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Trusts

Better the devil you know …

Delegation is only permissbile between trustees in limited circumstances.  These circmstances can be proscribed by the deed of trust or the Trustee Act.  When dealing with trustees, unless all trustees are party to any decision or contract it is extremely important for any contracting party to establish whether the trustee being dealt with has the delegated authority of the remainder of the trustees.  Where a delegation is made the delegation must be express and not something later determined to have been permissible.

The difficulties that can arise when parties are not dealing with all of the trustees is highlighted in Ponniah  v Palmer.  The case arose following security documents that allowed a caveat to be lodged on the title to trust property that were executed by the trust’s settlor and purported “manager”.  When an application was made that the caveats not lapse the question arose as to whether the trustees had made a unanimous decision to mortgage the trust property, and where that could not be evidenced, whether the trust’s “manager” was acting as the trustees’ delegate.  While it was clear that the trustees had made certain delegations, there was no basis for the delegated authority to be enlarged in the way alleged.

When dealing with trustees it is essential that there is clarity regarding authority and a best practice approach requries valid unanimous or majority decisions (in accordance with the terms of the deed of trust) or clear terms of delegation.

Without this the devil you know may well be a devil in disguise and not at all whom you thought you were in business.

References:

  • Ponniah  v Palmer  [2012] NZHC 1574
  • Ponniah  v Palmer  [2012] NZCA 490
  • Niak v Macdonald [2001] 3 NZLR 334

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