Chapter 1 - Jurisdiction of the High Court

Reviewing the exercise of a trustee’s discretion

Where a trustee fails to perform one of their duties as a trustee the court may intervene and, if necessary, compel the trustee to perform the duty or will otherwise remedy the situation. Where a trustee has a duty to do something he or she is bound to do that prescribed thing, whether or not he or she considers it the best course of action. However, where a trustee has a power to do something, or the trustee is required to exercise a discretion, the situation is somewhat different. In this situation the trustee is not bound to take a particular action, but to exercise his or her judgement actively and honestly as to whether to do or refrain from doing something, and then to act accordingly.16 The role of the court in this situation is to ensure that discretions and powers entrusted to trustees are properly exercised by them.

In its introductory paper, Review of Trust Law in New Zealand: Introductory Issues Paper,17 the Commission discussed the problem that has arisen in some cases in distinguishing between a discretionary trust (where a trustee has a duty to select which beneficiaries shall actually benefit and to distribute to those selected beneficiaries) and a bare power of appointment (where the donee of a power generally has no such duty but just a discretion to distribute).18 Traditionally the classification as either a trust or a power has affected the duties and rights of the parties involved. The objects of a bare power of appointment cannot ask the court to enforce the power,19 whereas, as discussed below, the court can intervene in a discretionary trust. The Commission invited feedback on whether the law of trusts ought to apply to powers of appointment within a trust where the donee of the power is also a trustee.

In the case of a discretionary trust the court will not interfere just because it believes the trustee’s decision is unwise or the court would have done something differently. The court does not sit as a court of appeal on trustees’ decisions. It does not consider the issue for itself and substitute its own decision for that reached by the trustees. Rather, the court looks at how the trustees reached their decision.20

Where trustees are exercising a discretion as to some matter under the trust deed, the traditional position is that the court will not interfere with the exercise of that power or discretion unless the trustees have acted in bad faith or beyond the scope of their discretion (ultra vires).21 Courts are reluctant to review the exercise of discretionary powers largely because they recognise that the settlor has entrusted responsibility to the trustees and the administration of the trust is properly the responsibility of the trustees.

Grounds for intervention

In this context “bad faith” has developed a broad meaning. It includes:22

  • a decision for an ulterior motive;
  • taking into account irrelevant considerations;
  • refusal to take into account relevant considerations; and
  • acting capriciously.

A trustee’s duty of good faith when exercising a power or discretion is consequently a broad one. It has been expanded in case law to encompass obligations of giving relevant matters honest and genuine consideration, to act rationally and not perversely, and to excluding the irrelevant.23

An exercise of a discretion is also open to challenge where the trustees have acted beyond their powers. Trustees must exercise discretions within the scope of the powers given and only for the purposes for which the discretions are conferred by the settlor.

Fisher J in Wrightson Ltd v Fletcher Challenge Nominees Ltd provides a useful summary of those situations where the Court will interfere with a trustee’s decision.24 The court will set aside a trustee’s exercise of a discretion only where the trustee has:25

(a)acted in bad faith or for an improper motive;

(b)failed to exercise the discretion by considering the wrong question or misinterpreting the trust deed;

(c)considered irrelevant considerations;

(d)failed to consider relevant considerations; or

(e)reached a decision that is perverse or capricious.


The rule in Hastings-Bass

Fisher J added also that the duty in respect of relevant and irrelevant considerations (in (c) and (d) above) extends to an appreciation of the significant facts and their relevance to the decision being taken by the trustee. Although, a failure to correctly appreciate a given fact or consideration will not provide a ground for intervention if the trustee’s decision would have been the same in any event.26 Under what has become known as the rule in Hastings-Bass27 the exercise of a dispositive power held in a fiduciary capacity could be upset if the holder of the power had considered irrelevant considerations or failed to consider relevant ones.28

In a recent decision the English Court of Appeal undertook a full review of case-law developments from Hastings-Bass.29 It has clarified that a trustee’s failure to consider relevant factors, or his or her consideration of irrelevant factors, will only provide a basis for interfering with an exercise of powers if it can be shown that the trustee in doing so acted in breach of his or her fiduciary duty.30 This approach is also likely to now be taken in New Zealand.

Is unreasonableness also a ground for interference?

A question has arisen as to whether trustees must act reasonably when exercising their discretions. This issue is still something of an open question. The traditional view is that there is no requirement of reasonableness. However, a handful of New Zealand authorities have drawn an analogy to the rules developed to justify judicial intervention in the administrative law context.

Tipping J made an obiter suggestion in Craddock v Crowhen,31 that there should be a power of review founded on Wednesbury unreasonableness.32 A decision should not be regarded as unreasonable unless it is such that no reasonable trustee could rationally have reached that decision in all the circumstances.33 That approach was adopted in a subsequent case.34 In Wrightson Ltd v Fletcher Challenge Nominees Ltd Fisher J said that the trust law test that a decision was perverse or capricious may have much in common with “unreasonableness” in an administrative law context.35

In 2002 the Law Commission noted that the obiter comments in Craddock v Crowhen and those in the two subsequent cases mentioned above fall well short of an acceptance that challenges to the exercise of trustees’ discretions are to be determined by the application of public law principles. The Commission suggested that the most that could be said was that a court, called upon to determine an allegation of perversity or caprice in decision-making by trustees, may find itself grappling with intellectual problems comparable with those that arise in the public law context.36

This remains the position in New Zealand. In Gailey v Gordon O’Regan J declined to further develop any grounds for intervention around unreasonableness preferring instead the more traditional approach. He said that:37

[T]he potential for the Court to intervene in the exercise of discretion by Trustees where the discretion has been exercised unreasonably involves some extension of the Court’s supervisory role. In the absence of any Court of Appeal authority mandating that approach, I prefer the limited approach which recognises the traditional reluctance of the Courts to intervene in the exercise of a discretion by Trustees unless it is in bad faith (as broadly defined above), or ultra vires.

The authors of Garrow and Kelly suggest that authoritative guidance from either the Court of Appeal or the Supreme Court would be desirable on this point. They argue that caution should be exercised, at least in the context of private discretionary family trusts, before importing administrative law concepts such as unreasonableness into this area.38 Requiring trustees of a typical trust to meet standards of reasonableness may set the standard too high. Trustees are selected by a settlor because they are trusted to give effect to the settlors’ interests. Chris Kelly suggests that excessive judicial intervention with trustees’ decision-making may undermine the value of trusts for settlors. It may also encourage unnecessarily defensive attitudes by trustees. He argues that trustees need to be able to administer the trust fund without being second-guessed by courts. Striking a balance between these considerations and the need for beneficiaries to be able to hold trustees to account is not an easy task.39

Kelly, Kelly and Kelly Garrow and Kelly, above n 11, at [19.3.1].

Law Commission Review of Trust Law in New Zealand: Introductory Issues Paper (NZLC IP19, 2010).

Ibid, at [3.16] – [3.23].

The concept of “fraud on a power” may be relevant. The expression fraud on a power is historical language for when a power is misused in an ultra vires manner. An appointment is considered a fraud on a power if made for a wrongful purpose or a purpose unrelated to the original purpose of the power. If the power is exercised with the intention of benefiting some non-object of the discretionary power, the exercise is void since it is ultra vires. However, if there is no such improper intention, even though the exercise does in fact benefit a non-object, it is considered valid; see Wong v Burt [2005] 1 NZLR 91 (CA) at [30] and Kain v Hutton [2008] NZSC 61, [2008] 3 NZLR 559 at [46]–[54].

Wrightson Ltd v Fletcher Challenge Nominees Ltd (1998)1 NZSC 40,388 at 40,413.

Kelly, Kelly and Kelly Garrow and Kelly, above n 11, at [19.3.1].

Gailey v Gordon [2003] 2 NZLR 192 (HC) at [89].

Blair v Vallely HC Wanganui CP8/98, 23 April 1999.

Wrightson Ltd v Fletcher Challenge Nominees Ltd (1998)1 NZSC 40,388.

Ibid, at 40,413.

Ibid. The authority Fisher J cites here is Re Hastings-Bass [1975] Ch 25 (CA). 

Re Hastings-Bass [1975] Ch 25 (CA).

See Mathew Conaglen “Reviewing the Review of Fiduciary Discretions” [2011] CLJ 301 at 302.

Pitt v Holt and Futter v Futter [2011] EWCA Civ 197.


Craddock v Crowhen (1995) 1 NZSC 40,331.

Associated Provincial Picture Houses Ltd v Wednesdbury Corporation [1948] 1 KB 223.

Craddock v Crowhen (1995) 1 NZSC 40,331 at 40,337.

Blair v Vallely HC Wanganui CP8/98, 23 April 1999 at 21.

Wrightson Ltd v Fletcher Challenge Nominees Ltd (1998)1 NZSC 40,388 at 40,413.

Law Commission Some Problems in the Law of Trusts (NZLC R79, 2002) at [35].

Gailey v Gordon [2003] 2 NZLR 192 (HC) at [89].

Kelly, Kelly and Kelly Garrow and Kelly, above n 11, at 521.

Kelly, above n 15, at 47.