29/09/2016

A guardian of a trust is an office created by the trust deed upon which various powers are conferred: such as the power to appoint or remove a trustee, the power to consent to any trust distributions, or even the power to approve or direct the investment policy of the trust.  If the only power is to appoint or remove trustees, then the role is usually called an “appointor”.  

The trust deed may provide that there are two offices under trust deed:  an appointor and a guardian where the former is restricted to appointing and removing the trustee and the latter has other powers relating to trust distributions, nomination or removal of beneficiaries or the investment strategy of the trust.

As the trust property is not vested in either the appointor or guardian, they are not trustees.  Importantly, either or both of the guardians or appointors could be beneficiaries of the trust and importantly two or more individuals could be appointors or guardians.

Can a Court remove a guardian of a trust?   Apparently this issue has not previously been considered by an Australian Court until the WA Supreme Court (Blenkinsop [2016] WASC 61) was recently asked to remove the guardians of a family trust.   The trust deed required that the guardians could only act unanimously and each was also a beneficiary.  Due to internal disputes between the guardians, they ceased to be able to reach unanimous decisions and were deadlocked.  One of the guardians applied for the removal of the other guardians to break the deadlock.

The Court, after reviewing a number of offshore cases (as there was no direct Australian authority) considered that if the role of the guardian was fiduciary, then the Court has an inherent jurisdiction to remove a guardian where the welfare of the trust was at stake.

However in this case, the Court declined the request as the Court considered that the role of the guardians (in the context of the particular trust) was not fiduciary (they could act in their own self-interest as each guardian was also a beneficiary) and that the architect of the trust intentionally imposed the requirements of unanimity amongst the guardians as to their power to consent to trust distributions.   In short, to remove the guardians would be a substantial departure from the terms of the trust.

Whether the existing guardians could be replaced by other independent individuals was not proposed by the applicant and so was not considered by the Court.

The case clearly illustrates the need, when drafting family and discretionary trust deeds, to consider whether the guardians will be fiduciaries.  If so they could be removed by the Court.  However, if they are not, then there must be some mechanism included in the trust deed to resolve deadlocks between the guardians.

For further information, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222.