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Appointment, removal, retirement, remuneration of trustee

Equity and Trusts II (Multimedia University)

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Appointment, removal, retirement and control

Appointment
- The general rule is that any person capable of holding property in law could be made a
trustee.
- However, a minor cannot be appointed as a trustee – can’t hold a legal estate. An infant
may become a resulting or constructive trustee of personality. Re Vinogradoff – a child
of 4 years was able to hold property on resulting trust.
- Phua Chiu Har v Amanah Raya Bhd - ‘the court is under no duty or obligation to
determine the reasons for the deceased’s appointment of the defendant as the trustee of
her estate’.
- A person may declare himself or herself as a trustee.
- A trust instrument may specify someone to appoint the trustees.
- A person could also be a trustee by implication of law or by operation of law.
- Where the trust instrument or the will makes no provision for the appointment of trustees,
the court will make the necessary appointment.
- Exception stated in the case of Re Lysaght – if it is the essence of the trust that trustee is
selected by settlor and no one shall act as trustee, if trustee will not undertake the trust,
then it will fail.
Ways of appointment of trustee
a. Express Provision
- Section 40(1) provides the appointment of new trustee, a new trustee may be appointed in
place of one who is:
i. Dead
ii. Remains out of Malaysia more than 12 months
iii. Desires to be discharged out of trust
iv. Unfit to act – mental illness
v. Incapable of acting
vi. Minor
- Re Walker – any brief return will break period of 12 months, as Mr Summers had
returned, albeit for a week, he had not been absent for a continuous period of 1 year, the
power to replace him had not arisen.
- Re Lemann’s Trusts – the wife in this case become incapable of acting as a trustee, due
to old age and consequent infirmity. She was physically unable to sign a document
appointing new trustee. The court held that as she was incapable of acting and as she
could not appoint a replacement trustee, it was expedient for the court to do so in her
place.
- Section 40(1) provides that power to appoint may be exercised by:
i. Person nominated for the purpose of appointing a new trustee; or
ii. If no such person is able or willing to act, then by the surviving trustee or his
personal representative.
- If these person refuse to act, then beneficiaries may act if all of them are sui juris & all
fully entitled to trust property.

b. Appointment by the Court

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- Section 45(1)(a) – court has power to appoint new trustee to substitute or add trustee
whenever it is expedient to appoint new trustee & found inexpedient, difficult, or
impracticable to do so without assistance of Court.
- Section 45(1)(b) – without prejudice to power under section 45(1)(a) court may make an
order to appoint new trustee, if the trustee is:
a. Imprisoned;
b. Mentally disordered;
c. Unsound mind;
d. Bankrupt;
e. Corporation under liquidation or has been dissolved.
- Bhikku Daeng v Maung Shwe Tyn – The court had inherent jurisdiction to appoint
trustees & was not fettered by trust deed or by S.40 Trustee Act. The court will not
appoint someone given the testator wish as well as the likelihood of his bias to the
prejudice towards some of the beneficiaries.
- Re Tempest - in exercising its discretion to appoint a new trustee, the court would have
regard to: i) the wishes of the settlor; ii) should not appoint a person interested under the
trust; iii) should consider whether the appointment would promote or impede the
execution of the trust.
How many trustee?
- Section 39(1) – limitation of the number of trustees (express private trust – number of
trustees shall not exceed 4, if more than 4, the first four named shall alone be the trustees.
- Section 39(2) – exceptions: charitable, religious, or public purposes (may exceed 4)
Retirement
- Retirement means a discharge from further responsibility and liability under the trust.
- The trust instrument may make specific provisions in respect of the retirement of trustees.
a. Express Provision
- Section 40(1) – enables a trustee to retire (desire to be discharged) if he is being replaced
by another trustee or trustees.
- Section 43(1) – provides for retirement of a trustee without a new appointment but
subjected to prescribed condition.
o Trustee is desirous of being discharged from trust must put request in writing
o Consent from remaining trustees must be given in writing
o Considered as retired even if no new trustee has been appointed in his place
o There must at least 2 trustees or 1 trust corporation left to administer trust

b. Consent of all beneficiaries

- Trustee who secured all consent by beneficiary who are sui juri may retire.

c. Court Order
- Section 45 – court may make an order appointing new trustee or substitutes in prescribed
manner. Court also enjoy inherent jurisdiction to allow trustee to retire.
Removal
a. Express Provision

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- The trust instrument may expressly give power to remove trustees.

- Such power must be strictly construed.
- The donee of such power must strictly comply with it if he wishes to act on it.
b. Statutory Provision
- Section 40(1) – if trustee remains out of Malaysia for more than 12 months or refuses to
act or is unfit or incapable to act or is a minor he can be removed and replace by one or
more trustee.
- Ligar Fernandez v Eric Clarke Cooke – In this case, the defendant was absent from
Malaysia for over 12 months, and thus, the court rendered him legally incapable of acting
as a trustee and ordered for his removal. A trustee is considered to be refusing to act when
his conduct or inability to perform an act is endangering the interest of the trust by
hindering his discharge of duty as a trustee.
- If the court exercises its powers under section 45 it may be remove a trustee in the course
of appointing a new trustee or trustees. (removed due to incapacity, retirement)
- Titterton v Oates – the P applied to have the first D removed as a trustee on the account
that she had not distribute income efficiently that she has guilty of conflict of interest &
that she had failed to understand the nature of the digression conferred in dealing with the
second D, the brother who was intellectually disabled.

c. Court’s inherent power to remove trustees

- Re Wrightson – there must be something that would induce the court to think either that
the trust property will not be safe or that the trust will not be properly executed in the
interest of the beneficiaries.
- Letterstedt v Broers – Lord Blackburn: if satisfied that the continuance of the trustee
would prevent the trusts being properly executed, the trustee might be removed.
However, Blackburn also stated that trustees should not be removed simply due to a
breakdown in relationship between trustees and beneficiaries.
- Yusof Bin Ahmad & Ors v Hong Kong Bank Trustee (Singapore) Ltd & Ors –
trustee may be removed when their acts or omissions endanger the trust property. A
trustee who failed to comply with a testator’s directions may be removed even if no harm
has been done to the beneficiary.
- Tan Chong Kee v Tan Chong Lav – trustee was leper & court could remove such
trustee where it affected proper administration of trust.
- Yap Tai Chee v Yap Tai Cheong – welfare of beneficiaries was the prime factor that
should guide the court in this matter – unauthorized dealing of trust funds even though no
fraud was shown was sufficient basis to remove trustees.
Death of trustee
Where there are 2 or more trustees, and death occurs to one of them, then the remaining
living trustee may fulfil his obligations until another trustee is appointed or the trustee can act
solely to fulfil the mission of the trust.
Section 23 (1) of the Trustees Act 1949
In the case of sole trustee, if he dies, then the personal representatives can exercise the power
given to the sole trustee – Section 23(2) or choose to appoint new trustees as they are not
bound to accept trusteeship as per Section 40(1) of the Trustees Act 1949.

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Disclaimer of trusteeship
Being a trustee is not compulsory. When chosen by the settlor, there is no obligation on the
individual or corporation to accept the office of trustee.
Any person nominated to be a trustee can choose to disclaim it. But once accepted, then
cannot disclaim.
Re Lister - for the disclaimer to be effective it must be of the whole trust and not just a part
of the trust. If the disclaiming trustee was sole trustee or if all the trustees disclaim then if
inter vivos the settlor himself will become the Trustee and if the Trust was through a will, the
personal representative will hold on trust.
Vesting of trust property
The vesting of trust property in new or continuing trustees is provided for under Section 44
of the Trustees Act 1949
Once property is vested in trustee, it becomes completely constituted trust. Trust property is
transferred to initial trustees by settlor himself & not by his personal representatives.
Upon death of testator, trust property does not automatically vest in trustees. Entire estate of
deceased including trust property first vests in executor named in testator’s will. If testator
has not named executor, then testator’s property will be administered by administrator.
Administrator will hand over trust property to trustee once task is completed. If there are no
such persons, then it is the duty of administrator to ask the court to appoint the trustees & it is
the duty of court to appoint trustees.
If trustees disclaim, property still vest in settlor pending appointment of new trustees. Where
a trustee dies, trust property vests in the remaining trustees. If sole trustee, trust property vests
in his personal representatives.
Section 44(1) – vesting of trust property in new or continuing trustees
Section 44(3) - express vesting declaration
Section 48 - Vesting orders of land
Section 50-57 (vesting order)
Fiduciary nature of trusteeship
a. Remuneration
Fundamental principle: A trustee cannot expect remuneration for performing duties in
relation to the trust except:
- provided by the trust instrument;
- authorised by the court;
- authorised by legislation s.46
Besides, section 35(2) of the Trustees Act also provides that the trustee may recover the costs
and expenses in exercising the trust.

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Barret v Hartley –A trustee must not make a profit from his trust unless authorised in trust
deed or approved by all beneficiaries, a trustee cannot charge for his time and trouble. This
case reaffirmed that the trustee cannot expect remuneration.
Remuneration is provided for in the trust instrument
The settlor may authorise the trustees to be paid from the trust funds, but such power is
required to be expressed in the trust instrument. The court will not imply such charging
clauses. The trustees are not entitled to charge any sums as they wish but may only charge a
reasonable amount which would vary with the circumstances of each case.
Re Chapple - the usual professional charges was held to restrict the remuneration of the
solicitor to professional services only and did not extend to the other thing a trustee could
perform himself without being a solicitor.
Remuneration authorised by the court
Boardman v Phipps - A solicitor for a trust fund noticed a significant opportunity in the
accounts of the company. He utilised this opportunity with the knowledge of some of the
trustees, making a significant profit for both the trustees and himself. The agent in this case
had done valuable work and acted openly and above board. The court recognized the good
effort, which is something more than ordinary, hence the solicitor was able to keep a
significant equitable allowance for his effort.
Brown v Litton - The master of a ship died at sea and there was no way of communicating
back to England this news. The first mate took over and he used the master's funds to trade
and to make a profit. When the ship finally got back to England, the question arose as to who
was entitled to the funds and the profits made with those funds. It was held that the trustee
was entitled to fair remuneration for his diligent.
Re Duke of Norfolk’s Settlement – a trust corporation accepted the administration of the
trust for a low annual fee. As trustee, it subsequently became involved in an extensive
redevelopment project and was allowed an increase in remuneration because the duties
became unexpectedly onerous.
With consent of all the beneficiaries
Where the beneficiaries are all ‘sui juris’ and absolutely entitled to the trust property, they
may make an agreement with the trustees for the latter to be remunerated. This is an
application of the rule in Saunders v Vautier.
Authorised by legislation – Section 46 of the Trustees Act 1949
Rule in Cradock v Piper
If a trustee is also a solicitor, the trustee can claim remuneration if the work is related to the
litigation in nature, it must not increase the usual expenses overall.
This rule is regarded as an anomaly and will not be extended to non-contentious work and to
persons other than solicitor/trustees, such as barristers, accountants, etc.

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Overseas trust assets – Re Northcote’s Will Trust – the principle is that English executors
and trustees, who are entitled to earn a commission under a foreign jurisdiction in which the
trust assets are situated, are empowered to retain such remuneration for their own benefit.
b. Secret Profits
- Not to purchase trust property/beneficial interest
- Not to take remuneration as trustee-director
- Not to compete with trust
- Not allowed to receive bribe
Secret profits – If trustee makes secret profit from a trust, equity will not allow him to retain
the same and shall hold the benefit under the constructive trust.
Trustee may not make an unauthorised profit from his position as trustee. He must not put
himself in a position where his duty to the trust and his own personal interest may conflict.
Lac Minerals Ltd v International Corona Resources Ltd – there was a profit resulting
from the making use of confidential information. The trial judge held that there was no
binding contract, but Lac was still liable for breach of confidence and breach of fiduciary
duty as the director of Lac had insider info for which they quietly buy up the shares and make
secret profit.
Keech v Sandford - A trustee of a lease may not renew a lease for his own benefit but holds
the renewed lease upon a constructive trust for the beneficiaries. The court forbade the trustee
to take for himself a renewed term under a lease which he held for the benefit of an infant.
Purchase of trust property
The general position is that a trustee cannot involved in self-dealing with property belonging
to the trust.
Campbell v Walker - Purchase property at a public auction is breach of duty
Tito v Waddell (No 2) - where a trustee deals with the beneficial interest or acquires it, there
will be an obligation to demonstrate fair dealing (Megarry VC) i.e. there is a burden of proof
on the trustee to demonstrate no advantage was taken of the beneficiary and the beneficiary
had full disclosure of nature of the transaction.
Ex parte James - A bankrupt's estate was purchased by a solicitor to the commission of the
bankrupt. This case concerning conflicts of interest, and the absolute duty to avoid them.
Exceptions to self-dealing
Holder v Holder – the testator appointed his son as trustee. Later, the son has discharged
himself as trustee, the son purchase the farm which is part of the trust property. The court
held that the transaction was valid on the basis that there is no interference in the
administration of estate. Land purchased after trustee renounced his role can do this after
renouncing provided that he didn’t retire with the intention of purchase.
Wright v Morgan – cannot retire from a position in order to purchase trust property
(however, purchase after a legitimate retirement is fine.)

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Purchase beneficial interest – Coles v Trecothick – a trustee may purchase the interest
provided that there is a distinct and clear contract; and there is no fraud, no concealment, no
advantage taken, by the trustee of information, acquired by him in the character of trustee.
Director’s fees
Where trustees are appointed as directors of companies on account of trusts and
shareholdings in the related companies, trustee is not to profit from the trusteeship.
Re Macadam – often a trustee will obtain remuneration as a director of a company. If the
directorship was acquired because of his position as a trustee, he will be accountable to the
trust.
But the rule does not apply if a trustee secures directorship not by virtue of his position as a
trustee.
Re Llewellin’s Will Trusts – a trustee may retain remuneration they receive as a director if
the trust instrument authorises the trustee to do so.
Competing with the trust
A trustee is prohibited from competing with any business belonging to the trust.
Re Thompson – Trust property included a yacht broker company. The trustee wanted to set
up a similar business in the same locality. Court ordered an injunction restraining the trustee
because his plans would have taken trade away from the trust business.
Receiving bribes
Where trustee has acted in bad faith, and by doing so made a profit, he is liable for that profit.
Constructive trust may be imposed on a trustee who has received bribes.
Reading v Attorney General – an army sergeant earned 19,000 by transporting smuggled
goods in an army vehicle while in army uniform. Profit was confiscated, sought action for
return after release from prison. Failed as he was a fiduciary and was liable to account for the
profits to the Crown.
AG of Hong Kong v Reid – a fiduciary accepted bribes during the course of his employment
by the Crown. It was held that the Crown was able to claim the property acquired by the
bribes (3 houses) even though the houses were now of a higher value than the bribes
received.

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