How The Trustee Can Remove The Appointor

In Staley v Hill Family Holdings Pty Ltd [2025] QCA 95, the Queensland Court of Appeal found that the power of a trustee to remove the appointor of a trust, pursuant to the Trust Deed, highlights the risks involved when establishing trusts without having the proper checks and balances in place. The ability of a trustee to remove an appointor is not a desired result. This is especially so when the appointor is often seen as the ultimate controller of the trust as they often have the power to remove and appoint a new trustee. It is recommended that you carefully review your trust deed to identify key areas of risk.

Background

The Hill Family Trust (the Trust) was established in 2002 by Mr Hill. Upon his death in 2009, his two daughters, Mrs Porter and Mrs Staley succeeded him as the Appointors of the Trust. The Corporate Trustee of the Trust was Hill Family Holdings Pty Ltd with Shirley as the sole director and shareholder. On 30 October 2013, Shirley appointed Mrs Porter as co-director of the Corporate Trustee. Further, on 22 July 2019, Mrs Porter also appointed her daughter, Ms Mitchelmore as a director of the Corporate Trustee.

Mrs Porter died on 31 December 2019 leaving Mrs Staley as the sole Appointor of the Hill Family Trust. Shirley died on 29 September 2022 leaving Ms Mitchelmore as the sole director of the Corporate Trustee.

As the sole director of the Corporate Trustee, Ms Mitchelmore exercised the power found in clause 14 of the Trust Deed to remove Mrs Staley as Appointor of the Trust unbeknownst to Mrs Staley and appointed her father, Mr Porter as the new Appointor of the Trust through a Deed of Variation. Relevantly Clause 14 of the Trust Deed provided as follows (our emphasis):

"14.01 The Trustee may revoke, add to, release, delete, or vary all or any of the trusts, powers or provisions declared or included in this Deed or any trusts, powers or provisions declared by or included in any revocation, addition, release, deletion or variation made to this Deed and may at the same time declare or include any new or other trusts, powers or provisions concerning the Fund PROVIDED THAT the Trustee must not exercise its powers under this clause so as to confer upon the Settlor any beneficial interests in any part of the Fund nor in the income from the Fund or in a way which infringes the law against perpetuities.

14.02 The powers of variation under clause 14.01 may be exercised by Deed, written memorandum or any other method permitted under this Deed.

14.03 The powers of the Trustee under clause 14.01 include the power to appoint or remove beneficiaries.

14.04 Subject to clause 27.01, but otherwise despite anything to the contrary in the Deed, the Appointor may at any time prior to the perpetuity date appoint additional beneficiaries by notice in writing to the Trustee or in the manner prescribed in clause 23.01."

Clause 2 of the Deed of Variation states as follows:

With effect on and from the Effective Date, the Trustee varies the Trust Deed by inserting the following new clause after clause 22.03:

'22.04 Special Removal of Appointor

(a) This clause 22.04 only applies where Kerin Anne Staley is the Appointor.

(b) The Trustee may in in ([sic]) its absolute discretion remove Kerin Anne Staley as the Appointor, provided that the Trustee nominates a person (other than the Trustee) to become the replacement Appointor.22

On 19 June 2024, Mrs Staley purported as Appointor to remove the Corporate Trustee and appoint Staley Management Pty Ltd as the new corporate trustee which was at a date after her removal as Appointor.

On learning of her removal as Appointor, Mrs Staley sought declaratory and auxiliary relief against the Corporate Trustee.

Issue

The Appellant, Mrs Staley, sought relief on two grounds:

1. Clause 14.01 ought not be interpreted so as to allow an amendment to the Trust Deed as it would alter the "substratum" of the Trust or "have the potential to do so"; and
2. The power conferred on the Trustee by Clause 14.01 is limited in its scope by other provisions in the Trust Deed.

Decision

Issue 1 – Substratum of the Trust

It was submitted that the supremacy of the Appointor, as is often the case, formed an element of the substratum of the Trust, and its removal by a Trustee altered that substratum. The Court referred to the case of Mercanti v Mercanti [2016] WASCA 206 finding that the notion of an alteration to the substratum of the trust is grounded in the equitable doctrine of fraud on a power.

Hely J said that the authorities which suggest that a power to vary a trust deed may be held not to extend to a variation which would 'alter the substratum of the trust' may be 'no more than an application of the equitable doctrine of fraud on the power'. His Honour's view is, in my respectful opinion, correct, having regard to the decisions of the High Court in Byrnes40 and Montevento, which have held that the rules applicable to the construction of contracts apply also to trusts, and to the decision of the High Court in Bargwanna, in other words, the notion of an alteration to the substratum of the trust is not an aspect of the rules applicable to the construction of a trust deed but is, rather, an application of the equitable doctrine of fraud on a power."

The Court also referred to the case of Re EM McPherson Settlement [2024] VSC 744 finding that whether the exercise of a power would destroy the substratum of a trust engages the same considerations as the application of the equitable doctrine of fraud. The primary consideration here would be whether the changes to the trust would be so significant that the arrangement cannot be regarded as a variation, but as a resettlement of the trust.

There were however two primary issues that were fatal to the Appellant's case. The first was that there was a difficulty that the exercise of Clause 14.01 had altered the substratum of the Trust. It was not alleged that the execution of the Deed of Variation was a fraud on the Trustee's power to amend under Clause 14.01 or akin to a fraud. Secondly, the Appellant had failed to show that the substratum of the Trust included the "supremacy of the Appointor's role". It followed that while the office of Appointor formed an integral part of the Trust that does not mean that the supremacy of the Appointor's role was also integral to the substratum of the Trust. It is noted the Deed of Variation did not abolish the role of Appointor, it merely replaced them.

Issue 2 – Interpretation of the Trust

The Appellants also submitted that the power in Clause 14.01 was limited in its scope by other provisions in the Trust Deed through implied terms. They argued that the power to remove the Appointor was provided for in clause 22 of the Trust Deed which provided for a comprehensive regime for appointment to, tenure of, and resignation from office as Appointor. The Court found that they were unable to discern within clause 22 an implied exclusion from clause 14.01 of a power to vary the provisions of the Trust Deed.

The Appellant argued at [54] that the Trustee had power under clause 14.03 to remove certain beneficiaries and the Appointor had power under clause 14.04 to reappoint those same persons, this necessitated a "circuit-breaker" implied into the Deed such that the Appointor had supremacy over the Trustee.

The Court rejected the Appellant's argument finding that both the Appointor and Trustee's power under the Trust Deed were regulated by duties imposed on them by equity. If those duties were transgressed, it would be the Court that acts as the "circuit-breaker". '

As such, the Appeal was dismissed.

Takeaway

It is widely agreed that the Trustee and Appointor hold important positions of power in relation to discretionary trusts. However this case emphasises the importance of how the powers of the Appointor and Trustee may be exercised in accordance with how the particular terms of the trust deed are framed.

In this case, the Trustee was able to successfully remove the Appointor because the wording in Clause 14.01 was unintentionally wide. As such, this case highlights the importance of properly constructing your trust deed to avoid unintended consequences such as this. The powers exercised under a Trust are strictly regulated by how the deed is constructed and as such, a thorough review of your trust deed to identify key areas of risks and to remedy risks is recommended.

Should you wish to discuss any of the topics raised above, please contact Tony Pointon or Andrew Pointon of our Wills and Estates Team.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.