Singapore Court of Appeal provides guidance on trustees seeking to retire

28 May 2021

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

In an appeal that raised questions on the retirement procedure of trustees, the Singapore 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) held that (1) the court did not have the power to compel a co-trustee to consent to a trustee’s retirement, and (2) that a trustee need not meet the conditions of section 40 of the Trustees Act (“Act”) (which provides that a retirement without a replacement can only be effective if it is by deed and the remaining trustees consent, also by deed, to his discharge) if the trust instrument itself already provides for the retirement mode of trustees.

Further, in a situation (like the facts in this case) where the trust instrument did not provide for a procedure for resignation, the court inferred that the intention was for the method of resignation to be prescribed by the law in force at the time the trust instrument was created.

Facts

Chan Yun Cheong (“appellant”), and Chan Chi Cheong (“respondent”) were appointed in 2017 as two out of three trustees of a trust arising out of the will of their late grandfather which was executed in 1947. Thereafter, disagreements arose among the trustees relating to the stewardship of the assets of the trust.

In an attempt by the respondent to retire as a trustee, the respondent’s solicitors wrote to the appellant with an unsigned copy of a draft deed of retirement informing the appellant of the respondent’s intention to retire and seeking the appellant’s consent to the respondent’s retirement. The appellant did not sign the draft deed and the appellant instead attempted to resign by way of letter to the respondent and the third trustee. The appellant’s letter stated that the appellant resigned as trustee with immediate effect, and that the appellant’s resignation was prompted by his inability to effectively discharge his duties as a trustee due to certain areas of concern.

The appellant claimed that his mode of retirement (via the appellant’s solicitor’s letter) was authorised by the terms of the will, relying on a clause in the will which stated that (1) upon the death or retirement of any trustee, the person appointed as his successor in office shall be their late grandfather’s male descendant through a male line, and (2) if any of the trustees disagree with the others or have to attend to other business, he is at liberty to resign and the vacancy thereby created shall be filled accordingly (“clause 3”).

High Court’s decision

This dispute raised the question of whether the conditions prescribed by section 40 of the Act have to be met where a trustee seeks to retire pursuant to an express power in the trust instrument. The High Court Judge (“Judge”) held that section 40 of the Act was the operative mode for a trustee under the will to resign or retire, and ordered the appellant to provide his consent to the respondent’s retirement (by the appellant signing the respondent’s deed of retirement). The appellant appealed.

Court of Appeal’s decision

The Court of Appeal allowed the appeal and found that the Judge could not order the appellant to provide his consent to the respondent’s retirement as a co-trustee. Further, the court found that the appellant’s attempt to resign through his letter was equally ineffective.

Court has no power to compel co-trustee to consent to trustee’s retirement

The Court of Appeal found that neither section 14 nor section 18 of the Supreme Court of Judicature Act granted the court the power to compel a trustee to consent to a co-trustee’s retirement, noting that the decision to give consent is wholly within the discretion of all the trustees. Hence, among other reasons, the court set aside the Judge’s orders compelling the appellant to consent to the respondent’s attempt to retire.

Trust may provide for retirement mode

In general, the Court of Appeal clarified that a trustee seeking to retire does not need to meet the conditions under section 40 of the Act, if a trustee can use a retirement mode provided by the trust instrument. However, he must still meet the condition in section 38(1)(c) of the Act, which sets out the condition that a trustee may only be discharged from the trust, if there are at least two trustees or a trust corporation remaining. The retiring trustee must also meet any conditions stipulated in the trust instrument as being necessary to invoke the express power to retire.

In this case, the court observed that the express words of clause 3 of the will made it clear that the testator intended that any of his trustees could retire (1) if he wanted to and (2) if there was a replacement trustee who was the testator’s male descendant through a male line. As section 40 of the Act dealt with the retirement of a trustee without a new appointment, the testator’s failure to explicitly state a procedure for retirement in clause 3 was not a reason for the court to find that the substantive conditions in section 40 (in particular, the requirement that the retiring trustee must obtain the co-trustees’ consent) should apply to clause 3.

Inference of retirement procedure

As the will did not set out a resignation procedure that was applicable on the facts, the Court of Appeal inferred that the testator was content for the method of resignation to be prescribed by the law in force when the will was executed in 1947, that is, under section 37(1) of the then Trustees Ordinance (which is substantially similar to section 37(1) of the current Trustees Act). Section 37(1) provides for, among other situations, a situation similar to that contemplated in clause 3 where an existing trustee wants to retire but can only do so if a replacement trustee is appointed. In that case, the continuing trustee(s) may by writing under his or their hands appoint the replacement trustee to the trust. Accordingly, the court inferred, inter alia, that the testator must be taken to have been aware of the law in force in Singapore where his will was executed and had intended to operate and to have drafted his will with that in mind.

In order to retire in accordance with clause 3, the court stated that the appellant should have found a male descendant of the testator (from a male line) to act as his replacement and requested the respondent and the third trustee to appoint such replacement as trustee by writing under their hands in accordance with section 37(1) of the Act. If he or they were unable to find a qualified and acceptable relative to act as replacement trustee, then the appellant could not have recourse to the retirement option provided by clause 3. In that event, the only way for the appellant to retire would be in accordance with section 40 of the Act (i.e. retirement without the appointment of a replacement) which would mean all the conditions of that section would have to be met. As a result, the court found that the appellant’s attempt to resign through his letter ineffective as well.