is of a fiduciary nature because the subject matter of the power is the office of the trustee.  That office lies at the core of the trust and carries fundamental and onerous obligations to act in the best interests of the beneficiaries as a whole to the exclusion of the trustee’s own interest.  And, as it reposes the settlor’s personal trust and confidence in the donee to exercise its own judgment and discretion, the power cannot be delegated to a third party. In this respect it does not matter that the party exercising the power is not itself a trustee; it is the object and purpose of the power, taken from the deed, that is decisive [In Re Skeats Settlement (1889) 42 Ch D 522 at 527].

For specific advice about any of the issues discussed in this article, please contact Mark at mark@nfplaw.co.nz.