Rubber stamp alert

This week’s High Court costs decision in Black v Giltech Precision Castings makes sobering reading for trustees.  The judgment follows a substantive decison finding against Mr Black and the trustees of of a trust settled by Mr Black.

The independent trustee resigned just prior to the matter being heard.  However, when costs were considered, this did little to reduce the award against the trustee.

The trustee, which was a corporate trusteee that acted for 350 other trust clients, argued that it ought not be liable for any costs, amongst other reasons because:

• it was a “titular” plaintiff and had nothing to gain from the proceedings
• there were other parties who could bear the costs, namely Mr Black personally and Mr and Mrs Black in their capacity as trustees
• if the trustee had resigned sooner, it would not be liable so it should be treated as if it had seeing as it could have, even thought it didn’t (seriously)
• if there is an award against it there will likely be consequences for the other trust clients.

The High Court was not moved finding that:

• the independent trustee had a duty to be involved in decision making rather than “mindlessly rubber [stamping] the wishes of its co-trustees”
• there was no basis to displace the general rule that costs follow the event
• the consequences of a possible liquidation on other trusts of which it was a trustee was not a relevant factor.

Costs were awarded jointly and severally with a 50% uplift.  It could have been worse: the indemnity costs sought (but declined by the judge) amounted to over $231,000.

By way of general observation, given the history of the Newmarket Trustees matter and the earlier Court of Appeal decision in CIR v Chester, the question is simply begging to be asked: why, why, why are professionals still using single uncapitalised trustee companies to act for multiple clients, and at what point will this be recognised as negligent practice?  What advice is given to clients when these trustees are appointed?  And why is it still accepted and believed that such trustees can then hide behind the notion that everything was the other trustee(s)’ responsibility.  Trustees are permitted to delegate in limited circumstances.  Court proceedings are not one of them.  This is not the first cost award against trustees.  How many more?  Being a trustee is a serious and risky business. 

References:

• Black & Ors v Giltech Precision Castings (2004) Limited [2012] NZHC 2117
• Commissioner of Inland Revenue v Newmarket Trustee Limited [2012] NZCA 351 available at Judicial Decsions Online
• Commissioner of Inland Revenue v Chester Trustee Services Limited [2003] 1 NZLR 395