Remedies to Dissatisfied Beneficiaries

“The office of trustee is a relatively unforgiving one. Equity is very protective of beneficiaries.”

Remedies available to dissatisfied beneficiaries

It is not uncommon for beneficiaries of a trust to fall into dispute with trustees and for that to escalate to the extent that the position to become untenable. While the beneficiaries may hope for replacement of the trustee altogether, it is not uncommon for a trustee to resist removal.

What are the options for action by the beneficiary? This paper examines in brief some of those available to a beneficiary.

1. Terms of the trust deed

In the ordinary course when a beneficiary seeks to remove a trustee s/he should first look to the trust instrument. Beneficiaries are often granted an express power to remove the trustee – typically by resolution of all beneficiaries. However, where a minority of beneficiaries is in favour of doing so, then it may require an application to the Court.

2. Power of the Court to appoint new trustees

Where it considers it “expedient” to do so, the Court may appoint a new trustee or new trustees: Trustee Act 1958 (Vic) section 48(1).

3. Inherent jurisdiction to remove a trustee

The Courts have a “principal duty to see that trusts are properly executed” with the trust powers exercised in good faith and in the best interests of the beneficiaries. This can result in replacement of trustees even where there is no evidence of misconduct in management of the trust.

In a proper case a trustee will be removed simply to avoid conflict between trustees or otherwise to allow for the trust to be managed effectively.

Nevertheless, evidence will be required of the following:

Replacement of the trustee is required in order to protect the beneficiaries’ interests and to ensure security of the trust assets;
The trustee is acting in a manner unfair or prejudicial to the beneficiaries or particular beneficiaries;
The trustee refuses or is incapable of carrying out the role required of it.

4. Use of oppression of the minority provisions under the Corporations Act in respect of conduct of trustee companies

By section 232 of the Corporations Act 2009 (Cth) the conduct of a company’s affairs can be controlled by Court order where it is found to be contrary to the interest of members as a whole; or oppressive to or unfairly prejudicial to or discriminatory against members.

The Supreme Court of Victoria has applied this “oppression against the minority” principle to the conduct of trustee companies in respect of the rights and entitlements of beneficiaries. Despite an opposite view being adopted in other jurisdictions, in this one the conduct of trustee companies is considered well within the statutory meaning of “affairs of a body corporate” for the purposes of the statutory oppression remedy.

“…where the oppression relates to the operation of a trust which has a corporate trustee…”
Vigliaroni v. CPS Investment Holdings Pty Ltd

The Court is given power under Section 233 of the Corporations Act to exercise extensive powers – including to wind up the trustee company in appropriate circumstances, or .

“…so that the remedy will eliminate the oppression and enable the causes of any future oppression to be avoided…”

Moreover, the “oppression” provisions of sections 232 and 233 are to be “read broadly”. It is open to beneficiaries of discretionary trusts managed by a company trustee to seek this remedy.

In the subsequent Supreme Court of Victoria decision of Wain v. Drapac and Ors [2012] VSC 156 (26/04/2012), the plaintiffs were managers of the defendant group and had been granted units in related companies and trusts as part of an executive incentive scheme. They alleged that they were forced out of the company by means of oppressive conduct on the part of the defendant’s principal.

The Court found that the respondents had acted oppressively toward the employees and ordered the company and its’ principal to purchase the shares in units of the departing employees had a fair price.

Remedies available to beneficiaries in dealing with company trustees

The oppression provisions of the Corporations Act can be called upon to invoke a broad range of orders controlling the conduct of a trustee company including orders –

for the trustee’s purchase at proper value of units or other interests of the beneficiary;
regulating conduct of the trustee’s affairs in the future;
that its constitution be modified or even repealed;
for purchase of any shares of the trustee company by a particular shareholder – effectively allowing for transfer of control of the trustee and therefore conduct of the trust affairs more generally;
for removal of the company trustee; and
that it be wound up, followed by replacement of the trustee.

However, these remedies should be considered in conjunction with those available under, for example, section 48(1) of the Trustee Act or by invoking the Court’s inherent jurisdiction.

Trumble Szanto Lawyers

^{Please note:}^{This material is for general educational purposes and is not designed to be advice to any particular person in relation to their own affairs as it does not take into account the circumstances of you as an individual. We do not represent, warrant, undertake or guarantee that the use of guidance in this paper will lead to any particular outcome or result.}