Chapter 2 - Powers under the Trustee Act 1956

Powers conferred on the High Court

“Court” is defined in section 2 of the Trustee Act to mean “the High Court”. This means that the powers to grant relief or make orders under the provisions of the Act are reserved to the High Court. District Courts have an equitable jurisdiction under section 34 of the District Courts Act 1947 and can hear some claims in relation to trusts. However, they do not have jurisdiction to grant relief or exercise any of the powers under the Trustee Act as these powers have been expressly conferred on the High Court by statute.59 The issue of whether courts other than the High Court should be able to exercise all or some of the powers under the Trustee Act is discussed in chapter 3.

A wide variety of unrelated powers are conferred on the court by different sections of the Act. The discussion below moves sequentially through those provisions (not yet canvassed in earlier Issues Papers) that raise issues.

 

The relevant provisions are:

  • section 72 – Commission;
  • section 74 – Power to make a beneficiary indemnify for breach of trust;
  • section 75 – Barring claims and future claims; and
  • sections 77 to 79 – Payment of trust money to the Crown.

In addition, this chapter identifies all the other court powers in the Act that will need to be retained and re-drafted in contemporary terms. These are mentioned only briefly since they do not seem to raise any specific issues.

Section 72 – Commission

Under section 72 the court may authorise the payment out of trust property of a “commission or percentage” to a trustee of an amount that is just and reasonable for the person’s services before, during, or on termination of the administration of the trust. Payment of commission on the authority of the court under the section is one of the exceptions to the trustee’s duty to act gratuitously and not profit from trusteeship.

The terminology of “commission or percentage” used in the section is out of date and a replacement provision should use contemporary terminology and enable the court to approve payment of a reasonable fee or remuneration to any trustee.

However, the section raises a further issue. It currently lists eight factors that the court is required to have regard to when determining what payment would be just and reasonable:

(a)the amount that has already been paid to any trustee of the trust;

(b)the extent and difficulty of the services rendered by the trustee;

(c)the liabilities to which the trustee is or has been exposed, and the responsibilities imposed on him;

(d)the skill and success of the trustee in administering the trust;

(e)the value of the trust property;

(f)the time and services reasonably required of the trustee;

(g)whether any commission that might otherwise have been allowed should be refused or reduced due to delays in the administration of the trust that were occasioned by or could have been prevented, by the trustee; and

(h)any other circumstances considered relevant.

An issue the Commission seeks feedback on is whether it is beneficial to retain this type of list to provide guidance.

 

Section 74 – Power to make a beneficiary indemnify for breach of trust

Where a trustee has committed a breach of trust at the instigation, request or with the written consent of a beneficiary, the court may indemnify the trustee by making an order impounding or confiscating all or any part of the beneficiary’s interest in the trust estate. All of the beneficiary’s entitlements may be confiscated in order to make good the loss but only where the beneficiary has instigated, requested, or consented in writing to a breach of trust. The right to confiscate a beneficiary’s interest is subject to the discretion of the court.

Where beneficiaries have simply consented to a breach of trust, but have not done so in writing, section 74 cannot be relied on and they cannot be made to indemnify trustees. However, they cannot sue the trustees for any loss they suffer as a result of any breach to which they consented. In such circumstances the beneficiary is also liable to account to the trust for any profit he or she may have made from the breach of trust.60

Section 74, as currently drafted, contains a very antiquated proviso stating that the court may make an order impounding the property “notwithstanding that the beneficiary may be a married woman restrained from anticipation”. This proviso predates the significant legislative changes made in other areas of the law giving married women full and equal status under law so should be repealed.

Section 75 – Barring claims and future claims

The section confers powers on a trustee for the dual purposes of facilitating the prompt distribution of an estate and also for managing claims that the trustee considers ill-founded. Where a trustee has received a claim but is not prepared to pay it or agree to a compromise with the claimant, he or she can utilise section 75. Also, where the trustee anticipates a claim that has not been made yet, he or she can use section 75 to give notice to the prospective claimant.

Under section 75 the trustee may serve upon any claimant or potential claimant a notice requiring him or her to take legal proceedings (within three months from the date of service) to enforce and prosecute their claim through court proceedings. At the expiry of the notice period the trustee may apply to the court for an order barring the claim. The claimant or prospective claimant must be served with the application seeking to bar his or her claim.

Where the claimant is unable to then satisfy the court that the claim has been filed and is being pursued, the court may make an order:

(a)barring the claim; or

(b)allowing the trust property to be dealt with without regard to the claim.

 

The court may alternatively extend the period for the applicant to file their claim. The court may impose such conditions and give such directions, including a direction as to the payment of the costs of the application, as it considers just. For the purposes of section 75, a claim or potential claim means any claim:

(a)in respect of any estate or trust property;

(b)against the trustee personally where the trustee is entitled to be reimbursed out of the trust fund;

(c)under the Law Reform (Testamentary Promises) Act 1949; or

(d)by anyone claiming as a creditor, or next of kin, or beneficiary.

Section 75 does not apply to any claim under the Family Protection Act 1955.

The circumstances in which section 75 can be used appear to be very broad. In Public Trust v Vincent the Public Trustee applied to the High Court for orders barring a number of proceedings the defendants had commenced in the District Court and Disputes Tribunal. The court concluded that section 75 was sufficiently broad to cover such claims.61

The Commission is not aware of any particular difficulties that have arisen over the interpretation and application of the provision by the courts, although the section has only been examined in a handful of cases. One issue that could be considered is whether more recent statutes, such as the Property (Relationships) Act 1976, should be included in the list.

Sections 77 to 79 – Payment of trust money to the Crown

An option for trustees, where beneficiaries cannot be located, is to pay the money to the Crown. Under sections 77 to 79 of the Act trustees may be relieved of their responsibilities as trustees by paying trust money or securities over to the Crown in accordance with the provision. Where trustees are in agreement the court’s involvement is minimal.

Under section 77 trustees (or a majority of them) may:

(a)file an affidavit in the nearest High Court registry giving particulars of the trust and beneficiaries; and

(b)serve a copy of the affidavit on the Secretary to the Treasury; and

(c)pay the money or transfer the securities to the Crown.

Where the majority of trustees wish to make use of the provisions but other trustees do not agree, the court may make an order requiring payment or transfer to the Crown. The court may also make an order where money or securities have been deposited at a bank or with a broker requiring that they are transferred to the majority of trustees so the trustees can then transfer them to the Crown. A receipt from the Treasury discharges the trustees and the money and securities are then administered by the Treasury.

Section 79 provides that an ex parte application may be made to the court for the payment or transfer of any money or securities held by the Crown under section 77. The Court may make any orders it thinks fit when resolving such an application.

Practice under the provisions

The Treasury advises that each year a number of trustees pay money or transfer securities to the Crown under the section. Most of the money that is paid to the Treasury to administer is paid over by the trustees of unit trusts or superannuation trusts when the trustees want to wind those trusts up. The Treasury also receives some money from solicitors who have been acting as trustees holding unclaimed money in their firm trust accounts. It seems the mechanism is not, however, currently used by the trustees of private trusts. This is likely to be because there are other options available when trustees wish to pay out such funds and beneficiaries cannot be found.

The Treasury will not accept a transfer of funds under the provision unless trustees are able, in their affidavit, to provide sufficient evidence that they have taken all reasonable steps to locate beneficiaries and pay out the funds.

The Treasury holds monies paid under section 77 in a trust account for six years. Section 78 requires Treasury to publish at the end of each financial year in the Gazette a statement of all money and securities held by the Crown under section 77. The Treasury’s practice is to list the name of individual beneficiaries, where these are known, as well as the names of the funds and the amount being held. Where someone is able to establish a claim, the Secretary to the Treasury may pay or transfer the money or securities to that person under the section. The provision allows the reasonable costs and expenses of the Crown to be deducted before payment is made. The Commission understands though, that in practice, the Treasury does not make such deductions and all their administrative costs are funded by the Crown in the usual way as overheads through Vote Treasury appropriations.

Money that is not claimed and paid out during the six years that it is held in a trust account by the Treasury is then transferred to the Crown bank account as unclaimed money.

The Treasury advise that approximately two million dollars ($2,023,500) is currently held on trust. Approximately $250,000 was transferred from the trust account to the Crown bank account on 1 July 2011 as it had, at that date, been held for six years. The Treasury estimates that approximately 10 per cent of the trust money and securities that are paid to the Crown under these provisions are subsequently claimed and paid out to claimants. The remaining 90 per cent goes into the Crown account and is never claimed back.

A procedure of this kind would seem to provide a necessary final backstop for trustees where they are unable to distribute funds. Of some concern, perhaps, is the amount of money that is never claimed and is simply absorbed into the Crown account. It might be appropriate to consider whether more should be required to locate beneficiaries, such as publication of a directory of unclaimed funds on the web as well as in the Gazette.

The Treasury is currently under no obligation to invest or manage the funds it holds and is not required to pay any interest on money it has held when it is finally claimed. This is consistent with the approach taken in the Unclaimed Money Act 1951. Under that Act no claimant is entitled to interest on money when claimed from the Commissioner of Inland Revenue.62

Should an affidavit always be required?

A further concern is that the process under section 77 requiring trustees to file an affidavit may be considered quite arduous in cases where the amount of money held on trust is very small. Treasury officials advise that they are occasionally contacted by solicitors whose trust accounts hold small sums of unclaimed trust money that they would like to pay over to the Treasury under the provisions. However, because the process under section 77 requires the solicitor to file an affidavit describing the particulars of the unclaimed funds before the Treasury can accept the money, the Treasury is unable to accept unclaimed funds from trustees in any other situation. The Commission considers that a simpler process, not requiring the expense of an affidavit, could well be appropriate for dealing with small sums of money.

Brief overview of other court powers in Act

The other court powers in the Act that will need to be retained and re-drafted in contemporary terms (not already discussed in earlier Commission Papers) follow. For completeness the Commission lists here also those provisions (discussed in The Duties, Office and Powers of a Trustee63 and Perpetuities and the Revocation and Variation of Trusts)64 that confer powers and functions on the court. Any further feedback from submitters on the role and powers of the court under these provisions is also welcomed.

The relevant provisions are:

  • A power to order a partition – under section 14(6B) the court may, if satisfied that the partition of the real estate of a deceased person would be advantageous to those parties with an interest in it, order a partition (subdivision) or appoint arbitrators to effect a partition.
  • The court’s supervisory role where a trustee exercises their power under section 15(1)(j) to appropriate property to pay out a legacy. After receiving notice any interested person may apply to the court to vary the proposed appropriation.
  • Under section 24, if trustees wish to insure any property for full replacement value, they must either obtain the consent of any person entitled to the income or alternatively seek the consent of the court.65
  • The court has supervisory powers under section 32 to manage situations where a trustee has power to carry on the business of a deceased person.66
  • A power to give directions under section 35(4) where there is doubt as to what advertisements should be published by a trustee giving notice under the section advertising for claims before distributing property under a trust. (A general updating of section 35 should also provide for the giving of notice in ways other than advertising in newspapers.)
  • Under the indemnity provision in section 38(2) the court may, on application, authorise the payment of a trustee expenses as the court determines are just in the circumstances.67
  • Trustees’ powers under section 40, to apply income for the maintenance or education of an under aged beneficiary, are subject to, and may be varied by, court direction.68
  • Under section 41, the portion of capital that may be applied by a trustee to the maintenance or education of an under-aged beneficiary is limited to half the beneficiary’s vested share or interest. If a trustee wishes to pay more he or she must obtain the consent of the court. A court order is also required before any payments can be made by the trustee in a manner that would prejudice other prior interests.69
  • The court may authorise the setting aside of income or profits of business for certain specified purposes under section 42A.70
  • Under section 46, the court has powers to discharge trustees and appoint replacements.71
  • The court has powers under section 49 to appoint advisory trustees and under section 50 to appoint custodian trustees.72
  • Under section 51, the court may appoint new trustees where it is inexpedient or impractical for others to do this without the assistance of the court. The court does not normally use its power under section 51 where it is possible for an appointment to be made by others under section 43 of the Act.73 A number of options for reforming current provisions regarding the appointment of trustees have already been canvassed.74
  • Sections 52 to 62 of the Act empower the court to make vesting orders. The core provisions governing vesting orders have been canvassed and feedback was invited on any problems.75
  • The power of the court to authorise dealings with trust property and variations of trust under section 64 and section 64A have also been discussed.76
  • A trustee may obtain directions from the court on points arising in the management of a trust under the procedure set out in section 66.77
  • Under section 70, the court may, if satisfied that a diligent search has been made, give judgment against a defendant trustee in his or her absence. The provision is occasionally used so remains necessary.78
  • Under section 71, the court has a power to order that the costs and expenses of any application for any order under the Act, or any costs and expenses arising under any court order (including the cost of any conveyance or assignment of property) are to be paid out of the trust, or to be apportioned between such parties as the court directs.
  • The court has the power under section 73 to relieve trustee from personal liability where they have committed a breach of trust, so would be liable on a strict application of the law, but have acted honestly and in good faith.79
  • Section 76 provides the machinery for ascertaining the existence or whereabouts of unknown or missing claimants.80 It is a long and quite impenetrable provision that essentially sets out a process for trustees to follow where beneficiaries cannot be ascertained. Under it the court may give directions where a trustee is uncertain about what advertisements to place to notify potential beneficiaries. The court also has broad powers under the section to approve distribution where beneficiaries cannot be traced. The process has been used in a few cases involving pension funds that have largely been distributed, but where a handful of outstanding beneficiaries cannot be located despite extensive efforts on the part of trustees.81 Retention of a mechanism of this type seems necessary.

District Courts Act 1947, s 34(2).

N Kelly, C Kelly and G Kelly Garrow and Kelly Law of Trusts and Trustees (6th ed, LexisNexis, Wellington, 2005) at 732–836 [Garrow and Kelly].

Public Trust v Vincent HC Auckland CIV-2005-404-629, 19 February 2006.

Unclaimed Money Act 1951, s 11(5).

Law Commission The Duties, Office and Powers of a Trustee: Review of the Law of Trusts Fourth Issues Paper (NZLC IP26, 2011) [Duties, Office and Powers of a Trustee].

Law Commission Perpetuities and the Revocation and Variation of Trusts: Review of the Law of Trusts Third Issues Paper (NZLC IP22, 2011) [Perpetuities and the Revocation and Variation of Trusts].

See Law Commission Duties, Office and Powers of a Trustee, above n 63, at [5.3]–[5.6]. 

Ibid, at [5.38]–[5.40]. 

Ibid, at [1.53]–[1.55]. 

Ibid, at [5.55]–[5.67]. 

Ibid. 

Ibid, at [5.43]–[5.47]. 

Ibid, at [4.40]–[4.42]. 

Ibid, at [5.50]–[5.54]. 

Kelly, Kelly and Kelly Garrow and Kelly, above n 60, at 458.

Law Commission Duties, Office and Powers of a Trustee, above n 63, at [5.55]–[5.67]. 

Ibid, at [4.45]–[4.53].

Law Commission Perpetuities and the Revocation and Variation of Trusts, above n 64, at ch 5.

See Law Commission Duties, Office and Powers of a Trustee, above n 63, at [5.65]–[5.67]. 

In Bridgecorp Ltd (in receivership and in liquidation) v Turnbull the first defendant had not been served by the plaintiffs with the proceedings but the plaintiff was able to proceed to have judgment entered against him by relying on section 70 of the Trustee Act 1956. Associate Judge Doogue was satisfied that a diligent search had been made for the first defendant and that he was a person who is being served ‘in the character of trustee’; Bridgecorp Ltd (in receivership and in liquidation) v Turnbull HC Auckland CIV-2008-404-6227, 18 February 2009 at [1].

See Law Commission Duties, Office and Powers of a Trustee, above n 63, at [3.18]–[3.27]. 

Re Sheridan (deceased) [1959] NZLR 1069 (CA) at 1075.

Re UEB Industries Ltd Pension Plan (1995) 1 NZSC 40,341.