Case Update: Chan Yun Cheong (trustee of the will of the testator) v Chan Chi Cheong (trustee of the will of the testator) [2021] SGCA 33

Introduction:

Section 40 of the Trustees Act generally sets out several conditions to be fulfilled before a trustee who is desirous of being discharged from the trust may do so. In particular, where there was more than one trustee originally appointed Section 38(1) of the Trustees Act prevents a trustee from being discharged unless there will be either a trust corporation or at least 2 trustees remaining. This would mean that a replacement would have to be found before the trustee retired.

However, the trust instrument may sometimes contain a Clause with requirements different from the Trustees Act for when a trustee can be discharged from the trust. The Court of Appeal in Chan Yun Cheong (trustee of the will of the testator) v Chan Chi Cheong (trustee of the will of the testator) [2021] SGCA 33 overturned the High Court’s order and held that the conditions of the Section 40 of the Trustees Act do not have to be met if a trustee was seeking to retire pursuant to an express power.

Fact Summary:

The Appellant and the Respondent were appointed as trustees and were seeking to be discharged from the trust at the same time. However, the Respondent was relying on Section 40 Trustees Act, which provides that retirement is effective only when it is by deed and the remaining trustees also consent by deed. The Appellant on the other hand, was seeking to retire relying on Clause 3 of the trust instrument (the Will), which set a much lower threshold and allowed a trustee’s retirement without a deed or the consent of other trustees.

When the Respondent had sought the Appellant’s consent to the Respondent’s Deed of Retirement, the Appellant refused to sign the Respondent’s document but instead reverted with a Letter of Resignation with immediate effect. The Respondent’s argument was that the Appellant remained a trustee because he had not executed a Deed of Retirement.

The High Court held that the conditions of Section 40 Trustees Act applied and ordered the Appellant to give his consent to the Respondent’s retirement.

The Court of Appeal’s decision:

The SGCA had to decide on mainly 2 issues:
1) Whether Clause 3 of the Will or Section 40 of the Trustees Act was the operative mode for the trustees to resign or retire; and
2) Whether the Appellant could be compelled to provide his consent to the Deeds.

The SGCA first agreed with the Appellant that the courts has no legal basis upon which it can compel him to consent to the Respondent’s Deed of Retirement. Section 14 of the SCJA does not give the court the power to order a trustee to consent to Deeds; it merely operates after an individual had already been ordered to sign an instrument and had not done so in compliance with that court order.

The SGCA also found that powers exercised under Section 18 of the SCJA read with Item 14 of its First Schedule must be in accordance with the law, and barring any precedent or statutory interpretation to the contrary, the court’s powers under Section 18 SCJA should not be exercised to compel a trustee to consent to another trustee’s retirement. It was clear under the Trustees Act that there was the decision to give consent was wholly discretionary, and as a matter of statutory interpretation there was no basis for a trustee’s withholding of consent to be subject to a reasonableness test.

On the whole, the SGCA held that that a trustee wanting to retire from the trust does not need to adhere to the conditions under Section 40 of Trustees Act if the trustee is relying on an express power in the trust instrument. However, he will still need to ensure that the conditions of Section 38(1)(c) of the Trustees Act are met, in that a trustee can only be discharged from his duties if there are at least two trustees or a trust corporation remaining.

In this case however, both the Appellant and the Respondent were found to have been ineffective in resigning as they were not compliant with Clause 3 of the Will – Clause 3 required that a replacement trustee (who was the Testator’s male descendent through a male line) be appointed, and the Appellant had failed to find such a replacement trustee before he would be allowed to retire. If the Appellant was unable to find a qualified replacement trustee, he cannot have recourse to the retirement option provided by Clause 3 and would therefore be subject to the conditions under Section 40 of the Trustees Act. It therefore appears that the Section 40 of the Trustees Act supplements the trust instrument and provides an alternative mechanism for retirement in the event that a trustee cannot comply with the requirements in the trust instrument.

The Respondent’s retirement was ineffective because he had failed to obtain the consent of the Appellant (as required under Section 40 of the Trustees Act), which the Court had no power to compel the Appellant to give.

Practical Effect:

A testator who intends for their trustees to retire as they wish without having to comply with Section 40 of the Trustees Act can include a clause in their trust instrument expressing their intentions, and the clause will generally be given effect. However, drafters of the trust instrument should keep in mind that the clause must specify for the mode of resignation (for example, by writing or by verbal conversation) to avoid disputes surrounding the interpretation of the Clause in the future. In a situation of ambiguity, the Courts will fall back on Section 40 of the Trustees Act as an alternative mechanism.